The report is prepared on the basis of practical experiences at EXIM Bank Ltd. The internship programs help me a lot to learn about the practical situation of a financial. This program helps me to implement my theoretical knowledge into practical realistic environment
In the age of modern civilization Bank is playing its spending role to keep to the economic activity. In fact there is hardly any aspect of development activity whether state inspired or otherwise where Bank do not have a major role to play.
Bank provides means and mechanism of transferring command over resources from those who have an excess of income over expenditure to those can make use of the same for adding to the volume of productive capital. There are large numbers of small saver with small amount of saving who are generally reluctant to invest their surplus income because of their lack of adequate knowledge about complicated investment affaires. The Bank provide them with the safety, liquidity and profitability by means of different saving media offering varying degrees of mix liquidity, return and safety of saving.
Export Import Bank of Bangladesh Limited is schedule commercial Bank is registered by the Bangladesh Bank. EXIM Bank follows the rules and regulations prescribed by the Bangladesh Bank for scheduled commercial Banks.
Bank is a very old institution that is contributing toward the development of any economy and is treated as an important service industry in the modern world. Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is the highest in the initial stage. Modern banks play an important part in promoting economic development of a country. Bank provides necessary funds for executing various programs in the process of economic development. They collect savings from large masses of people scattered throughout the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the financial requirements.
Bank plays a vital role in the economy by providing means of payment and in mobilizing resources. Bank is the most 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 but also expanding the many financial services. In today’s world the life of the people directly or indirectly are within the arena of banking whether conventional or Islamic banking. Although Islamic banking is not a newer concept in Bangladesh as it has started its operation since 1983, very few people are aware about its operation. But things are changing. Islamic banking is also getting popularity in the country.
Internship program is essential for every student, especially for the students of Business Administration, which helps them to know the real life situation. For this reason a student takes the internship program at the last stage of the bachelor’s degree, to launch a career with some practical experience. Against this backdrop, I have completed my three months internship in the EXIM Bank Limited, Panthapath Branch, Dhaka which has helped me a lot to understand the real life situation of banking business.
Origin of the Report
Bangladesh is developing country. A lot of capital is needed to develop this country. Banks are very important financial institution in the economy. The present economic state of Bangladesh demands immediate development of the financial institution. The banks have a lot of area to improve upon. To build up potential future banker there is a practical orientation stage of three month. The report helps to build a perception about day to affairs o the bank.
My course instructor Fahim Muntaha has authorized me to prepare a report on “Customer Satisfaction in EXIM Bank Limited”. She authorized me orally how I can analyze the study. Based on her lecture, I have prepared this report.
The main objective of the study us to develop an understanding about the practical banking activity of EXIM Bank Limited, with special reference to its branch located at panthapath. However, the often related objectives are stated as follows-
- To gather practical knowledge on banking & to compare theory with ongoing practices.
- To understand the Islamic Banking system and its overview
- To know customer service in EXIM Bank
- To observe the foreign exchange operation of EXIM bank Ltd. And their services.
- To understand the different services provident by the bank
- To know the loans and advances of EXIM Bank Ltd.
For preparing this report mainly Primary and Secondary data have been used. Data have been collected from two (2) sources:
- Face-to-face conversation with the respective officers and stuffs.
- Face-to-face conversation with clients visited the branch and practical work experience in the different desk of the department of the branch covered
- Relevant field study as provided by the officer concern.
- Annual report of EXIM Bank Limited
- Website of the EXIM Bank Limited
- Different procedure manual published by EXIM Bank Limited.
The literal scope of the report is to draw the scenario which will be free from imitate and it will try to come up with its maximum reach by giving the related pictures, rationale and nonetheless the factual information. It did apparently depend on the information that has been provided by the organization and also the data that has been collected in general. On the basis of all of this a recommendation has been given as well. Another important fact needs to be mentioned that the population of interest will be represented by collecting the data from available sample of the bank and it’ll be exclusively collected from the EXIM Bank Limited, Panthapath Branch, Dhaka.
Limitation of the Report
This report is not free from limitations. Moreover the topic is so much vast, so I faced some problems while preparing this report. A period of twelve week is not sufficient to collect and understand the insights of bank activities. The limitations acquainted with this report are as the following:
- Time limitation: there was time limitation because the employees of the firm are busy persons.
- Limitation of data: the employees of the bank are not willing to provide all types of information because some data were denied to disclose as it was said that those were confidential.
Another limitation of this report is Bank’s policy of not disclosing some data and information for confidential reason, which could be very much useful.
- Lack of co-operation from the data source
- Lack of coordination
- Technical problems.
Historical background of EXIM Bank Limited
EXIM Bank Limited was established under the rules & regulations of Bangladesh bank & the bank company’s Act 1991, on the 3rd august 1999 with the leadership of late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the social-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligences, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman.
Of its very beginning, EXIM Bank was known as BEXIM Bank, which stands for Bangladesh Export Import Bank Limited. But for some legal constraints the bank renamed as EXIM Bank Limited, which means Export Import Bank Of Bangladesh Limited. The bank starts its functioning from 3rd August 1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad Lakiotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth, and excellent management.
Banking sector in Bangladesh is already an established and prospective site. People of this country are very much with this sector.
To confine a recognizable position in this sector for a new company will be more cutthroat than previously launched companies, because they have to enter with significant features and advanced facilities to magnetize the subscribers of the existing companies.
The authorized capital and paid up capital of the bank are TK. 350.00 Crore and TK. 214.00 Crore respectively. The bank has migrated all of its conventional banking operation into Shariah based Islamic banking since 1st July, 2004.
The gist of EXIM Bank Limited vision is “together towards tomorrow”. EXIM Bank Limited believes in togetherness with its customer, in its march on the road to growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because, EXIM Bank Limited believes the line of excellence is never ending. Bank’s strategic plans and networking will strengthen its competitive edge over others in rapidly changing competitive environment. Its personalized quality service to the customers with the trend of constant improvement will be cornerstone to achieve our operational success.
The bank has chalked out the following corporate objectives in order to ensure smooth achievement of its goals:
- To be the most caring, customer friendly and service oriented bank.
- To create a technology based most efficient banking environment for its customers.
- To ensure ethics and transparency in all levels.
- To ensure sustainable growth and establish full value of the shareholders.
- Above all, to add effective contribution to the national economy.
Eventually the Bank emphasizes on:
- Providing high quality financial services in export and import trade
- Providing efficient customer service
- Maintaining corporate and business ethics
- Making its products superior and rewarding to the customer
- Display team spirit and professionalism
- Fulfillment its social commitments by expanding its charitable and humanitarian activities.
Objectives of EXIM Bank Limited
- To get practical exposure to organization environment
- To understand the system and methodology adopted in conducting day to day banking by EXIM Bank.
- To observe the foreign exchange operation of EXIM Bank Ltd. And their services.
- To get an overall idea of banking from banker’s point of view.
- To review the techniques used by the bank to make it lucrative
- An analysis and discussion of foreign exchange services of the bank
- To evaluation of the present performance of the bank regarding foreign exchange.
- To search the problems of this branch of EXIM Bank Bangladesh Ltd.
- Determining some guidelines to improve the effectiveness of foreign exchange services.
Conventional and Islamic Banking
The distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below:
|Conventional Banks||Islamic Bank|
|1. The function and operating modes of conventional banks are based on manmade principles.||1. The functions and operating modes of banks are based on manmade principles of Islamic Shariah.|
|2. The investor is assured of a predetermined rate of interest.|
|2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).|
|3. It aims at maximizing profit without any restriction.|
|3. It also aims at maximizing profit but subject to Shariah restriction.|
|4. It does not deal with Zakat.|
|4. In the modern Islamic banking system it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat.|
|5. Leading money and getting it back with interest is the fundamental function if the conventional bank.|
|5. Participation in partnership business is the fundamental function of the Islamic banks.|
|6. Its scope of activities is narrower when compared with an Islamic bank.|
|6. Its scope of activities is wider when compared with a conventional bank. It is in effect, a multi-purpose institution.|
|7. It can charge additional money (compound rate of interest) in case of defaulters.|
|7. The Islamic banks have no provision to charge any extra money from the defaulters.|
|8. In it very often, bank’s own interest becomes prominent. It makes no o ensure growth with equity.|
|8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.|
Five Years Financial Performance of EXIM Bank at a Glance
(Amount in million Taka)
|4||Total Capital (Tier I + Tier II)||1592.44||2179.81||3467.37||4569.56||5763.89|
|10||Investment (Shares & Bonds)||1542.99||1633.03||2233.25||2457.72||2894.02|
|11||Total Contingent Liabilities||8999.48||15941.53||18994.09||22632.65||26070.57|
|12||Total Risk Weighted Assets||16780.64||25681.45||32401.36||40706.47||53428.99|
|13||Total Fixed Assets||150.82||166.98||178.43||200.70||293.53|
|16||Profit before provision and tax||835.81||1175.76||1378.67||1908.20||2518.39|
|17||Profit before tax||645.64||1063.30||1199.49||1618.80||1989.55|
|18||Net profit after provision & tax||381.80||555.34||650.29||930.84||1096.63|
|19||Foreign Exchange Business||49312.50||72940.00||96175.10||117900.14||156434.57|
|a) Import Business||26781.00||41432.00||49596.70||61399.40||78540.49|
|b) Export Business||22418.40||31285.00||46234.60||55790.42||76465.62|
|20||No. of Foreign Correspondent Banks||190||222||246||256||278|
|21||Profit earning assets||19746.51||28743.43||35161.48||42357.65||56192.52|
|22||Non profit earning assets||4611.74||4973.27||6632.07||9145.38||12253.94|
|23||Investment as a % of total Deposit||101.33%||91.97%||93.18%||96.75%||93.14%|
|24||Capital Adequacy ratio||9.49%||8.49%||10.70%||11.23%||10.79%|
|26||Cost of fund||8.40%||8.08%||9.17%||9.07%||9.52%|
|27||Net Asset Value Per Share||223.02||217.61||181.57||188.71||186.32|
|28||Earning Per Share (EPS)||60.82||48.61||43.48||34.76||40.95|
|29||Price earning ratio (times)||12.80||10.53||7.74||11.28||7.85|
|30||Return On Assets (ROA) before tax||3.44%||3.49%||3.94%||4.39%||4.45%|
|31||No. of Share holders||17617||15542||18771||23284||24387|
|32||Number of Employees||768||934||1020||1104||1312|
|33||Number of Branches||24||28||30||35||42|
Foreign Exchange & Foreign Trade
Foreign exchange department is international department of the bank. It deals with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as authorized Dealers (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 rights to wealth expressed in terms of the currency of one country are converted into rights to wealth in terms of the 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 terms “Foreign Exchange” is also often referred to the balance in foreign currencies held by a country.
Local Regulations for Foreign Exchange
Foreign exchange transactions are being controlled by the following rules & regulations:
- Foreign Exchange Regulation Act 1947 for dealing foreign exchange business.
- Import and Export Control Act, 1910 is for Documentary Credits.
- Export and Import Policy issued by ministries of commerce
- Time to time circular issued by Bangladesh Banks to control foreign exchange
Public notice issued by CCI&E for any kind of change in foreign exchange transaction. Bangladesh Bank published two volumes in 1996. this is compilation of the instructions to be followed by the authorized dealers in transitions related to foreign exchange.
Foreign Exchange Risk Management by EXIM Bank
Foreign exchange involves purchase and sale o foreign currencies against local currency. Thus foreign exchange risk is the risk or change of loss due to unexpected movement of market price of the currencies of different countries or of the assets denominated by foreign currencies. The foreign exchange risk the bank is minimal as all the transactions are carried out on the customers against underlying foreign exchange transactions. For effective and efficient management of foreign exchange risk, the bank has a well-developed and well- structured Foreign Exchange risk manual and an international standard dealing Room Manual.
Treasury department, with its three distinct portions- front office, mid office and Back office, carries out the whole procedure of foreign exchange. The Front Office independently conducts the transactions and the Back Office of is responsible for verification of the deals and passing of their entries in the books of account. The Mid Office plays a vital role in the process by checking the foreign exchange procedure performed by front and back office and by reporting it directly to the Managing Director of the bank.
The bank maintains shadow ledgers or all its foreign currencies accounts. All foreign exchange transactions are revalued at market-to-market rate as determined by Bangladesh Bank at the month- end. All NOSTRO accounts are reconciled on monthly basic and the management for their settlement reviews outstanding entries beyond 30 days.
Imports of goods into Bangladesh is regulated by the Ministry of commerce and industry interims o the Import and Export and (control) Act, 1910, with Import policy orders issued by annually, and Public Notices 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 imported to meet the local needs of the people. To import, a person should be competent to be and 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 )
- Payment Against Trust receipt ( PTR )
- Loan Against Imported Merchandise ( LIM )
Letter of Credit
A letter of credit is a letter issued by a bank (know as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter gave been complied with. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit.
Types of L/C :
There are twelve types of letter of credit but mainly used only 3 types:
iii. Add confirmed Credit.
i. Revocable Credit :
A revocable credit is a credit that can be amended or cancelled by the issuing bank at any time without prior notice to the seller.
In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the \goods are in the transit and before the document are presented or although presented before payment has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread.
ii. Irrevocable Credit :
An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the seller satisfies the terms and conditions. This sort of credit is always performed to revocable credit.
Sometimes letter of credits is marked as either ‘with recourse to drawer’ or ‘without resource to drawer’. EXIM Bank mostly used Irrevocable Letter of credit without Resource.
iii. Add confirmed Credit :
When a third bank provides guarantee to the beneficiary to make payment, if issuing bank fail to make payment, the L/C is called confirmed L/C. In caser of a confirmed L/C a third bank adds their confirmation to the beneficiary, to make payment, in addition to that of issuing bank. Confirmed L/C gives the beneficiary a double assurance of payment
Parties to a Letter of Credit :
The parties of letter of credit areas follow:
- Importer- Seller who applies for opening the L/C.
- Issuing Bank- It is the bank which opens/issues a L/C on behalf of the importer.
- Confirming Bank- It is the bank, which adds its confirmation to the credit and it is done at the request o issuing bank. Confirming bank may or not be advising bank.
- Advising / Notifying Bank- is the bank through which the L/C is advised to the exporters. This is actually situated in exporter’s country. If may also assume the role of confirming and/ or negotiating bank depending upon the condition of the credit.
- Negotiating bank- is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may not be the same. Sometimes it can also be confirming bank.
- Paying/ Accepting Bank- is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
- Reimbursing bank- is the bank which would reimburse the negotiating bank after getting payment- instruction from issuing bank
Step 1- Registration with CCI&E:
- For engaging in international trade, even trader must be first registered with the Chief Controller of Import and Export (CCI&E).
- By paying specified registration fees to the CCI&E- the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.
Step 2- Determination terms of credit:
- The terms of the letter of credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of he beneficiary and opener, tenor of the bill of exchange-period and mode of shipment and of destination, nature of credit, expiry date name and number of sets of shipping documents etc.
Step 3- Proposal for Opening of L/C:
To have an import L/C limit an importer submits an application to department to EXIM Bank. The proposal contains the following particulars:
- Full particulars of the bank account
- Nature of business
- Required amount of limit
- Payment terms and conditions
- Goods to be imported
- Offered security
- Repayment schedule
Step 4- Submission of documents by importer to the banker:
- For opening L/C, the importer is required to fill up a prescribe application from provided by the banker along with the following documents:
|1. L/C Application from||7. Beneficiaries credit report|
|2. Filled up LCA from||8. Filled up amendment request form|
|3.Pay Order for insurance||9. IMP form|
|4. Pro-forma invoice||10. Insurance cover note and money receipt|
|5. Tax identification number||11. No Objection Certificate (NOC)|
|6. Import registration certificate||12. VAT certificate|
Step 5- Opening of L/C by the bank for the opener:
- Taking filled up application form from the importer.
- Collects credit report of exporter from exporter’s country through his foreign correspondence there.
- Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own where it is addresses to him or merely hand over the original L/C to the beneficiary if it is so addressed.
Step 6- Shipment of goods and lodgment of documents by exporter:
- Ships the goods to the destination of the importer country.
- Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the opening banker with L/C:
|1. Bill of Exchange||6. Packing List|
|2. Bill of Lading||7. Advice Details of Shipment|
|3. Commercial Invoice||8. Pre-shipment Inspection Certificate|
|4. Certificate of Origin||9. Vessel particular|
|5. A certificate stating that each packet contains the description of goods over the packet.||10. Shipment Certificates|
Step 7- Lodgment of documents by the opening bank from the negotiation bank:
After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retaining the document. At this time many thing can happen. These are indicated in the following:
- Discrepancy found but the importer accepts- no problem occurs in lodgment.
- Discrepancy found and importer not agreed to accept- In this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the term of L/C
- Documents are OK but importer is willing to retire the documents- In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD
- Everything is OK but importer fails to clear goods from the port and request bank to clear- In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s account and in banking it is called LIM.
Step 8 – Retirement:
The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR (Loan against Trust Receipt).
There are three types of import financed by the EXIM bank
A. Loan against Trust Receipts (LTR):
Advance against a “Trust Receipt” obtained from the customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the bank as security are given without payment. However, for such advances prior permission/sanction from head office must be obtained.
The customer holds the goods or their sale-proceeds in trust for the bank, till such time, the loan allowed against the Trust Receipts is fully paid off.
The trust receipt is a document that creates the banker’s lien on the goods and practically amounts to hypothecation of the sale in discharge of the lien.
B. Loan against Imported Merchandise (LIM):
Advance (Loan) against the security of merchandise imported through the bank may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their landed cost, depending on their categories and credit restriction imposed by the Bangladesh Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.
C. Payment against Document (PAD):
Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim advanced connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customer’s authority. It falls under the category of “Commercial Loan”.
Source of Finance
Import may be allowed under the following sources of finance:
i. Cash foreign exchange (balance of the foreign exchange reserve of Bangladesh Bank)
ii. Foreign currency accounts maintained by Bangladeshi nationals working/living abroad.
b) External Economic Aid.
c) Commodity Exchange.
Volume of Import
The following table and figure show last five years volume of import of EXIM Bank.
Volume o Import
- If we see the last five years volume of import, it increases every year
- The highest volume is Tk 78540.49 million in 2008
- The lowest volume is Tk. 26781.00 million in 2004
- The growth rate of volume of import in 2008 is ………..%
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 Imports 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 Imports and Exports (CC & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&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 forms and other documents connected with export.
Step 1- Registration of Exporters:
For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribe form along with the following documents:
- Nationality and assets certificate,
- Memorandum and Article of association and “ Certificate of Incorporation” in case of “ Limited Company”,
- Bank Certificate,
- Income Tax Certificate,
- Trade License etc.
Step 2- Securing the Order:
After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent.
In this purpose the exporter may get help from
- Liaison Office
- Buyer’s local agent
- Export Promotion Organization
- Bangladesh mission abroad
- Chamber of Commerce (Local & Foreign)
- Trade fair etc.
Step 3- Signing the Contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc.
Step 4- Receiving letter of credit:
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and condition of export and payment. The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit:
- The terms of the L/C are in conformity with those of the contract;
- The L/C is an irrevocable one, preferably confirmed by the advising bank;
- The L/C allows sufficient time for shipment and negotiation.
* Terms and conditions should be stated in the contract clearly in case of other mode of payment:
- Cash in advance ,
- Open account,
- Collection basis (Documentary/ Clean)
Step 5- Procuring the materials:
Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C and prepare and submit shipping documents for payment/ acceptance/ negotiation in due time.
* Document for shipment:
- EXP form,
- ERC (valid)
- L/C copy,
- Customer Duty Certificate,
- Shipping Instruction,
- Transport Documents,
- Insurance Documents,
- Other Documents,
- Bills of Exchange (if required)
- Certificate of Origin
- Inspection Certificate,
- Quality Control Certificate,
- G.S.P Certificate,
- Photo-sanitary Certificate
Step 7- Final Step:
Submission of the documents to the Bank for negotiation
- Checking of export documents: After getting the documents banker used to check the documents as per LC terms.
- Negotiation of export documents: If the bank accepts the documents and pays the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. If the bank does buy the LC then the bank normally acts as collecting bank.
- Realization of proceeds: This is the period when the issuing bank has realized the payment.
- Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment.
- Issue to proceeds realization certificate (PRC): Bank has to issue proceed realization certificate of export LC to the supplier/ exporter for getting cash assistance.
After scrutinizes all the documents, if the documents are clean, EXIM Bank purchase the documents on the banker- customer relationship. This is known as Foreign Documentary Bill Purchases (FDBP).
Export financing activities of the bank
Financing export constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract.
- Pre-shipment credit
- Post-shipment credit
Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporter the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulation.
This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises, as the exporter cannot afford to wait for a long time for without paying manufacturers/ suppliers. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force.
Volume of Export
The following table and figure show last five years volume of export of EXIM Bank.
Taka in million
|Volume of Export|
- If we see the last 5 years volume of Export, it increases every year.
- The highest volume is Tk76465.62 million in 2008
- The lowest volume is Tk 22418.40 million in 2004
- The growth rate of this volume in 2008 is …………%
“Foreign Remittance” means purchase and sale of freely convertible foreign currencies as admissible “Foreign Exchange Regulations 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 out ward foreign remittance.
In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of import, export, travel and other purposes. However, specifically foreign remittance means sale & purchase of foreign currencies for the purpose other than export and import. As such, this chapter will not cover purchase & sale of foreign currencies on account of import & export of goods.
Remittance procedure of foreign currency
Foreign remittance takes place in two ways-
1. Inward remittance
2. Outward remittance
Remittance comes from foreign countries to our country is called inward remittance. To the bankers or Ads inward remittance means purchase of foreign currency by authorized dealers. Generally, inward remittances are received by draft, mail transfer, TT, purchase of foreign bills & travelers Cheque, export bills. Basically, these are the formal channels of receiving inward remittance. A local bank also receives indenting commission of local firm also comes under purview of inward remittance.
Remittance from our country to foreign countries is called outward foreign remittance. On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance. The authorized dealers must utmost caution to ensure that foreign currencies remitted or released by them are used only for the purpose for which they are released. Outward remittance may be made by appropriate method to the country to which remittance is authorized. Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.
Outward remittance may be made for following purpose-
II. Medical treatment
III. Education purpose
IV. Attending seminar etc.
V. Balance amount of F.C account
VI. Profit of foreign companies.
VII. Technical assistance
VIII. New exporters up to USD 6,000/- for business promotion
IX. F.C. remittance can be made for fare, exhibition from export retention quota.
Foreign Remittance Process
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. The bank hag corresponding relationship with a foreign bank say –“X”, and maintaining “Nostro Account” in US $ wit the bank. Bangladeshi expatriates are sending foreign remittances 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 some times the 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.
Fund transfer from one country to another country through official channels, i.e. banking channel, post office, and other private service channels, such as- Western money order, Neno money order etc.
The legitimate purposes for moving money abroad through formal channel are
- To invest
- To lend
- To meet trading/ Personal obligation
- To safeguard assets against theft or seizure by repressive regimes.
Fund transfer from one country to another country through hand or over telephone in an unofficial channel like as “Hundy”. Haque (1992) comments, that remittance collected by informal “Hundy” rings operating in Middle East counties and UK are also used to finance illegal trade and transactions.
Islam (2000) observes that as informal channel is needed for illegal trade of goods, as well as gold and drug into Bangladesh, and therefore, helping the ever-present problem of capital flight out of Bangladesh.
Criminals use informal channel for moving money abroad because of-
- Dealing in arms & ammunition
- Drug trafficking
- Financial terrorist activities
- Evasion of exchange regulations/ control
- Evasion of taxation
- Disguise or remove proceeds of threat/ fraud/ bribe
- Making blackmail payments
- Paying ransom for kidnappers.
The following table and figure show last five years volume of foreign remittance of EXIM bank.
Taka in million
- If we see the last 5 years volume of foreign remittance, it is unstable.
- The highest volume is Tk 1428.46 million in 2008
- The lowest volume is Tk 113.10million in 2004
- The growth rate of this volume in 2008 is ………. %
Export Import Limited
Of Bangladesh Limited
Chapter Four: Loans and Advances
Loans and advances department
Banking is essentially a business dealing organization with money and credit like all other business activates. Banks are profit-oriented organization. A bank invites its fund many ways to earn more and more profit and most of its income is derived from loans and advances. Bank makes loans and advances to traders, Businesspersons, industrialists and many other persons against security of some cautions policy and sound lending principle in the matter of lending. EXIM Bank is a lending bank in loans and advances and it grant loans in various sectors especially in industry, trade and commerce.
Types of loans and advances
There may be different types of loans and advances given from the commercial banks such as EXIM Bank Ltd. of our country. Loans and advances may be in the following types:
- Term loan.
- Cash credit.
- HouseBuilding loan (general and staff)
- Transportation (car) loan (only for senior staff)
- Consumer credit scheme.
- Loan against Imported Merchandise (LIM).
- Loan Bills Purchases Documentary (LBPD).
- Loan against Other Securities (LAOS).
Brief idea about loans and advances
Cash Credit (CC):
A cash credit is an arrangement by which the customer is allowed to borrow many up to a certain limit. This permanent arrangement and the customers need not to draw the sanctioned amount of money at a time. The borrower can draw the money when required. The borrower can put back any surplus amount, which he/she may be affected frequently. Intersect is charged only to the amount withdrawn and not the whole amount sanctioned cash credit arrangement is usually divide into two ways such as:
- Cash credit pledge.
- Cash credit hypothecation
Cash credit pledge:
In case of cash credit pledge possession of the goods dealings to bank and ownership of the goods belongs to borrower and bank the possessions of the goods as primary security. The goods stored in go down under lock and key by direct supervision of the bank. If the borrower wants to sell any portion of the pledged goods he/she permission of bank with returning the value of the loan amount. It is therefore regarded as the most secured type of advance
Cash credit hypothecation:
In case of cash credit hypothecation possession of the goods not transferred to the bank and therefore such and advance is no better then a clean loan, such an advance can thus only be granted to a person in whose integrity the banked has full confidence cash credit in the form of ‘Hypothecation’ is normally accompanied with mortgage of immovable properties. The pray/borrower possesses the lock and key of the down.
The Formalities of opening cash credit:
The intending cash credit holder should submit the following documents and being fill-up properly:
- Stock report, rend receipt.
- Trade license.
- Up to date income tax clearing certificate.
- Charge documents.
- Letter of continuity.
- Letter of arrangement.
- DP (Demand Promissory) note.
- Letter of guarantee.
- Letter lien.
- Limit sanctions advice.
- Non-Encumbrance certificate.
Observing the documents the bank authority prepares a CC proposal form that contains the following information:
- Nature of business.
- Banking with EXIM.
- Transition with CD account by the client.
- Allied deposit with SB/STD account.
- Number of adjustment(s) [How many times the CC holder made his/her account nil that means debit balance equal to credit balance]
- Recycling it is the ration of total credit summation to the limit. If the ratio is higher it is better from banker’s point of view.
- Turn over in the account.
By the encasement authority the bank holds the power to encase the FDR the encasement authority at any time in case of borrower’s failure to repay the loan amount with interest in due time.
Based on the above-mentioned information the dealing officer of the loans and advances department prepares recommendation about the prospect of granting the CC loan to the client.
Overdraft is an arrangement between the banker and the customer by which the letter is allowed to withdraw over his/her credit balance in the current account up to an agreed limit. The borrower is permitted for draw and repays any number of times, provided the total amount overdrawn dose not exceeds the agreed limit. Here the interest is charged only for the amount withdrawn over the limit, not for the whole amount. Overdraft is divided into two categories:
Secured overdraft (SOD)
Temporary overdraft (TOD)
Secured overdraft: It is allowed against the full security (i.e. FDR, ICB unit certificates).
Temporary Overdraft: It is allowed to the customer for a very short period of time. But EXIM bank deals only secured overdraft.
This is a special type of loan, which is only provided for the staff of EXIM Bank. Usually AVP and above level officers get this kind facility. This loan is reimbursed on instrument basis and repayable after each month.
House Building loan (general and Staff):
Generally house building loan is providing into two sectors:
Naturally house-building loan is paid for the construction of commercial buildings, land owners etc. procedures for sanctioning house-building loan as follows:-
- Application for sectioning loan.
- Application properly filled-up for credit facilities supplied by the bank.
- Personal net worth statement each director.
- Inquiry form.
Required papers for sanctioning HB loan:
- Copy of general power of attorney.
- Copy of material certificate.
- Copy of engineer’s estimate.
- Copy of projected cash flow.
In case of loan the banks sanction some of money for a certain period of time. The enter amount is one time disbursement and paid in cash or credit loan A/C. the interest is charged on full sanctioned amount @ 16%. The bank generally sanctions loan to establish industry. These types of loans are granted for capital expenditure such as purchase of land, constriction of factory building, purchase of now machinery and modernization of plant. The borrower cannot withdraw this type of loan once repaid in full or in part again.
Formalities for extending project loan
Loan application form:
After receiving the loan application from the borrower the branch scrutinizes the application whether it is viable or not. Loan application form contains the following particulars amongst other detail below.
- Particular description of the project.
- Nature of the project.
- Detail information about the borrower.
- Statements of assets and liabilities of the borrower with declaration.
- Detail information about proposed products, machineries and manpower etc.
- Project cost and source of fund.
- Market for the proposed project
This report is provided by the borrower, which includes the following aspects of the project:
- Marketing aspect
- Technical aspect financial aspect.
- Managerial aspect
- Socio-economic aspect
Before making credit repot to the head office the lending branch takes the credit information to the borrower from the CIB (Credit Information Bureau) of Bangladesh Bank and other financial institutions. For obtaining this report the branch sends ‘Inquiry form’ to CIB duly filled in particulars of the borrower. The report is divided into 5 segments.
It is the reinvestment analysis done by Banker before a project is approved. Project appraisal in the Banking sector is needed for following reasons:
- To ensure repayment of the Bank finance.
- To achieve the organizational goals.
- To establish industrialists in a country.
The main tasks of the project appraisal are to justify the soundness of an investment by the Banker by means of a capital and systematic of the different elements of the project. For this purpose Banks use two types of analysis:
- Lending Risk Analysis (LRA).
- Spread Sheet Analysis (SSA)
Lending risk analysis:
Bangladesh bank issued a letter number BCD (p) 611/13/1290 dated 17-07-1994, which now makes it mandatory for the commercial Banks to implement the LRA approach to credit analysis prior to extending credit facilities to a Borrower.
The modern concept of lending is ‘purpose and production’ oriented and not ‘security’ oriented. The emphasis should be given not no securi9ty rather on he likelihood of repayment, the credit worthiness of the customer soundness and viability of the business etc.
Documentation is a retained statement of facts of proof or evidence arising out of particular transaction, which on placement may bind the parties there to answerable and liable to the court of law for sanction of the charge in question. In this connection Bank for the purpose of security take some charge document from the borrower.
Common compulsory documents:
- A letter of acceptance about the terms and conditions laid down in sanction advice.
- DP note (Depending one the type of borrowers).
- Letter of arrangement.
Documents depending on the type of advance:
In case of loan:
- Letter of disbursement.
- Letter of authority.
- Letter of hypothecation.
- Insurance policy
- Any other document as stated in sanction advice.
In case of cash credit:
- Letter of disbursement in case of renewed go down.
- Letter of authority.
- Letter hypothecation/ Pledge.
- Insurance Policy.
- Letter of continuity.
- Personal guarantee.
- Any other document as stated in sanction advice.
In case of mortgage:
- Mortgage deed (Certified copy).
- Registration receipt in original
- CS/ SA/ RS porcha.
- Up to date rent receipt.
- Non-encumbrance certificate.
- Power of authority.
- Legal opinion from the legal advisor.
- Valuation certificate from the concerned certificate.
- Location map or site plan.
Note: In case of simple mortgage registration of the deed is essential, but in case of equitable registration is not required.
Loan disbursement has to be made after completion of documentation and observation of the sanctioning terms against rising of equity by sponsors as lay down. Each of loan disbursement to be supervised by Bank official that the project and the phase of implementation of the project to be affectivity supervised and borrowers persuaded for completion of project in time. There are main there important factors in the loan disbursement such as:
- Completion of documentation.
- Verification of stocks.
- All-important documentation.
After the disbursement of the loan bank follows the borrower in the following manner:
- Constant supervision.
- Working capital assessment.
- Stock report.
- Break even analysis.
- Rescheduling of repayment.
Loans and advance in whether from granted by the bank to its clients are repayable either on demand or at the expiry of the fixed period or as per repayment schedule agreed upon while granting the facilities. If any loan is not repaid then notices served to the customer. Sometimes legal actions also taken for recover the loan. The overdraft and cash credit is legally in installment and deferral cases in the payment of any installment entire loan usually become immediately recoverable of at the position of the Bank. Banks generally realize their advance under following cases:
If death occur dither of the borrower or the guarantor.
- In the borrower is reported to have committed as Act of insolvency.
- Dissolution of partnership.
- Liquidation of the borrowing company.
- Failure to renew documents sufficiently before the expire of the limitation.
- Deterioration in the financial position of the party.
- If the borrower fails to maintain the stipulated Merlin.
- Change in the Bank’s policy of lending.
- The policy of selective credit control by Bangladesh Bank.
- Detection of any other undesirable feature of accounts
Types of classification of loans
In banking practice there are three types of classified loans. This classification is prepared based on the non-repayment with in particular time fame of the loan; this classification type has been developed by the Bangladesh Bank’s rules and regulations. 4.8.1 Sub-standard loan:
In the borrower does not make any transaction with in 6 or 12 months (neither crediting nor withdrawing money) in his/her loan accent then it would be known as sub-standard loan.
If the borrower does not make any transaction before 18 months and above (neither crediting nor withdrawing money) in his/ her loan account then it would be known as doubtful loan.
Bad or loss (BL) loan:
If the borrower does not make any transaction before 18 months and above (neither crediting nor withdrawing money) in his/ her loan account then it would be known as doubtful loan.
Basis of classification of loans
The Classification is done as per central Bank’s instruction in BCD circular no. 34/1989, BCD circular no. 20/1994. According to these rules and regulation EXIM Banks classifies loan on the basis of the following criteria:
Overdue: If the borrower does not repay the loan instruction within stipulated time frame then the loan would be known as overdue loan.
Limit overdrawn: If the borrower crosses the granted limit of loan then it would be known as limit overdrawn.
Required payment: If the required payment is not made within the particular time then it would be classified required payment.
Legal action: If the Bank takes any legal action at any time against borrower for defaulting the loan repayments then in it would be known a the loan classified based on legal action.
Qualitative Judgments: This is the basis of loan classification upon the borrower performance. If the Bank authority observes that the borrower has the chance not to repay the loan amount within the required time frame than they consider it as qualitative judgment classified loan.
If any borrower fails to pay his /her borrower amount the account is classified as sub-standard, doubtful and bad depending on the period of nonpayment. When the amount of classified loan is big the Bank can not operate Banking functions very smoothly. At that time Bank required provision and then a proportion of net profit transfer to the provision. The main function of provision is to overcome bad and loss on one side, a big amount of provision is good, because the Bank can operate Banking functions and disburse to the new probable sector in the economy to develop the country and on the other hand a big amount of provision is bad, because the amount of reserve is small.
According to the section 126 of contract Act 1872 guarantee can be defined as a contract to perform the premise of discharge of liability of a third person in case of his default. The person who gives the guarantee is called the ‘Surety’ the person in respect of whose default the guarantee is given the called ‘the principal debtor’ and the person to whom the guarantee is given is called the creditor. It is an irrecoverable under taking to pay in case of a certain eventually. Banks generally provide three types of guarantee.
- Bid Bond.
- Performance Guarantee.
- Advance Payment Guarantee.
Bid Band (BB):
Bid band is one type of guarantee given by the Bank. It is no fully secured guarantee. Bank takes full margin this type of guarantee.
Performance Guarantee (PG):
Performance guarantee is fully secured guarantee. Bank gives guarantee to the beneficiary that if the party fails to perform his/ her work then Bank will take the liability.
Advance Payment Guarantee (APG):
If the party takes from the beneficially advance payment to perform them Bank provides guarantee to the beneficially on behalf of the party. It is fully secured guarantee
In recent years, the foreign exchange business of Export Import Bank of Bangladesh Ltd, is increasing at a faster rate. Exim Bank rendering a stable support to the national foreign exchange business. Although the foreign exchange business loading day by day there are also some obstacles around I they are as per observation:
- The EXIM Bank Ltd, patho poth branch is not AD (Authorized Dealer) branch, so while opening a L/C its required to contact with the Nawabpur branch, which is an AD branch of EXIM Bank.
- EXIM bank does not provide assistance in relation with foreign exchange to the small entrepreneur. Small entrepreneur has to keep higher margin sometimes 100% regarding opening a L/C. It mainly gives facilities foreign exchange services to the big shots. As a result their services are not diversified in to the small-scale portfolio. This may cause high financial loss in future.
- Lack o enthusiastic scheme or export & import.
- EXIM Bank performance in volume o export and volume of import are improving year by year but compare to other private banks like South-East Bank Ld, Dutch-Bangla Bank Ltd, and NCC Bank Ltd, it secure second position
- Banks performance in letter o guarantee is improving year by year from 2002 to 2006 but it secure lowest position compare to other private bank taken on account.
- The marketing strategy adopted by the bank is effective but not efficient. The appearance of the bank in the printing media and electronic media has become a matter o fortune
- Foreign currency deposit was increasing year by year from 2002 to 2005 but had 13.3 negative growths in the year 2006. It secures lowest position in comparison with other banks.
- Volume of exchange gain of this bank in improving but South-East Bank Ltd doing better than EXIM Bank.
- Bank performance in foreign remittance business was unstable in the year 2002 to 2005 but it is highest in the year 2006. Compare to other bank it is very much poor.
- I think most profitable and difficult sector of bank is its foreign exchange department. But in this branch there are not sufficient employees to handle its huge activities.
- There is no research and development cell to research and case study.
Recommendations to overcome the drawbacks foreign exchange division of EXIM Bank Ltd are shown below
- For opening a L/C its required to contact with the Pantho poth Branch, which is an AD Branch of Exim Bank. To minimize the time lag proper attempts should immediately taken to convert this branch as an AD Branch.
- Diversified scheme for export and import with fewer margins for L/C should introduced by the bank or small entrepreneur to target a different segment to increase volume of export and import.
- Efficient and attractive marketing appearance of the bank in the printing media and electronic media would also increase knowledge of people about foreign trade. This is very much useful for increase transactions in foreign exchange department of this bank.
- Tight rules and requirements for opening currency account should be relaxed and make it easy and simple.
- EXIM Bank should change its policy regarding foreign currency transaction. It should increase its foreign currency transaction from 10% to at least 30% of its total foreign exchange transaction to complete with other banks.
- To earn more exchange gain, the bank should change its risk adverse policy.
- By charging lower commission this bank can increas3e the volume of transaction related to DD, TT, and TC and thus can improve its volume of foreign remittance.
- Appointment of sufficient and well-trained employee in foreign exchange department would help the branch to perform better.
- Commission’s income occupies the major part of the total of a bank and banks profitability mainly depends on commission earning capacity, so bank should establish a research and development cell for the purpose of introducing an efficient foreign exchange department.
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