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General Banking and Foreign Exchange Management of National Bank Limited

Internship Report
Submitted by: Rahman H. Shahriar ID# 07-09011-2 BBA Program (Accounting & Finance)

UNDER THE GUIDANCE OF AND SUBMITTED TO: Mahal Ishter Shitee Department of Accounting and Finance American International University-Bangladesh


1.1 Background of the study: This report is prepared as the degree requirement of BBA, Institute of Business Administration, American International University-Bangladesh . As practical orientation is integral part of BBA, I was sent to the National Bank Ltd, New Eskaton Branch to have real life exposure on a 90 days internship program (from March 01 to May 01, 2010). The academic study has a great value when it has practical application in the real life. Theoretical knowledge has little significance unless it is applicable in the practical life. In order to consolidate the theoretical learning some practical exposure is need. With this motive in view this intern report titled A Study on General Banking and Foreign Exchange Management of National Bank Ltd. is prepared to show the reporting, analyzing and analytical ability of the individual knowledge seeker.

1.2 Rationale of the Study: As a student of BBA, Major in Accounting and Finance I always been fascinated to build a carrier in a financial institution. Through this internship I have got a chance to work in a financial institution like National bank Ltd. While working in a countrys one of the largest and oldest private-sector commercial bank, with years of experience, I realized how a bank contributes to a countrys economy and how could be a foreign exchange division so important for a bank and why banks always try to give more emphasize on proper management of its foreign exchange divisions. We all know that Bangladeshs economy basically depends on its Agriculture, exporting Readymade Garments and foreign remittance. Every year also she has to import products ranging from capital machineries to daily life commodities to meet up her growing demand. Today in open market world business firms are no more constrained in to their domestic market. They are also letting them engage with their foreign counterparts through export and import. With the help of state of the art technology like internet, hi-speed transportation system doing millions of dollar

transactions are no more science fiction has become daily life chores in business world of Bangladesh. And financial institutions mostly banks play very vital role in these sectors. Banks help business firms to import goods from foreign countries and in exporting goods to other countries through its foreign exchange wing and expertise. All this foreign deals are being true through the bank; to be more specific through foreign exchange division of bank. For these all reasons I do believe the knowledge and experience I will congregate while working on this report titled A Study on General Banking and Foreign Exchange Management of National Bank Ltd. will give me a apparent idea about the mechanism of general banking and its foreign exchange management. With this motive in view I am proposing to do my intern report titled A Study on General Banking and Foreign Exchange Management of National Bank Ltd.

1.3 Statements of the Problems: What is the condition of the Economic and Banking sectors of Bangladesh? How National Bank Ltd. has come to its present state? How National Bank Ltd operates its general banking? How Foreign Exchange management system of National Bank Ltd. is running? What are the problems of National Bank Ltd. in foreign Exchange management?

1.4 Scope of the Study: The academic study has a great value when it has practical application in the real life. Theoretical knowledge has little significance unless it is applicable in the practical life. In order to consolidate the theoretical learning some practical exposure is need. With this motive in view this intern report titled A Study on General Banking and Foreign

Exchange Management of National Bank Ltd. will enhance the analyzing and analytical ability of the individual knowledge seeker. 1.5 Limitations of the study: This study has been conducted with the motive to prepare a report on the Banks general activities and state of affairs in foreign trade. On doing the study, I personally came across some problems that may be cited as the limitations of the study, which are as followsVery inadequate time to make an in-depth inference about foreign exchange business. Enough information was not available to make a comprehensive study. In many case, Up to date information was not available. Incomplete and obscure data. Relevant papers and documents were not available.

1.6 Objectives of the Study: Main Objective: To be proverbial with General Banking and Foreign Exchange Management of National Bank Ltd. Other Objectives: To observe the Economic and Banking sectors of Bangladesh. To overview National Bank Ltd. To show foreign Exchange management system of National Bank Ltd. To identify the problems of National Bank Ltd. in foreign Exchange management. To generate appropriate recommendations regarding the problems of National Bank Ltd. in foreign Exchange management.

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

Primary sources of information: Face to face conversation with the respective officer of the branch Face to face conversation with the clients Relevant file study as provided by the officer of the concerned organization

Secondary sources of information: Annual report of the National Bank Ltd. Periodicals NBL listed by the Bangladesh Bank Different books, articles etc.


2.1 Company Overview:

National Bank Limited was established as the first hundred percent Bangladeshi owned Bank in the private sector. The then President of the People's Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong. National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector Bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with the passage of time after facing many stress and strain. The member of the board of directors is creative businessman and leading industrialist of the country. To

keep pace with time and in harmony with national and international economic activities and for rendering all modern services, NBL, as a financial institution automated all its branches with computer network in accordance with the competitive commercial demand of time. Moreover, considering its forth-coming future the infrastructure of the Bank has been rearranging. The expectation of all class businessman, entrepreneurs and general public is much more to NBL.

2.2 Nature of Business:

The Bank engaged in all types of commercial Banking services within the stipulations laid down by Bank Companies Act 1991 and directives as received from Bangladesh Bank from time to time. The Bank within the stipulations laid down by Bank CompaniesAct-1991 and directives as received from Bangladesh Bank from time to time provides all types of Commercial Banking Services. Mainly National Bank Limited collects deposit from the people at lower rate and invests the same to the people again at higher rate. And difference between lower rate of deposit and higher rate of investment is the earnings of the Bank. National Bank Limited mainly invests in industrial sector like short-term, middle term as well as long term for import of capital machineries; establish new industry and working capital assistances with this Bank plays a significant role in Bangladesh economy. The function of the Bank mainly three categories: a) General Banking b) Credit and investment c) Foreign Trade (Import, Export & Remittance)

2.3 Principles and values:

The National Bank Limited is committed to five core business principles: 1) Outstanding customer service. 2) Effective and efficient operations. 3) Strong capital and liquidity.

4) Prudent lending policy. 5) Strict expense discipline. 6) Loyal and committed employees who make lasting customer relationships and International teamwork easier to achieve support the business principles. 7) National Bank Limited also operates according to certain key business values. 8) The highest personal standards of integrity at all levels. 9) Commitment to truth and fair dealing. 10) Hands-on management at all levels. 11) Commitment to quality and competence. 12) A minimum of bureaucracy. 13) Fast decisions and implementation. 14) Putting the teams interests ahead of the individual's. 15) The appropriate delegation of authority with accountability. 16) Fair and objective employer. 17) A diverse team.

2.4 Vision:
Ensuring highest standard of clientele services through best application of latest information technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country are our cherished vision.

2.5 Mission:
Effort for expansion of our activities at home and abroad by adding new dimensions to our banking services are being continued unabated. Alongside, we are also putting highest priority in ensuring transparency, accountability, and improved clientele service as well as to our commitment to serve the society, through which we want to get closer and closer to the people of all strata. Winning an everlasting seat in the hears of the people as a caring companion in uplifting the national economic standard through continuous s up gradation and diversification of our clientele services in line with national and international requirements is the desired goal we want to reach.

Composition of the board

Zainul Haque Sikder Honorable Chairman Prof. Mahbub Ahmed Director Zakaria Taher Director Rick Haque Sikder Director A K M Enamul Haque Director Lt. Col. (Rtd) Md Aziziul Ashraf Director Praveen Haque Sikder Director Alhaj Khalilur Rahman Director Ron Haque Sikder Director Mabroor Hossain Director Selim Rahman Director Capt. Abu Sayeed Monir Director

2.6. Strategy & Strengths:

National Banks Goal is to become a leading provider of integrated financial services for small and medium-sized enterprises (SMEs), institutional investors and high net-worth individual in Bangladesh. The Bank intends to achieve this central goal by taking the following measures.

2.7 Core Values:

National Banks Core Values consists of 6 key elements. These values bind our people together with an emphasis that our people are essential to everything being done in the Bank. We create new by forming teams of specialists in various fields and providing optimal service to our customers

2.8 Corporate Social Responsibility:

Earning the highest level of trust requires the balanced provision of value to four constituents: customers, shareholders, market environment & society and employees. Through this process, the Bank aims to contribute to the sustainable development of society as a whole, and to fulfill corporate social responsibly (CSR). The bank has taken strong initiative in various areas for attaining greater social goals. To reinforce CSR activities, the bank has focused in the areas of employment, education, sports & cultural activities, and disaster relief.

2.9 Business Ideology:

Alongside providing the best services to the clienteles, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy.

2.10 Organizational Strategy:

As the financial services industry is a very competitive industry, the main strategy of NBL is the organic growth to build branches and strengthen their distribution network. They will continue to invest and expand in Bangladesh as fast as local regulations allow.

2.11 Functions of National bank Ltd:

Some general functions of National Bank are given below1) To maintained all types of deposit Accounts. 2) To make investment. 3) To conduct of reign exchange business. 4) To conduct other Banking services. 5) To conduct social welfare activities. 6) To work for continues business innovation and improvements. 7) To bui1d up strong-based capita1ization of the country.

8) To ensure the best uses of its creativity, well disciplined, well manages and perfect growth.

2.12 Training and Training Institute:

Not number, but diversified work efficiency of human resource is the key to sustained progress of an institution. Thus, not merely recruitment of workforce but a regular program for imparting time benefiting training to them is all the more important. With this realization, The National Bank Training Institution (NBTI) was established at Shamoli on 24 October 1989, which is fully residential. Beside faculty members of the Institute, renewed professionals like banker, economists, teachers and researches are invited to deliver lectures in training programs. NBTI has a rich library for use by the trainees. NBL has a program to open a Research and Publication Division soon during the years under review 225 employees attained in training programs arranged by the training institute of the bank. In every batch, 25 trainees can attain in training program with residential facilities.

2.13 Organizational Structure:

Board of Directors Managing Director

Deputy Managing Director

Sr. Executive Vice President

Executive Vice President Senior Vice President

Vice President Senior Assistant Vice President

Assistant Vice President Senior Principal Officer

Principle Officer

Senior officer

Assistant Officer

Junior Officer

Chart 2.1: Organizational Structure

2.14 Source of Fund (%):

Table: Source of Fund of National Bank Limited:
Paid up capital Reserve & Surplus 3.09 6.59

Deposits & other account



2.15 Property & Assets:

Table: Total Property & Assets of National Bank Limited:
Cash & Bank Balance Call Money Investment Loans & advance Fixed assets Other Assets 9338.57 1359.8 12315.2 65129.28 2200.85 1741.06

2.16 Liabilities & Capital:

Table: Total Liabilities & Capital of National Bank Limited:

Borrowing Deposits Other Liabilities Paid up Capital Reserve & Surplus


1539.56 76838.64 4789.82 2846.54 6070.23

Graph 2.16 Liabilities & Capital (in million)

2846.54 4789.82 1539.56




Other Liabilities

Paid up Capital

Reserve & Surplus

2.17 Consumer services Expansion Program of National bank Ltd:

Present age is the age of competition. A good number of new private commercial banks came to banking sector in Bangladesh during the last decade. Foreign banks (Standard chartered, American Express, HSBC, Citibank N.A, etc) also conduct banking business in Bangladesh very successfully. These new generation banks introduced many attractable products for customers. National Bank Ltd. is also introduced many products to attract customers. The products introduced during the last five years are as follows: 1) Monthly Savings Scheme. 2) E-Cash/ATM card. 3) Consumer Credit Scheme. 4) SWIFT Services. 5) Power Card.

2.17.1 Monthly Savings Scheme:

It is an attractable savings project for limited income group people. National Bank Ltd. has got quick response in this project. A depositor can deposit 500-10000 Taka monthly for 3-8 years. Table: Monthly Savings Scheme of National Bank Limited: Monthly Installment 500/1000/2000/3000/4000/5000/Return after 5 years @ 9.00% 20,627/41,255/82,510/1,23,765/1,65,020/2,06,274/Return after 8 years @ 9.25% 37,896/75,791/1,51,583/2,27,374/3,03,166/3,78,957/Return after 10 years 9.50% 70,849/1,41,697/2,83,394/4,25,091/5,66,788/7,08,485/-





2.17.2 E- Cash/ ATM CARD:

ATM service is the dynamic process of electronic technology in modern banking. National bank Ltd. has elevated services to the highest standard by bringing Electronic banking (E-Banking) and ATM services at the doorstep of clients. Today the entire banking system has been undergoing are evolution change in providing improved services to the clients. One of ATM has made the lifestyle of our clients much easier and comfortable. The note able characteristics of ATM are: 1) Payment facility for 24 hours a day 2) Arrangements for payment of bills 3) Instant inquiries 4) Multiple location facility Dhaka, Chittagong, and Sylhet.

2.17.3 Consumer credit Scheme:

National Banks consumer credit scheme gives a great opportunity to buy house and office items on easy installments. This scheme gives an advantage of part payment to cope with high price tags of many necessary home and office appliances. A consumer is the ultimate user of a good. Thus Consumer credit is the credit, which directly comes into the use of consumer. Objectives of Consumer Credit Scheme: The Objectives of Consumer Credit Scheme of National Bank Ltd. is as follows: a) To bring the credit facility to wide range of customers. b) To provide financial assistance to the limited income group people toward buying utility products. c) To help the professionals to raise their living standard. d) To participate in the socio-economic development of the country. Goods and services under the scheme: Under the Consumer Credit Scheme NBL grants pecuniary help for the following goods and services.

a) Private car and station wagon new and reconditioned. b) Refrigerator and deep fridge. c) Air cooler, Air condition, Room-heater, Water Purifier. d) Sewing machine. e) Photocopier f) Generator. g) Other goods that are not mentioned above but are considered essential.

2.17.4 SWIFT Services:

NBL is one of the first few Bangladesh Banks to obtain membership of SWIFT. SWIFT is a members owned cooperative which a first and accurate communication network for financial transaction such as Letter of credit, Fund Transfer etc. By being a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over5700 user institutions in 150 countries all over the world.

2.17.5 Power Card:

In Bangladesh, NBL has first introduced the power card. The use of power card is very easy and the cost of transactions is very low. So anybody can use it like cash to do their daily transaction.

2.18 Market and target customers:

Due to the predecessor Companys involvement financing sector of the country, the bank inherited its top corporate customers. Moreover the bank is involved in import trade financing. Bulk importers of consumer durable, food gains industrial raw materials are its customers. The bank has financed in textile and apparels sectors. The bank has a trade of choosing customer from diversified groups. The bank has first class customers in the construction sectors involved in high-rise building, heavy construction and roads and high way construction.

2.19 Sports and Cultural Activities:

Since its inception, NBL has been playing a pioneering role in sponsoring sports and games in the country. NBL was the sponsor of Metropolis Football League and Senior Division Football League last year. Besides, NBL extended substantial patronization to Bangladesh Olympic Association and Bangladesh volleyball Federation in 2003.TheBank never hesitates to extend its helping hands to the people as in the days of crisis so also in the exuberant happy moments of cultural events.

Economic Analysis and Banking sector in Bangladesh:

In this chapter I am going to focus on the current economic condition of our country. To show the scenario I will present the key economic indicators. After that, I will also explain the effect of loan and advances on our economy. Loan and advances is very much important for the economy because it helps to increase the investment, production, and other different areas. Now I will analysis the economic scenario of our country and the role of loan and advances on the economy.

3.1 Gross Domestic Product (GDP):

GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. GDP is expressed as a comparison to the previous quarter or year. It means that if the year-to-year GDP is growing up this is thought to mean that the economy has grown by that amount over the last year. The GDP at current market price of last 5 years are given below: Table: GDP and its growth rate Year GDP at current Market Price 2005-2006 415728 2006-2007 472477 2007-2008 545822 2008-2009 614795 2009-2010 690571

Growth rate (from previous year) 0% 13.65% 15.52% 12.64% 12.33%

Source: Economic Review 2010, Ministry of Finance. ( Taka in crore) From the table and the graph we can see that GDP is in increasing trend. The highest growth was occurred on the fiscal year 2007-08 that was 15.52%. And in last fiscal year the growth was 12.33%. This growth rate indicates that the income, production, export are increasing in the economy. This is positive sign for the Economy.

3.2 GDP from Financial Institutions

Financial Institutions are one of the sources of the GDP. Although this covers very little portion of the total GDP the growth rate of this sector is increasing. The GDP from financial institutions, its percentage on total GDP, and the growth rate is given in the following table: Table: GDP from Financial Institutions 200520062006 2007 Bank 4995 5797 Insurance 1430 1640 Others 260 307 Total 6684 7744 Percentage on total GDP 1.61% 1.64% Growth rate from previous 0% 15.86% year Source: Economic Review 2010, Ministry of Finance.

20072008 6656 1930 368 8955 1.64% 15.64%

20082009 7613 2201 431 10245 1.67% 14.41%

20092010 8566 2525 504 11595 1.68% 13.18%

( Taka in crore)

The table 2 shows that over the last 5 years financial institutions are covering GDP from 1.61% to 1.68%. In the last fiscal year the GDP from the institutions was Taka 11595 crore where the total GDP was Taka 690571 million. Last year the GDP growth was 13.18%.

3.3 Inflation:
Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. The rate of inflation over the last 5 years is given below: Table 3.3: Rate of Inflation Year

Inflation (12 month average) up to March 2010 2005-2006 7.16% 2006-2007 7.20% 2007-2008 9.94% 2008-2009 6.66% 2009-2010 6.26% Source: Economic Trend May10, Bangladesh Bank

The reason behind

increasing the rate of inflation is the increasing trend of commodity price rising worldwide. Here, the inflation is fluctuating and in March10 the rate of inflation was 6.26%. To keep the inflation in a tolerable level Government has taken some measures. Government decided to increase production for the availability of the commodity as well as monitoring market and started selling

essential commodity to the consumers in open market at reasonable price so that the price level can be kept in a tolerable level. Side by side, to avoid the increasing of inflation by banks it raises Cash Reserve Ratio (CRR) by 0.5% and Statutory Liquidity Ratio (SLR) by .05%. After raising the requirement these get stood at 5.5% and 18.5% respectively. Therefore, banks have to lend less amount of loans and advances that decrease the money supply in the market which will help to keep price level in a tolerable level.

3.4 Economic Purpose-wise Advances:

Now I will show the economic purpose-wise classification of advances by the following table. From the table we can easily understand that loan and advances play a vital role for the economy development. Table 3.4: Economic Purpose-wise classification of advances Agriculture, Industry Working Construction Transport & Fishing & Capital Communication Forestry Financing 2008 13496.83 41821.0 32693.19 12764.04 3294.97 (Sep (6.87%) 6 (16.65%) (6.50%) (1.68%) (21.30% Dec) ) 2009 14065.76 47482.5 35985.01 15084.13 3267.43 (Jul- (6.50%) 1 (16.63%) (6.97%) (1.51%) Sep) (21.94% ) Source: Scheduled Banks Statistics, July-September, 2009, Bangladesh Bank.




69251.9 23063.4 196385.5 4 6 (100%) (35.26% (11.74% ) ) 77000.8 23558.8 216444.5 3 5 (100%) (35.58% (10.88% ) ) (Taka in crores)

The are for

advances provided agriculture, fishing, industry, working

capital financing, constructions, transport, trade, and different other purposes. From the table we can see that the highest priority sector is trade, and industry. The sector where loan are provided less is transport and communication that is 1.51% in last year. In general the amount of advances in each sector is in increasing trend. Banks should lend more on agriculture sectors and transport and communication for the development of the economy.

3.5 Sector-wise Classification of Advances:

Now the following table will present the sector-wise that is public and private sector classification of advances: Table 3.5 : Sector-wise classification of Advances Public Private Total Ratio(public/private) Sector Sector 2008(Oct.9034.38 187351.11 196385. 0.05 Dec.) (4.60%) (95.40%) 5 (100%) 2009 (jul.- 8561.8 207882.72 216444. 0.04 Sep.) (3.96%) (96.04%) 5 (100%) Source: Scheduled Banks Statistics, July-September, 2009 (Taka in crores) From the table we can see that banks are providing its loans and advances about 95% in private sector. The ratio of the public-private was 0.05 in December, 2008.

3.6 Advances Classified by Category of Bank:

Now we will see the advances provided by the different types of banks over the last 2 years from the following table. Table 3.6: Advances Classified by Category of Banks SCB PCB FCB SB 2008 (Oct.- 46705.16 120610.4 14463.18 14606.8 Dec.) (23.78%) ( 61%) (7.36%) (7.44%) 2009 (jul.-Sep.) 48638 138422.6 14051.46 15332.07 (22.47%) (63.95%) (6.49%) (7.08%) Source: Scheduled Banks Statistics, July-September, 2009, Bangladesh All 191079.8 (100%) 216444.5 (100%) Bank.(Taka

in crores)Note: SCB=State-owned Bank, PCB=Private Commercial Bank,

The table and the graph show that Private Commercial Banks are providing the highest portion of advances. In the quarter July-September in 2009 private commercial banks are provided 63.95% advances of total loan and advances. In 2008 the total advances was Taka 191079.8 crore and it increase at Taka 216444.5 crore in the quarter July-September in 2009. From the overall analysis it is clear that the economy of our country is growing positively. And the loan and advances provided by the Banks have significant impact on this economy growth. It helps to accelerate the growth of investment, production, income of the economy.

3.7 Performance and Rating of Banks:

Performance of the banking sector under CAMEL framework, which involves analysis, and evaluation of the five crucial dimensions of banking operations, has been discussed in this chapter. The five indicators used in the rating system are (I) Capital adequacy (ii) Asset quality (iii) Management soundness (iv) Earnings and (v) Liquidity.

3.8 Capital Adequacy:

Capital adequacy focuses on the total position of bank capital and protects the depositors from the potential shocks of losses that a bank might incur. It helps absorbing major financial risks (like credit risk, market risk, foreign exchange risk, interest rate risk and risk involved in off-balance sheet operations). Banks in Bangladesh have to maintain a minimum Capital Adequacy Ratio (CAR) of not less than 9.0 percent of their risk weighted assets (with at 30).

3.9 Foreign exchange risk management:

Foreign Exchange involves purchase and sale of foreign currencies against local currency. Thus Foreign Exchange risk is the risk or chance of loss due to unexpected movement of market price of the currencies of different countries or the price of the assets denominated by foreign currencies. The foreign exchange risk of the Bank is minimal as all the transactions are carried out on behalf of 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 for all of its Foreign Currency Accounts. All foreign exchange transactions are revalued at Mark to Market rate as determined by Bangladesh Bank at the month end. All Nostro accounts are reconciled on monthly basis

and outstanding entries beyond 30 days are reviewed by the management for their settlement. FOREIGN EXCHENGE MANAGEMENT OF NATIONAL BANK LTD.

4.1 Foreign Exchange Operation:

Foreign trade can be easily defined as a business activity, which transcends national boundaries. These may be between parties or government ones. Trades among nations are a common occurrence and normally benefit both the exporter and importer. In many countries, international trade accounts for more than 20% of their national income. Foreign trade can be justified on the principle of comparative advantage. According to this economic principle, it is economically profitable for a country to specialize in the production of that commodity in which the producer country has the greater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investments, technology transfer etc. This trade among various countries causes for close linkage between the parties dealing in trade. The Bank, which provides such transactions, is referred to as rendering international Banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through letter of credit (L/C).

4.2 Foreign exchange:

As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which is known as foreign exchange. The term Foreign Exchange has three principal meanings. First 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 refer to some instruments used in international trade, such as bill of exchange, Drafts, Travel cheques and other means of international remittance. Thirdly, the term foreign exchange is also quite often referred to the balance in foreign currencies held by a country.

In terms of section 2(d) of the foreign exchange regulations 1947, as adopted in Bangladesh, Foreign Exchange means foreign currency and includes any instrument drawn, accepted made or issued under clause (13) of article 16 of the Bangladesh Bank order, 1972, all the deposits, credits and balance payable in any foreign currency and draft cheques, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign countries. In exercise of the power conferred by section 3 of the foreign exchange regulation, 1947 Bangladesh Bank issues license to schedule Bank to deal with exchange. These Banks are known as Authorized Dealers. Licenses are also issued by Bangladesh Bank to persons or firms to exchange foreign currency instruments such as T.C, currency notes and coins. They are known as Authorized Money Changers.

4.3 Functions of foreign exchange department of National Bank Ltd: 4.3.1 Exports:
1. Pre-shipment advances 2. Purchase of foreign bills 3. Negotiations of Foreign Bills 4. Export guarantees 5. Advising/confirming letters letters of credit 6. Advance for deferred payments exports 7. Advance against bills for collection

4.3.2 Imports:
Opening of letter of credit Advance bills Bills for collection Import loans and guarantees

4.3.3 Remittances:
Issue of DD, MT, TT etc. Payment of DD, MT, TT etc. Issue and enhancement of travelers cheques Sale and enhancement of foreign currency notes Non-resident accounts

4.4 The most commonly used documents in foreign exchange:

Documentary letter of credit Bill of Exchange Bill of lading Commercial invoice Certificate of origin of goods Inspection certificate Packing list Insurance policy Proforma invoice/indent Master receipt G.S.P certificate

4.4.1 Documentary Credit:

In simple term a documentary credit is a conditional Bank under taking of payment. Expressed more fully, it is a written undertaking by a Bank (issuing Bank) given to seller (beneficiary) at the request, and in accordance with the instructions, of the buyer (applicant) to effect payment (that is, by making a payment, or accepting or negotiating bill of exchange) up to a stated sum of money, with in a prescribe time limit and against stipulated documents. The customary clauses contain in a L/C are the followings: A clause authorizing the beneficiary to draw bills of exchange up to certain on the opener. List of shipping documents, which are to accompany the bills Description of the goods to be shipped An undertaking by the opening Bank that bills drawn in accordance with the conditions will be dully honored. Instructions to the negotiating Bank for obtaining reimbursement of payments under the credit.

4.4.2 Parties to a letter of credit:

Importer/buyer Opening Bank/ Issuing Bank Exporter/Seller/Beneficiary Advising Bank Negotiating Bank Confirming Bank Paying/ Reimbursing Bank

4.4.3 Bill of Lading:

A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is an evidence of contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constituted a document that is, or may be, needed to support an insurance claim. The details on the bill of lading should includeA description of the goods in general terms not inconsistent with in the credit Identify marks and numbers, if any The name of the carrying vessel Evidence that the goods have been loaded on board The ports of shipment and discharge The names of shipper, consignee and address of the notifying party Whether freight has been paid or is payable at destination The number of original bills of lading issued The date of issuance

A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit.

4.4.4Commercial Invoice:
A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally includes the following information: 1. Date 2. Name and address of the buyer and seller

3. Order of contract number, quantity and description of the goods, unit price and the total price 4. Weight of the goods, number of the package, shipping marks and numbers 5. Terms of delivery and payment 6. Shipment details

4.4.5 Certificate of Origin:

A certificate of origin is a signed statement providing evidence of the origin of the goods.

4.4.6 Inspection Certificate:

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 the contract 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.

4.4.7 Insurance Certificate:

The insurance certificate document must be that specified in the credit cover the risks specified in the credit be consistent with the other documents in its identification of the voyage and description of the goods Unless otherwise specified in the credit

Be a document issued and/or signed by an insurance company or its agent, or by underwriters Be dated on or before the date of the date shipment as evidenced by the shipping documents or establish that cover is effective at the latest from such date of shipment Be for an amount at least equal to the CIF value of the goods and in the currency of credit.

4.5 Import:
Import is foreign goods and services purchased by consumers, firms & Governments in Bangladesh. An importer must have import registration certificate (IRC) given by chief controller of import and exports (CCI & E) to import anything from other country. To obtain IRC the following certificates are required1. Trade License 2. Income tax clearance certificate 3. Nationality certificate 4. Bank solvency certificate 5. Asset certificate 6. Registration partnership deed (if any) 7. Memorandum and Article of Association 8. Certificate of Incorporation (if any) 9. Rent receipt of the business premises

4.5.1 Import procedure:

To import National Bank Ltd., a customer requires1. Bank account 2. Import registration certificate 3. Tax paying identification number 4. Proforma invoice/indent 5. Membership certificate 6. L/C application form duly attested

7. One set of form 8. Insurance cover note with money receipt 9. Others

4.5.2 Import Mechanism:

To import, a person should be competent to be an importer. According to import and Export control Act 1950, the office of chief controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then the person becomes a qualified importer. He is the person who requests or instructs the Bank to open an L/C. He is also called opener or applicant or the credit.

4.5.3 Importers application for L/C limit/margin:

To have an import L/C limit, an importer submits an application to the Bank furnishing the following information1. Full particulars of Bank account 2. Nature of business 3. Required amount of limit 4. Payment terms and conditions 5. Goods to be imported 6. Official security 7. Repayment schedule A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwarded it to the head office credit committee (HOCC). The committee, if satisfied, sanctions the limit and return back to the branch. Thus, the importer is entitled for the limit.

4.5.4 Opening of letter of credit by National Bank:

Opening of letter of credit means, at the request of the applicant (importer) issuance of a L/C in favor of the beneficiary (exporter) by a Bank. The Bank, which opens or issue L/C is called L/C opening Bank or issuing Bank. On receipt of the Importers L/C application supported by the firm contract (indent/proforma invoice) and insurance cover note the Bank scrutinize the same thoroughly and fix-up a margin on the basic of Bank customer relationship.

4.5.5 Before opening a L/C, the issuing Bank must check the following:
L/C application properly stamped, signature verified and margin approved and properly retained. Indent/proforma invoice signed by the importer and indentor/supplier. Ensure that the relevant particulars of L/C application correspond with those stipulated in indentor/proforma invoices. Validity of L/C entitlement of goods, amount etc. conforms to the L/C application. Conversion and rate of exchange currently applied. Charges like commission, F.C.C, postage, telex charge, if any recovered. Insurance cover note in the name of issuing Bank A/C, Importer covering required risks and voyage route. Incorporation of instruction for negotiating Bank as per Banks existing arrangement. Reimbursement instructions for reimbursing Bank

If foreign Bank confirmation is required, necessary permission should be obtained and accordingly advising Bank is advised as per Banks existing arrangement. If added information is required on account of the applicant charges should be recovered from the applicant. In case of issuance L/C, mention rate of interest clearly in the letter of credit.

4.5.6 Liability of Issuing Bank:

As per article 9a of UCPDC 500, an irrevocable credit constitutes a definite undertaking of the issuing Bank, provided that the stipulated documents comply with the terms and conditions of the credit.

4.5.7 Advising of Letter of Credit:

Advising means forwarding of a documentary letter of credit received from the issuing Bank to the beneficiary (exporter). Before advising a L/C the advising Bank must see the following Signature of issuing Bank officials on the L/C, verified with the specimen signature book of the said Bank when L/C received by airmail. If the export L/C is intended to be an operative cable L/C test code on the L/C invariably be agreed and authenticated by two authorized officers. L/C scrutinized thoroughly complying with the requisites of concerned UPPDC provisions. Entry made in the L/C advising register. L/C advised to the beneficiary (exporter) promptly and advising charges recovered.

4.5.8 Advising Banks Liability:

Advising Banks liability is fixed up in Uniform Customs and Practice for Documentary Credits (UCPDC), publication 500.

I. Article 7(a): A credit may be advised to a beneficiary through another Bank (the advising Bank) without engagement on the part of the advising Bank, but that Bank, if it elects to advise the credit, shall take reasonable care to check the apparent authenticity of the credit which it advises. If the Bank elects not to advise the credit, it must so inform the issuing Bank without delay. II. Article 7(b): If the advising Bank cannot establish such apparent authenticity it must inform, without delay, the Bank from which the instructions appear to have been received that it has been unable to establish the authenticity of the credit and if it elects nonetheless to advise the credit it must inform the beneficiary that it has not been able to establish the authenticity of the credit.

4.5.9 Adding confirmation:

Adding confirmation is done by the confirming Bank. Confirming Bank is a Bank which adds its confirmation to the credit and it is done at the request of the issuing Bank. The confirming Bank may or may not be the advising Bank. The advising Bank usually does not do it if there is not a prior arrangement with the issuing Bank. By being involved as a confirming agent the advising Bank undertakes to negotiate beneficiarys bill without recourse to him. Issue L/C and request to add confirmation Review the L/C terms Provide reimbursement Drafts to be drawn on L/C opening Bank Availability of credit facilities Line allocation from the business and ownership units in the importers country Confirm and advise L/C

4.5.10 Amendments to Letter of Credit:

After issuance and advising of a L/C, it may be felt necessary to delete, add or alter some of the clauses of the credit. All these modifications are communicated to the beneficiary through the same advising Bank of the credit. Such modifications to a credit are termed as amendment to a letter of credit. There may be some of the conditions in a credit are not acceptable by the beneficiary. In that cases beneficiary contact applicant and request applicant approaches his Banker with a written request for amendment to the credit. The issuing Bank scrutinizes the proposal for the amendment and if the same is not in contravention with the Exchange Control Regulation and Banks interest, the Bank may then process for amendment. There can be more than one amendment to a credit. All these amendment forms integral part of the original credit.

4.5.11 What is to be done by the Issuing Bank before advising amendments?

The issuing Bank has to Obtain written application from the applicant of the credit duly signed and verified by the Bank. In case of increase of value, application for amendment is to be supported by revised indent/proforma invoice evidencing consent of the beneficiary. In case of extension of shipment period, it should be ensured that relative LCA is valid/invalidated/increased up to the period of proposed extension.

Amendments on increase of credit amount and extension of shipment period both the cases amendment of insurance cover note also to be submitted. Proper recording and filling of amendment is to be maintained. Amendment charges (if on account of applicant) will be recovered and necessary voucher is to be passed.

4.5.12 The following clauses of L/C are generally amended:

1. Increase/decrease value of L/C and increase/decrease of quality of goods. 2. Extension of shipment/negotiated period. 3. Terms of delivery i.e. FOR, CFR, CIF etc. 4. Mode of shipment. 5. Inspection clause. 6. Name and address of the supplier. 7. Name of the reimbursing Bank. 8. Name of the shipping line etc.

4.5.13 Settlement of Letter of Credit:

Settlement means fulfillment of issuing Bank in regard to affecting payment subject to satisfying the credit terms. Settlement may be done under three separate arrangements as stipulated in the credit.

4.5.14 Settlement by payment:

Here the seller presents the documents to the nominated Bank and the Bank scrutinizes the documents. If satisfied, the nominated Bank makes payment to the beneficiary and in case this Bank is other than the issuing arrangement. Bank, then sends the documents to the issuing Bank and claim reimbursement as per

4.5.15 Settlement by acceptance:

Under this arrangement, the seller submits the documents evidencing the shipment to the accepting Bank (nominated by the issuing Bank for acceptance) accompanied by draft down on the Bank at the specified tenor. After being satisfied with the documents, the accepts the documents and the draft and if it is a Bank other than issuing Bank, then sends the documents to the issuing Bank stating that it has accepted the draft and maturity the reimbursement will be obtained in the pre-agreed manner.

4.5.16 Settlement by negotiation:

This settlement procedure starts with the submission of documents by the seller to the negotiating Bank. In a freely negotiable credit any Bank can negotiate documents and if negotiation restricted by the issuing Bank, only nominated Bank can negotiate the documents. After scrutinizing that the documents meet the credit requirement, the Bank may negotiate the documents and give value to the beneficiary. The negotiating Bank then sends the documents to the issuing Bank. As usual, reimbursement will be obtained in the pre-agreed manner. After realizing the telex charge, service charge, interest (if any), and the shipping documents is then stamped with PAD number and entered in the PAD register. Intimation is given to the customer calling on the Banks counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsements are made on the back of the bill of exchange as receipt payment and the bill of lading is endorsed to the effect please deliver to the order of M/S Under two authorized signatures (Bank officers P.A holder). Then the documents are delivered to the importer.

4.5.17 Payment procedure of the import documents:

This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This tasks constitutes the following Date of payment: Usually payment is made within 7 days after the documents have been received.

Preparing sale memo: A sale memo is made at BC rate to the customer. As the T.T & OD rate is paid to the ID, the difference between these two rates is trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID. Requisition of the foreign currency: For arranging necessary fund for payment, a requisition is sent to the International Department. Transmission of telex: A telex is transmitted to the correspondent Bank ensuring that payment is being made.

4.6 Export:
Practically by the term export we mean carrying out of anything from one country to another. From the Bankers point of view- export means sending of visible things outside the country for sale. Export trade plays a vital role in the development process of an economy. With the earning, the country meets the import bill.Although export trade is always encouraged, anybody cannot export anything to any place. Like importer, the exporters are also required to get them registered before entering into export trade. Export Registration Certificate (ERC) given by CCI & E is required for this purpose. The required documents to be obtained ERC are almost same as IRC. When National Bank (authorized dealer) receives a L/C (cable or original) it ascertains the correctness of the test number and the authorized signature. Then the Bank sends the original copy of the L/C to the beneficiary. The export presents the relative documents to the negotiation Bank after the shipment of the goods. The L/C issuing Bank undertakes to honor is obligation only if the beneficiary fulfills the conditions stipulated in the L/C, May namely, the submission of stipulated documents within the stipulated time. Even a slight deviation of the documents from these specified in the L/C may give an excuse to the negotiating Bank. So the negotiating Bank must be careful, promote, systematic and bias-free while scrutinizing the tender documents after careful and thorough examination of the documents,

The Banker has to list out the discrepancies, which may be classified as major or minor, irremovable or removable. The removable discrepancies can be corrected by the tendered or future losses, which may arise due to non-interpretation of proceeds.

The following types of discrepancies may be noted while the negotiating Bank examines the documents: L/C expired Late shipment Amount drawn in excess of the L/C Bill of Exchange not properly drawn Descriptions of the goods differ Bill of lading or Airway bill state Bill of lading classed Insurance cover note as per terms L/C Insurance cover obtained after the bill of lading or Air bill date Enough number of copies not submitted as required by L/C Negotiation under L/C restricted Packing list and certificate of analysis not as per L/C Documents not properly endorsed Full shipment not effective and part shipment prohibited Gross weight and net weight shown in different documents differ Same documents required by L/C not submitted and Documents inadequately stamped

Document with major discrepancies, which could not be negotiated, should be sent on collection basis with the permission of the exporter.

4.6.1 Export Procedure:

The import and export trade in our country are regulated by Import and Export (Control) Act, 1950. Under the export policy of Bangladesh the exporter has to get the valid Export Registration Certificate (ERC) from Chief Controller of Import & Export (CCI & E). The ERC is required to renew every year. The ERC number is to be incorporated on EXP forms and other papers connected with exports.

4.6.2 Registration of Exporters:

For obtaining ERC indenting Bangladeshi exporters are required to apply to the Controller/Joint Controller/Deputy Controller/Assistant Controller of Import and Exports, Dhaka/Chittagong/Khulna/Mymensing/Sylhet/Comilla/Barisal/Bogra/Rangpur/Dinajpur in the prescribed form along with the following documents: Nationality and Assets Certificate Memorandum and Articles of Association and Certificate of Incorporation in case of Limited Company Bank Certificate Income Tax Certificate Trade License etc.

4.6.3 Securing the Order:

After getting the ERC the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent. In this purpose exporter can get help from: Liaison Office Buyers local agent Export Promotion Organization Bangladesh Mission Abroad Chamber of Commerce (local & foreign) Trade fair etc.

4.6.4 Signing the contract:

After communicating with buyer, buyer has to get contracted (writing or oral) for exporting exportable item (s) from Bangladesh detailing commodity, quantity, prices, shipment, insurance and marks, inspection, arbitration etc. After getting contract for sale, exporter should ask the buyer for letter of credit clearly stating terms and conditions of export and payment. The followings 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, preferable confirmed by the advising Bank; The L/C allows sufficient time for shipment and negotiation;

Terms and conditions should be stated in contract clearly in case of other modes of payment: Cash in advance

Open an account Collection basis (documentary / clean)

(Here the regulatory framework is URC 525, ICC publication)

4.6.5 Procuring the materials:

After making the deal and on the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

4.6.6 Shipment of goods:

After that the exporter should take the preparation for export arrange for delivery of goods as per L/C and INCO-terms, prepare and submit shipping documents for Payment/acceptance/negotiation in due time: EXP form ERC (valid) L/C copy Customs duty certificate Shipping instruction Transport documents Invoice Other documents Bill of Exchange (if required) Certificate of origin Inspection Certificate Quality Control Certificate G.S.P Certificate

Phyto-sanitary Certificate

4.6.7 Final step:

After those, exporter submits all these documents along with a letter of indemnity to National Bank Ltd. for negotiation. An officer scrutinizes all the documents. If the document is a clean one, National Bank Ltd. purchases the documents on the basis of Banker-customer relationship. This is known as Foreign Documentary Bill Purchases (FDBP).

4.6.8 Foreign documentary bills for collection:

National Bank Ltd. forwards the documents for collection due to the following reasons: If the documents have discrepancies If the exporter is a new client If the Banker is in doubt

After passing the above vouchers, an inter branch exchange trading debit advice is sent for debiting the NOSTRO account. National Bank Ltd. has NOSTRO account with its reimbursing Bank (American Express Bank in New York). An FDBC register is maintained, where first entry is given when the documents are forwarded to the issuing Bank for collection and the second one is done after realization of the proceeds.

4.6.9 Export Bill Security Sheet:

Scrutinize the export bill on the following points: I. General Late shipment Late presentation

L/C expired L/C overdrawn Partial shipment or transshipment beyond L/C terms

II. Bill of exchange Amount of bill differs with Invoice Not drawn on L/C issuing Bank Not signed Tenor or B/E not identical with L/C Full set not submitted Invoice Not issued by the beneficiary Not signed by the beneficiary Not made out by the name of the applicant Description, price, Quantity, Sales terms of the goods not correspond to the credit Not marked one fold as original Shipping marks differ with B/L & Packing list

III. Packing List Gross weight, Net weight & measurement, number of cartoons/packages differ with B/L Not marked one fold as original Not signed by the beneficiary Shipping marks differ with B/L

IV. Bill of Lading/ Airway Bill Full set of bill not submitted

B/L is not drawn or endorsed Shipping on Board, Freight prepaid or Freight collect etc. notations are not marked on the B/L B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L Shipped on board notation not showing name of pre-carriage vessel/intended vessel Shipping on board notation not port of loading and vessel name (incase bill indicate a place of receipt or taking in charge different from the port of loading) Short form B/L Charter party B/L Description of goods in B/L not agree with that of invoice, B/E & P/L Alteration in B/L not authenticated Loaded on deck B/L bearing clauses or notations expressly declaring defective condition of the goods and /or the packages

V. Others: Non-negotiable documents not forwarded to buyers or forwarded to L/C terms Inadequate number of invoice, Packing list & others submitted Short shipment certificate not submitted

4.6.10 Settlement of local bill:

The settlement of local bill is done in the following ways: The customer submits the L/C to the National Bank Ltd. along with the documents to negotiate National Bank ltd. officials scrutinize the documents to ensure the conformity with the terms and conditions The documents are then forwarded to the L/C opening Bank The L/C issuing Bank gives the acceptance and forwards an acceptance letter

Payment is given to the customer on either by collection basis or by purchasing the documents A LBPD register is maintained to record the acceptance of the issuing Bank. Until the acceptance is obtained, the record is kept in a collection register.

4.6.11 Mode of payment of export bill under L/C:

The most common methods of payment under a L/C are as follows: I. Sight payment credit: In a sight payment credit, the Bank pays the stipulated sum immediately against the exporters presentation of the documents. II. Negotiation credit: In negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the Bank negotiated. III. Deferred payment credit: In deferred payment, the Bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. In National Bank Ltd. (NBL), payment is given to the party at the date of D.A 60-90-120-180 as the case may be. But the Head Office is paid at T.T clean rate. The difference between the two rates is the exchange trading for the branch. IV. Acceptance credit: In acceptance credit, the exporter presents a bill of exchange payable to himself and drawn at the agreed tenor (that is, on a specified future date event) on the Bank that is accept it. The Bank signs its acceptance on the bill returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively, he can discount it in order to obtain immediate payment. V. Advising L/C: When exporter transmits L/C to the Bank for advising than Bank sends an advising letter to the beneficiary depicting that L/C has been issued. VI. Test Key Arrangement: Test Key Arrangement is a secret code maintained by the Banks for the authentication for their massage. It is a systematic procedure by which a test number is given can easily authenticate the same test number by maintaining that same procedure. RBL has test key arrangements with so many Banks for the authentication of L/C messages and for making payment.

4.7 Foreign Remittance:

Fund transfer from one country to another country goes through a process which is known as remitting process. Suppose a local bank has 200 domestic branches and has the corresponding relationship with a foreign bank say-X, maintaining Nostro Account in US$ with the bank. Bangladeshi expatriates are sending foreign remittance to their local beneficiary, through that account. Now, when the Bangladeshi expatriates through other banks of different countries remit the fund to their Nostro Account with X, then the local International Division of Banks Head office 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 letter, verify signature and cheek the account number and name of the beneficiary. After full satisfaction, the branch transfers the amount to the account of the beneficiary and intimates the beneficiary accordingly. But sometimes complexity arises, if the respective local bank has no branch where the beneficiary maintains his account. Then the local bank has to take help of a third bank who has branch there.

X Local Bank

Nostro Account Foreign Bank

B Beneficiary

A Remitter

Fig: Flow Chart of Remittance rocess National Bank Limited is the Authorized Dealer (AD) to deal in foreign exchange business. As an authorized dealer, the bank must provide some services to the clients

regarding foreign exchange and this department provides the service of remitting foreign currencies from one country to another country. In the process of providing this remittance service it sells and buys foreign currency. The conversion of one currency into another takes place at an agreed rate of which the Banker quotes one for buying and another for selling.

4.7.1 Foreign Currency Remitting Procedures:

There are two types of remittance: i) Inward Remittance: Inward remittance covers purchase of foreign currency in the form of foreign Telegraphic Transfer (T.T), Demand Draft (DD) and Bills & Travelers Check, Export Bill etc. sent from abroad favoring a beneficiary in Bangladesh, purchase of foreign exchange is to be reported to Exchange Control Department of Bangladesh Bank from the Letter of Credit (L/C). Basically, these are the formal channels of receiving inward remittance. A local bank receiving indenting commission of local firm also comes under the purview of inward remittance.

Demand Draft Mail Transfer Telegraphic Transfer Bills & Travelers Cheque Export Process

Inward Remittance

Fig: Modes of inward remittance

ii) Outward Remittance: Outward remittance covers sales of foreign Currency by Authorized Dealer (AD) or Formal Channel through issuing foreign Telegraphic Transfer (T.T), Demand Drafts (D.D), Travelers Check etc. as well as selling of foreign exchange under L/C and against Import Bills retired. The Authorized Dealers have to demonstrate utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released. Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.

Demand Draft Mail Transfer Telegraphic Transfer Outward Remittance may be made for following purposes:Letter of Credit Traveling Medical treatment Educational purpose Attending seminar Balance Amount of Foreign Currency Account Profit of foreign companies Technical assistance Letter of Credit (L/C) payment Fair, exhibition for export promotion. Fig: Modes of outward remittance Outward Remittance

4.7.2 Remittance transfer channels:

Foreign Remittance can be transferred in two ways:i) Formal Channel: 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 Union Money Transfer, Nero Money Order, Money Exchanger.

Banking Channel

Post Office

Formal Channel

Money Exchange

Authorized Remitting Channel

Fig: Forms of Formal Channel The legitimate purposes of moving money abroad through formal channel are: To invest To lend To meet trading or personal obligations To safeguard assets against theft or seizure by repressive regimes.

Informal channel Fund transfer from one country to another country through hand by hand or over telephone in an unofficial channel like Hundi. Experts state that remittance collected by

informal Hundi rings are used to finance illegal trades and transactions. Terrorist financing is also made by this sort of channel.


Under Invoicing

Informal Channel

Hundi Fig: Forms of Informal Channel


Informal channels are used for moving money abroad in order to: Deal in arms & ammunitions Traffic drugs Finance terrorists activities Evade exchange regulations or control Evade taxation Disguise or remove proceeds of threat/fraud/bribe Make blackmail payments Pay ransom for kidnappers etc.

4.8 Back to back Letter of Credit:

A back to back letter of credit is a new credit. It is different from the original credit based on which the Bank undertakes the risk under the back to back credit. In this case, the Banks main surety/security is original credit. The original credit (selling credit) and the back to back credit (buying credit) are separate instruments independent of each other and in no way legally connected, although they both from part of the same business operation. The supplier (beneficiary of the back to back credit) ships goods to the importer or supplies goods to the exporter and presents documents to the Bank as is specified in the credit. It is intended that the exporter would substitute his own documents for negotiation under the original credit; his liability under the back to back credit would be adjusted out of these proceeds. The exporter L/C is marked lien and no margin is taken. In RBL paper/documents required for submission for opening of back to back L/C: Master L/C Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC) L/C application & LCA form duly filled in and signed Performa invoice and Indent Insurance cover note with money receipt IMP form duly signed In addition to the above the following papers/documents are also required for export oriented garment industries while requesting for opening of back to back letter of credit Textile permission. Valid Boded Warehouse License. Quota allocation letter issued by Export Promotion Bureau (EPB) in favor of the applicant in case of quota items.

In case the factory premises is a rented one, letter of disclaimer duly executed by the owner of the house/premises to be submitted.

4.8.1 Defective points or clauses appear in the master L/C:

Issuing Bank is not reputed Advising credit by the advising Bank without authentication Port of destination is absent Inspection clause Nomination of specific shipping/Airline or nomination of specified vessel by subsequent amendment B/L blank endorse, to third Bank, to be endorsed to buyer or to third party No subsequent reimbursing clause UCP clause not mentioned Shipment/presentation period is not sufficient Original document to be sent to buyer or nominated agent FCR or HAWB consigned to applicant or buyer Shippers load and count is acceptable L/C shall expire in the country of the issuing Bank Negotiation is restricted

4.8.2 Payment of back to back Letter of Credit:

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing Bank. It may happen that the credit in favor of the seller is not transferable, or although transferable, cannot meet commercial requirement by transfer in accordance with article 46 (UCP) conditions. The seller himself, however, is unable to supply the goods and

needs to purchase them from, and make payable to, another supplier. In this case, it may sometime be possible to use either a back to back credit or a counter credit. Both these concepts involved the issue if a second credit by the seller in favor of his supplier. Under the back to back concept, the seller, as beneficiary of the credit, offers it as security to the advising Bank for the issuance of the second credit. As application for this second credit the seller is responsible for reimbursing the Bank for payment made under it, regardless of whether or not he himself is paid under the first credit. There is, however, no compulsion for the Bank to issue the second credit, and in fact, many Banks will not do so.

Major Findings
The dynamic first generation bank established in 1983 focusing on technology and services At present, NBL has been carrying on business through its 124 branches and 12 SME / Krishi centers (total 136 service locations) spread all over the country. Since the very beginning, the bank has exerted much emphasis on overseas operations and handled

a sizable quantum of home bound foreign remittance. It has drawing arrangements with 415 correspondents in 75 countries of the world, as well as with 37 overseas Exchange Companies located in 13 countries. NBL was the first domestic bank to establish agency arrangements with the world famous Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi nationals. This has meant that the expatriates can remit their hard-earned money to the country with much ease, confidence, safety and speed. NBL was also the first among domestic banks to introduce international Master Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power Card. The Bank has in its use the latest information technology services of SWIFT and REUTERS. NBL has been continuing its small credit programmed for disbursement of collateral free agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving their livelihood. Despite shaken domestic economic condition due to global recession, performance of 2009, the year under review was noteworthy. In 2009, the pretax profit of National Bank stood at 3,197.50 million, registering a growth of 13.03 percent over the previous year and profit after tax & other provisions stood at Taka 2,070.47 million reflecting a growth of 36.45 percent. Further, bank's revenue, loans & advances, deposit and assets registered a growth of 22.98, 28.55, 27.66 and 27.53 percent respectively. Capital adequacy maintained at Tk.9, 124.62 million, which was 13.56 percent against statutory requirement of 10 percent. The earnings per share for the year 2009 was Tk.72.74 compared to Tk.53.31 of previous year. Being a regular tax payer, the bank made a direct contribution of Tk.1, 366.20 million to Government Exchequer in 2009 representing an increase of 79.35 percent over 2008. Detailed facts-figures and dsclosures are available in the financial statements and notes of accounts for the year 2009.

The previous banking system that someone has to go to some specific branch for banking purpose for withdrawing money or depositing is diminishing day by day. Today with the help of modern day computer many banks have gone online that means, the customers can go to any branches for their transactions regardless where they have

opened their account. This has not only been a luxury but a necessity these days. When a customer will see that, they are limited to a certain branch, they would rather choose a different bank where they can use any branches. Since NBL is a thriving bank and willing to capture more market share in the upcoming days, it is high time, the bank implements true online system so that the customers of any branch can do its transaction from any other branch branches near their offices or home or when they travel in other cities etc. The use of computer is important not only for online system but also in everyday process and activities of the employees. This bank still uses traditional paper systems today instead of maintaining computer systems in every aspect. As a result, the work becomes hectic and also mistakes are not always easy to track. By changing their process and use of advanced computer software, the bank can increase employee efficiency and effectiveness. This bank has lots of products to offer already. But these products are more industrial in nature. For general consumer, banks have lots of deposits but not much of credit schemes. Almost all the banks are now providing personal loan, auto loan, house loan etc. It is to be noted that, the bank will earn little profit serving hundreds of customers for personal credit schemes whereas; the bank will earn very high profit by serving just few industrial customers. But it is also to be noted that, serving customer is like a branding. The more customers the bank will serve with their innovative products, the more exposure the bank will get with the help of which, the bank may capture more industrial clients. So, NBL should focus on serving normal consumers.

In the organizational environment we feel very cozy to work in that type of convenient ambience. The premises expedite us for enhancing our knowledge as well as give us a proper safeguard about upcoming future circumstances.The banking industry experienced competitive pressure as the national and international banks operating in Bangladesh

strongly pursued the banking and financing needs of the corporate, retail, SME sector customers through diversification of products and services and extending automated banking service with ATM, Debit card facilities and internet Banking. Besides, rates of profit became very competitive for deposit and lending; Customers are demanding higher rate of return against their deposits. On the other hand, Bangladesh Bank is also asking the banks to reduce their lending rates without adjusting the profit on deposits.

I am working in NATIONAL BANK LIMITED for a period of 3 months in which I have felt very welcome throughout this completion of this paper I have been given the most assistant as possible though some information were kept secret from me. I have learned a lot of things like account opening, L/C opening, Credit Boucher, Debit Boucher, Export & Import and all necessary information regarding modern banking system. I believe the best possible work environment is provided bt National Bank Ltd. And I have received the most assistance in training in this institution.