1. Introduction 1.1 Origin of the Report: This report has been prepared as a requirement of the internship program.

The re port was based upon the organization Standard Chartered Bank. My organization supervisor was Mr. Tawfiq Ali, Senior Relationship Manager Financial Institutions, and my insti tution supervisor is Dr. Iftekhar Ghani Chowdhury, Professor and Director, Institute of Business Administration, University of Dhaka. The topic, which was decided for doing the report, was duly approved by my institute supervisor. The report will definitely increas e the knowledge of other students to know the banking industry of Bangladesh, and the various services SCB is providing to sustain as leading foreign bank in Bangladesh. 1.2 Objective of the Report : This literature is written on the foreign banking sectors effectiveness in Bangla desh and the role of banks for growth of international trade related businesses in Bangla desh. The report is divided into two parts. In the first phase, it was all about organizat ion part of SCB. On the project part, it focused on the Operational Process and Products of Financial Institution that assists the local banks in international trade busine ss." together with the study on the Opportunities of Local Bill Discounting for Non-Corporate Entities". In addition, in my report, I tried to show the role of other banks in aiding international trade. On the organization part, the objective was to find the fin ancial aspect and various activities of the bank. On the project part, the effectiveness of va rious activities of Financial Institutions. And, lastly I discussed the feasibility an d practical market issues about new ventures like opportunities for local bill discounting f or noncorporate entities were studied. As policies and strategy formulated at the core level wil l dictate and guide the activities of the acceptability of the new product, so cri tical analysis in determining the success or failure of the product is very significant. 1.3 Scope of the Report: The scope of the report was to find the financial aspect of the operation of the bank. In addition, the report was done to find the effectiveness of the Financial Institu tions Departments various services Further more, the report also focused on the feasibi lity study and practical market issues about new ventures and operational procedures of Financial Institutions. The scope of this report is limited to the overall descr iptions of the bank, its services, and its position in the industry, and its competitive advant age. The scope of the study is limited to organizational setup, functions, and performanc es. 1.4 Methodology of the Report: Sample Information

Samples are collected from the institutional clients of SCBs Financial Institutio ns Department. Here, the samples had been picked up on a judgmental basis. For the organization part, much information had been collected from different published articles, journals, brochures and web sites. All the information incorporated in this repo rt has been collected both from the primary sources and as well as from the secondary source s. Primary Source of Data Collecting data directly from the practical field is called primary source of da ta. The method that was used to collect the primary data is as follows: Observation Method: Observation method may be defined as systematic viewing according to concise Oxf ord Dictionary accurate watching, nothing of phenomena as they occur in nature with r egard to cause and effect and mutual relationship. I have observed many of the activiti es of Financial Institutions Department. 2 Other Primary Sources are: Discussion with officials of SCB Face to face conversation with the Institutional clients. Discussions with customers over the telephone & responding to their query. Secondary Sources of Data The secondary data has been collected from the MIS of Standard Chartered Bank. T o clarify different conceptual matters, internet and different articles published in the j ournals & magazines have been used. Secondary Sources are: Annual Publication of Export Promotion Bureau Annual Reports of SCB Other published documents of Bangladesh Bank. Data Collection: Both secondary and primary data are used for preparing this report. But the rese arch was mainly based on the clients survey. Information was collected directly from the c ustomers who are directly dealing with the Standard Chartered Bank through Financial Inst itutions Department. 1.5 Limitations: Limitation, which I have faced while doing my internship report are discussed be low: * As, I had more dependence on the primary sources, so there might be some level of inaccuracy with those collected informations. Though, adequate verification and crosschecking was used, to minimize the error level. 3 * Confidential information regarding past profit or product cost, financial info rmation was not accurately obtained. Alike all other banking institutions, SCB is also v ery conservative and strict in providing those information. In those cases, I have r elied upon

some assumptions, which in result have created certain level of inaccuracy. Stil l, I had tried my best in obtaining those sensitive informations, as much as possible. * Next, many of the analysis on the obtained data are based upon my sole interpr etation. This in result might bring some biases, as lack of knowledge and depth of unders tanding might hinder me to produce an absolute authentic and meaningful report * Time constraint was another limitation restricting this report from being more detailed or analytical. The Relationship Mangers at the operation or strategic level of t he concerned department are awfully busy with meeting their targets. So, it was ver y difficult for me to get them free and obtain some practical ideas regarding thei r expectation and opportunities regarding my topic. * Above all, this internship report was prepared just at the closing month of De cember. So, it was very hard for me to accommodate time for preparing this report. Mostl y, our office timings at SCB are from early morning till 8 p.m. During office hours it s simply hard to manage time for working with the report. And, working with the report af ter regular office hours is quite hectic. 4 Banking Sector In Bangladesh 5 2. Overview of Banking Whoever, being an individual firm, company or corporation generally deals in the business of money and credit is called bank. In our country, any institution, wh ich accepts, for the purpose of lending or investment deposits of money from public, repayable on demand or otherwise, and with transferable by checks draft order an d otherwise can be termed as a bank. The purpose of banking is to ensure transfer of money from surplus unit to defic it units. Bank in all countries work as the as the repository of money. The owners look fo r safety and amount of interest for their deposits with Banks. Entrepreneurs try to obtai n money from the banks as working capital and for long-term investment. These entreprene urs welcome effective and forward-looking advice for investment. Banking sector thus owe a great to the deposit holders on the hand and the entrepreneurs on the other. The y are expected to play the role of friend, philosopher, and guide for the deposit hold ers and the entrepreneurs. Since liberation, Bangladesh passed through fragile phases of development in the banking sector. The nationalization of banks in the post liberation period was intended to safe the institutions and the interest of the depositors. Those handling the banking sect or have

borne the burden of putting banks on reliable footings. Despite all that was don e, some elements of irregularities appeared. With the assertion of the role of the Centr al bank, The Bangladesh bank started adopting measures for putting banking institutions on ri ght track. Yet the performance of public sector management of banks left some negati ve effects in the money market in particular and the economy in general. The agilit y among the borrowers manipulates the banking sector as a whole. In effect, a default cu lture appeared on the scene. The opening of PRIVATE and FOREIGN participants to the banking sector was intend ed to obtain desirable results from banking. The authorization of private banks was designed 6 to create competition among the banks and competition in the form of efficiency with and the productivity in enterprises funded by banks. Unfortunately, for the people, at large banking sector is yet to obtain the credit for efficiency, credibility, and grow th. The clever, among the user of banking services, have influenced the management o f banks, for obtaining short-term and long-term loans. They sometimes showed infla ted to get money for investment in business and industry. Few diverted their loan money to purposes different from the loan proposals, and invested in non-profitable units have failed to repay their loans to the banks. For this reason new entrepreneurs are not getting capital while defaulting entrepreneurs have started obtaining either relief in t he form of rescheduling of the repayment program or additional inevitable money for diversi fied units. 2.1 The Banking Sector in Bangladesh: Domestic banks can be divided into four main groups: Nationalized Commercial Ban ks (NCBs); Private banks established in the early 1980s; and private banks establis hed in 1999: 2.1.1 Nationalized Commercial Banks (NCBs) In general terms; NCBs are large, operationally inefficient and technically insolvent. They are used as vehicles o f government directed lending. These banks enjoy an enormous and stable customer deposit base, which provides a cheap source of funding. In addition, most large government related business is routed through these banks; 2.1.2 Private Banks, 1980s- set up to service the sectors not being addressed by the larger NCBs. Not subject to state directed lending but have generally suffered f rom related lending to directors and their extended families; 2.1.3 Private banks, 1995 six new licenses were granted. These are the better ma naged banks with strong capital base and good asset quality and under a much improved regulatory regime. All the banks clustered in this group have successfully raise

d capital 7 from secondary market and all the shares are now traded in the stock exchange at premium. 2.1.4 New private sector banks. Ten new banks have been granted licenses over th e year 1999. While some bankers complain that the country is over-banked, the more commonly held view, including that of the World Bank, is that there is adequate scope for these banks to survive given currently untapped gaps in the market, fat in e xisting interest margins (currently circa 5%), and efficiency/ service level disparities . It is estimated that up to 70% of the Bangladeshi economy remains un-banked. While thi s appears to imply that the newer banks may move downstream in terms of asset qual ity but in reality the last two sets of new banks are successfully competing with NC Bs (Nationalized Commercial Banks) and foreign banks on the top end market segment. Generally asset quality is poor with the level of non-performing loans (NPLs) at worryingly high levels. Across the whole banking sector, classified loans, as re ported by Bangladesh Bank (BB) in December 2002, the Central Bank, were 34.93%. As a percentage of their own total loan portfolio, non-performing loans accounted for 38.55% of the NCBs loan book, and 22.01% of private banks (both categories). In October 2002, the provisioning requirements changed for past due loans from 180 to 90 days, no w requiring a 20% provision. Generally, provisioning levels are weak, impairing ca pital. It is however necessary to understand why the banks carry such high levels of nonpe rforming loans. Firstly, the legal position of banks recourse is weakened once a loan is written-off; and secondly, BB imposes a six-year moratorium on write-offs. As th e legal system is slow and time consuming, this results in NPLs remaining on the books f or longer than would otherwise be the case in other countries. There is also a sign ificant proportion of NPLs, which is due to non-payment by Government or Government owne d agencies. Lower credit growth in 2002, compared to deposits, has meant that the banks now have excess liquidity. With investment rates in call, money market and government bon ds 8 remaining static at their lowest levels, some banks are now cutting back on thei r longterm deposit rates and are refusing to accept large deposits. Long-term interest rates have traditionally been lower than short-term rates. Th is inverted yield curve is a fall out from the source of long term lending. Long term lendin g was traditionally extended by the NCB s, usually for non-commercial loans, thus sett ing a low benchmark for longer-term funds. Clearly the banking industry is in a very poor state and it will take years to c

lean up. The Government and BB have been working with the World Bank to introduce reforms, including related party lending, restricting lending concentrations to 15% of th e capital base, capital adequacy and bankruptcy laws. The World Bank has indicated that th ere are funds available to assist individual banks improve their capital bases, but this depends on them first making full provision for NPLs. Some banks have also successfully rai sed capital through IPOs (Initial Public Offerings). BB has reaffirmed its intention to continue extension of support to banks through rediscounting. However care shoul d be exercised when taking comfort from BB s (Bangladesh Bank) assertion that it will not allow any bank to fail. While this pledge has held true to date, in effect it me ans that BB will allow a technically insolvent bank to continue in operation with BB guidanc e and "technical" support but BB will not provide a capital injection or write-off gov ernment related bad loans. 9 Organization Part 10 3.Organizational Overview Standard Chartered Bank derives its name after two banks Standard Bank of Britis h South Africa and the chartered Bank of India, Australia and China. The merger to ok place in 1969. Standard Chartered Bank is regulated by the Bank of England and i s a clearing bank in the United Kingdom. The new millennium brought with it two of the largest acquisition in the history of the bank- the acquisition of the Grindlays Bank from the ANZ group for a considerati on of $1.34 billion and acquisition of the Chase Consumer Banking Corporation in the H ong Kong for $ 1.32 billion. These acquisitions demonstrate Standard Chartered Banks firm commitment to the emerging markets. Standard Chartered employs 29,000 people in over 500 offices in more than 50 cou ntries. The group provides consumer-banking services to individuals and small to medium size businesses, and offers Wholesale Banking capabilities to corporate and instituti onal clients. With 150 years in the emerging markets the group has unmatched knowledg e and understanding of its customers in its markets. Standard Chartered recognizes its responsibilities to its staff and to the communities in which it operates. Their 150 years of history gives them a deep better understanding of their markets, their customers , and the local communities in which they operate>It is a strong platform for future growt h. Standard Chartered is holding leading positions in dynamic markets. They are in

some of the worlds fastest growing markets including he United Arab Emirates, India, Chin a, and the markets of South Asia. They are present in many of their markets for several generations and have become a trusted partner to businesses and individuals. In other words, they are trusted and well respected provider of financial products and se rvices. They have built up an enviable knowledge of local markets in Asia, Africa, the Americans and the Middle East. In many cases, they have had a presence for more than a century. Their first two branches were in Calcutta and Shanghai and we have been operating continuously in China for the last 144 years. 11 3.1 Business Activities of the Global Standard Chartered Bank: The bank provides a full range of products and services all around the world, so me of which are mentioned here: 3.1.1Global Consumer Finance: There are seventy-six branches and finance centers under this division in about the countries with a workforce of 1616 employees. Some of the services provided by t his divisions are unsecured personal loans, credit cards and retail store cards, veh icle related leases, etc. 3.1.2 Personal Banking: There are about 410 branches with a workforce of 12,000 employees working under this division in 28 countries. Some of the services provided by this division are var ious kinds of insurance and loans, account maintenance, travelers cheques and money exchang e etc. 3.1.3 Global Corporate and Institutional Banking: There are 350 branches under this division. This division provides services in 4 2 countries. The services provided by this division are International Trade Manage ment, Institutional banking, Treasury, Custody and Cash Management. 3.1.4 Global Custodial Service: There are 17 offices under this division and about 900 staff members, operating in 14 countries and headquartered in Singapore. Standard Chartered Equator fulfils sta ndard Chartered Banks strategic commitment to provide custody and clearing services in the Greater Asia. Standard Chartered Bank has one of Asias leading custodians over 40 years. Equators focus is on the followings: Commitment to equity Dedication to the customer needs Sustained investment in people and systems. 12 3.1.5 International Trade Management: Principle services of this division are to the people are Import Letter of Credi ts(L/C), Import Bills for Collection, Back to Back Letter of Credit, Direct Export Bills for Collection, Bulk Letter of Credit Collection, Bonds and Guarantees. 3.1.6 Global Cash Management: The division is operational in all countries where the group has Corporate & Ins

titutional Banking division. Standard Chartered Bank recognizes the importance of Cash Management to corporate and institutional customers and offers a comprehensive r ange of services and liquidity management. Services provided worldwide by this divisi on with stress on Asian delivery. 3.1.7 Global Institutional banking: Throughout Standard Chartered Banks network of more than 600 offices in over 40 countries, it is very well positioned to provide a wide range of services to ins titutional clients: commercial, merchant & central banks; brokers and dealers; insurance companies; fund managers and others. Offices of emerging markets of Asia, SubSaharan, the Middle East and Latin America are complemented by the branches in t he developed countries such as USA, UK and Japan and banks membership of the clearin g systems in those countries. The Institutional banking group has a network of off ices in 25 countries throughout Asia, North America, Europe, Africa and The Middle East. 3.1.8 Global Electronic Banking: Electronic Banking provides various types of support through a wide range of ope rating systems, sweeping transaction accessories with the provision of reporting featur es or other special functions. 13 3.2 Standard Chartered Bank -- The History Standard Chartered is the worlds leading emerging markets bank headquartered in London. Its businesses however, have always been overwhelmingly international. H ere is the summary of the main history of the Standard Chartered Bank. 3.2.1 The early years Standard Chartered is named after two banks which merged in 1969. They were originally known as the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. Of the two banks, the Chartered Bank is the older ha ving been founded in 1853 following the grant of a Royal Charter from Queen Victoria. The moving force behind the Chartered Bank was a Scot, James Wilson, who made his fortune in London making hats. James Wilson went on to start The Economist, stil l one of the world s pre-eminent publications. Nine years later, in 1862, the Standard Bank was founded by a group of businessmen led by another Scot, John Paterson, who had emigrated to the Cape Province in South Africa and had become a successful merch ant. Both banks were keen to capitalize on the huge expansion of trade between Europe , Asia and Africa and to reap the handsome profits to be made from financing that trade . The Chartered Bank opened its first branches in 1858 in Chennai and Mumbai. A branch opened in Shanghai that summer beginning Standard Chartered s unbroken presence in China. The following year the Chartered Bank opened a branch in Hong Kong and an agency was opened in Singapore. In 1861 the Singapore agency was upgraded to a branch which helped provide finance for the rapidly developing rubber and tin in dustries in Malaysia. In 1862 the Chartered Bank was authorized to issue bank notes in Ho ng

Kong. Subsequently it was also authorized to issue bank notes in Singapore, a pr ivilege it continued to exercise up until the end of the 19th Century. Over the following d ecades both the Standard Bank and the Chartered Bank printed bank notes in a variety of countries including China, South Africa, Zimbabwe, Malaysia and even during the siege 14 of Makeking in South Africa. Today Standard Chartered is still one of the three banks that print Hong Kong s bank notes. 3.2.2 Expansion in Africa and Asia The Standard Bank opened for business in Port Elizabeth, South Africa, in 1863. It pursued a policy of expansion and soon amalgamated with several other banks incl uding the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British Kaffarian Bank and the Fauresmith Bank. The Standard Bank was prominent in the financing and development of the diamond fields of Kimberly in 1867 and later extended its net work further north to the new town of Johannesburg when gold was discovered there in 1885. Over time, half the output of the second largest goldfield in the world passed t hrough the Standard Bank on its way to London. In 1892 the Standard Bank opened for busines s in Zimbabwe, and expanded into Mozambique in 1894, Botswana in 1897, Malawi in 1901 , Zambia in 1906, Kenya, Zanzibar and the Democratic Republic of Congo (D.R.C.), i n 1911 and Uganda in 1912. Of these new businesses, Botswana, Zanzibar and the D.R .C. proved the most difficult and the branches soon closed. A branch in Botswana ope ned again in 1934 but lasted for only a year and it was not until 1950 that the Bank re-opened for business in Botswana. In Asia the Chartered Bank expanded opening offices including Myanmar in 1862, Pakistan and Indonesia in 1863, the Philippines in 18 72, Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some 34 years after the Ch artered Bank appointed an agent in Sri Lanka it opened a branch in 1892 to take advantag e of business from the tea and rubber industries. During 1904 a branch opened in Viet nam. Both the Chartered and the Standard Bank opened offices in New York and Hamburg in the early 1900s. The Chartered Bank gaining the first branch license to be issue d to a foreign bank in New York. 3.2.3 The Impact of War Even the First World War offered opportunities for expansion when the Standard B ank set up a branch in Tanzania shortly after British troops occupied the formerly G erman 15 administered Dar Es Salaam in September 1916. Both banks survived the inter-war years but the world trade slump led to the closure of operations in the Canary Islands

, Liberia, the Netherlands, and Equatorial Guinea. Disaster struck the Chartered Bank s off ice in Yokohama, Japan, when it was destroyed by an earthquake in 1923 killing a number of staff. The Second World War particularly effected the Chartered Bank when Japan occupied numerous Asian countries. 3.2.4 The Post War Years After the Second World War many countries in Asia and Africa gained their independence. This led to local incorporation in some countries, particularly in Africa. Other operations such as those in Iraq, Angola, Myanmar and Libya were nationali zed, while in Indonesia the Jakarta office was destroyed in an attempted coup d etat. In 1948 the Chartered Bank opened in Bangladesh and during 1957 it acquired the Eastern Bank. The Eastern Bank gave the Chartered Bank a network of branches including Aden, Bahrain, Beirut, Cyprus, Lebanon, Qatar and the United Arab Emirates. The Charte red Bank also entered into a joint venture to form the Irano-British Bank which open ed for business in 1959. The bank grew rapidly and had 24 branches when it was national ized in 1981. By the mid 1950s the Standard Bank had around 600 offices in Southern, Cen tral and Eastern Africa. Its network grew substantially in 1965 when it merged with t he former Bank of British West Africa which had some 60 branches in Nigeria, 40 bra nches in Ghana and eleven branches in Sierra Leone in addition to operations in Camero on and Gambia. Despite these acquisitions and expansion into new countries such as Mexi co, South Korea and Oman (1968), both the Standard and Chartered Bank networks were comparatively small. Both viewed the future with some trepidation as the need to protect themselves from acquisition became ever more apparent. Standard Chartered PLC In 1969 the decision was made by the Standard Bank and the Chartered Bank to underg o a friendly merger thus forming Standard Chartered PLC. It was one year later that the descendants of the "Chartered Bank of India, Australia and China" were finally p ermitted to open a representative office in Sydney, Australia. Standard Chartered subsequ ently acquired the UK based Hodge Group, in which it already had a minority shareholdi ng, 16 and the Wallace Brothers Group. The Hodge Group brought to Standard Chartered an extensive network of UK offices specializing in installment credit and industria l leasing, and after a period of rationalization its name was changed to Chartered Trust Li mited. Standard Chartered s operations in Jersey emerged from the integration of other Hodge Group businesses with those of Wallace Brothers Bank (Jersey), Limited. Standard Chartered decided, after the merger, to expand the Group outside its tr aditional markets. In Europe a number of offices were opened including Austria, Belgium,

Denmark, Ireland, Spain and Sweden as well as several major cities in the UK. St andard Chartered also opened offices in Argentina, Canada, Colombia, the Falkland Islan ds, Panama and Nepal. In the USA a number of offices were opened and three banks wer e acquired. These included the Union Bank of California which gave Standard Charte red a presence in Brazil and Venezuela. The opening of a branch in Istanbul in 1986 wa s overshadowed by a far more dramatic event when Lloyds Bank of the UK made a host ile take-over bid for Standard Chartered. Standard Chartered won its right to remain independent but entered into a period of considerable change. By the late 1980s Standard Chartered already had considerable exposure to third world debt. To this were added provisions against loans to corporations and entreprene urs who could not meet their commitments. Standard Chartered reviewed its operations and decided to focus on its core strengths of Consumer Banking, Corporate & Institut ional Banking and Treasury in its well established operations in Asia, Africa and the Middle East. This led to a series of divestments notably in Europe, the United States a nd Africa. During this time staff numbers were reduced; businesses not considered core were sold or closed; associate holdings disposed of; unprofitable branches closed and back of fice functions consolidated. In addition expensive buildings were sold with the proce eds reinvested in the business, and the senior management team was radically changed and strengthened. 3.2.5 Standard Chartered in the 1990s Even within this period of apparent retrenchment Standard Chartered expanded its network, re-opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1 993 17 and Myanmar in 1995. With the opening of branches in Macau and Taiwan in 1983 an d 1985 plus a representative office in Laos (1996), Standard Chartered now has an office in every country in the Asia Pacific Region with the exception of North Korea. In 1 998 Standard Chartered concluded the purchase of a controlling interest in Banco Ext erior de Los Andes (Extebandes), an Andean Region bank involved primarily in trade financ e. With this purchase Standard Chartered now offers full banking services in Colomb ia, Peru and Venezuela. In 1999, Standard Chartered acquired the global trade financ e business of Union Bank of Switzerland. This acquisition makes Standard Chartered one of the leading clearers of dollar payments in the USA. Standard Chartered also o pened a new subsidiary, Standard Chartered Nigeria Limited in Lagos, acquired 75 per cen t of the equity of Nakornthon Bank, Thailand; and agreed terms to acquire 89 per cent of

the share capital of Metropolitan Bank of the Lebanon. 3.2.6 Global presence of Standard Chartered Bank Standard Chartered Bank has its prominence presence in total of 48 countries: Africa Asia Pacific Latin America Middle East & South Asia UK & USA Botswana Cameroon Gambia Ghana Kenya Sierra Leon South Africa Tanzania Uganda Zambia Zimbabwe Australia Brunei Darussalam Cambodia China Hong Kong Indonesia Japan Laos Macao Malaysia Myanmar Philippines Singapore South Korea Taiwan Thailand Vietnam Argentina Brazil Colombia Mexico Peru Venezuela Bahrain Bangladesh India Iran Nepal Oman Pakistan Qatar Sri Lanka UAE Falkland Islands Jersey UK USA 18 3.3 Standard Chartered in Middle East & South Asia (MESA) The MESA region performed well in year 2002. The region accounts for approximate

ly eleven percent of the groups revenues. The integration of Grindlays was successfully completed and the group is now one of the leading international banks in each of its chosen markets in the region. The con tribution of the Groups business in the United Arab Emirates reflects the businesses. Stand ard Chartered now holds leadership positions in most of its key product segments in the UAE. The average number of employees in the Middle East and other South Asia reg ion in 2002 was 2995. 3.3.1 Standard Chartered in Hong Kong Hong Kong remains the Groups largest market, generating one third of the Groups revenue. They have a network of 74 branches. Standard Chartered has been transac ting business in Hong Kong since 1858 and they issue bank notes there. In 2002, Stand ard Chartered became the first FTSE 100 Company to launch a new dual primary listing in Hong Kong. This will make the Group more accessible to Asian investors and will enhance the Groups regional profile. The average number of employees in Hong Kong in 2002 was 4,677. 3.3.2 Standard Chartered in Singapore Standard Chartered has been doing business in Singapore for 144 years and has 20 branches and offices, the largest branch network among foreign banks. The busine ss in Singapore accounts for approximately eleven percent of the Groups revenues. Stand ard Chartered has Qualifying Full Bank Status, which has enabled expansion of the distribution network. In 2002, Asian banker magazine named Standard Chartered th e Best Retail Bank in Singapore. The average number of employees in Singapore in 200 2 was 2,451. 19 3.3.3 Standard Chartered in Malaysia. Standard Chartered is the oldest bank in Malaysia, where there is a network of 2 9 branches. Malaysia is another of the groups core markets with broadly based busin ess as a result of long established franchises. The group continues to expand its Share d Service Center that was opened in 2001 and carries out operations and processing activit y. The Centre in Kuala Lumpur has contributed significantly to improvements in the Grou ps processing and service efficiency. The average number of employees in Malaysia i n 2002 was 1981. 3.3.4 Standard Chartered in other Asia Pacific The group has more than 80 branches and 14 offices in 14 countries across the re gion. In China, Standard Chartered has one of the largest branch networks of any foreign bank and is well positioned for growth and opportunities. The group is developing its Consumer Banking business and has opened branches in Shanghai and Shenzhen. In Thailand, the integration of Nakornthon Bank was successfully completed in 2002. The

average number of employees in other Asia Pacific in 2002 is 4851. 3.3.5 Standard Chartered in India Region Standard Chartered is the largest international bank in India and, following suc cessful completion of the integration of Grindlays, has a combined customer base of 2.4 million in Consumer Banking and over 1200 corporate customers in Wholesale Banking. The group launched its business in Mauritius in 2002 to provide Wholesale Banking se rvices to corporate clients .The shared service centre in Chennai continues to develop rapidly as more services and processes are migrated from other countries. The average numbe r of employees in the India region in 2002 was 5251. 20 3.3.6 Standard Chartered in Africa Standard Chartered continues to be one of the leading banks in sub Saharan Afric a. The group offers consumer banking and wholesale banking services in 13 African count ries with a network of 149 branches and offices. Standard Chartered recently launched operations in the Ivory Coast and re-entered Nigeria. Business in East Africa ha s performed well. Despite difficulties in Zimbabwe, the groups business in Africa h as delivered good results. The average number of employees in 2002 was 5009. 3.3.7 Standard Chartered in United Kingdom and the Americas Businesses in the United Kingdom and the Americas provide services to leading multinationals and major financial institutions, which trade or invest in Asia, Africa, the Middle East and Latin America. In 2003, the businesses in the Americans were extensively restructured to improve efficiency for future growth. The Group also operates a growing off shore banking business based in Jersey. The average number of empl oyee in the United Kingdom and Americas in 2002 was 2098. 3.4 The Acquisition of ANZ Grindlays by Standard Chartered: The main idea behind acquisition and merger is making an investment and usually involves more than mere cash. When two separate legal entities merge every organ ization aspect of both companies are expected to change be it internal or external. Such management decision is taken for a variety of reasons but the ultimate aim is to add up to shareholder s wealth. For banks operating in the consumer and wholesale banking sector, earning depends largely on the interest margin as well as the service charges. F or this increasing customer base is a major concern, for banks operating in foreign coun tries, increasing customer base is not easy since they have to compete with local banks which in many cases are backed by government. This especially true in Southeast Asia w here governments have quite a strict control on the financial market and the institut ions. 21 The government and autonomous banks largely dominate our country s banking secto r. Thus, competing them in interest figure becomes for both foreign and local and f oreign

banks. The only way to attract customer is through providing high quality servic e. Also they have to be very innovative in financial products since they have to compete the government again in highly profitable saving instrument sand low-interest loans. Standard Chartered Bank, the largest and one of the oldest foreign banks in the country has been successfully doing business in corporate and consumer banking sector fo r years. It has introduced many new financial consumer and corporate products like money builder in the market. Recently the bank attracted a great deal of attention thr ough it s acquisition of another foreign bank operating in Bangladesh "ANZ Grindlays" from August 2001, the two competing banks will complete the merger process and operat e from the same platform. This is a concept for a country like Bangladesh where me rger of two large distinct organizations is still far-fetched. However with it s increas ing customer base the service quality seems to have declined. 22 23 United States of Americ a (4) Bahamas(1) Brazil(1) Falkland Islands(1) Sierra Leone(1) Gambia(5) Ghana(20) Cameroon(3) Botswana(15) South Africa(1Z)imbabwe(44) Zambia(14) Uganda(1) Kenya(31) United Kingdom(86) J ersey(1) Qatar(1) Bahrain(5) UAE(6) Oman(1) C hina(15) Macau(1) Hong Kong (80) Taiwan(2) South Korea(1) J apan(1) Philippines(4) Thailand(2) Malaysia(35) Singapore(22) Brunei(15) Indonesia(5) Australia (1) Pakistan(6) Sri Lanka(3) India(28) Nepal(1) Bangladesh(5) Vietnam(2)

Cambodia(1) Iran(1) Peru (6) Tanzania(3) () Number of Offices Myanmar(1) Laos (1) Colombia(13) Mexico(2) Argentina(1) 18 Venezuela(4) 3.5Operating and Financial Review: Summary of Global Performance in 2002 The results for the year ended 31 December 2002 reflects a strong performance wi th profit before tax upto 16 percent from $1089 million to $1262 million. Revenue momentum has been sustained despite tough market conditions, pressure on margins and a low interest rate environment. Costs have been reduced by $28 million without cutting investments in growth businesses and re-engineering the bank. Provisions for bad debts and contingent liabilities were $19 million lower, mainly due to tight control o n risk in wholesale banking where new provisions were lower and recoveries were higher tha n in 2001. The results were adversely impacted by increased Consumer banking bad debts from bankruptcies in Hong Kong, the economic deterioration in Argentina in the first quarter and the difficult economic environment in Zimbabwe, but benefited from a gain on the unwinding of a swap relating to the preference shares purchased in December. In February 2002 the Urgent Issues Task Force of the Accounting Standards Board (UTIF) issued guidance on the application of accounting standards to capital ins truments that have characteristics of both liabilities and shareholders funds. The group h as complied with these requirements and as a result has reclassified its Trust Pref erred Securities and step up Callable Perpetual Trust Preferred Securities from minorit y interests- non equity to liabilities and moved the cost of this capital from minorit y interests- non equity to interest payable. Revenue has grown up three percent to $4,539 million and reflects strong momentu m in Consumer banking outside of Hong Kong. Total Group revenue has felt the impact o f three significant factors in 2002.Firstly, the deliberate action taken to trade revenue to improve the risk profile of the business. Secondly, the deteriorating conditions and hyperinflationary environment in Zimbabwe depressed revenue by $64 million. Thirdly, the Group unwound certain interest rate swaps hedging the $ 659 million of preferenc e shares, which were repurchased in December with again of $57 million. Net interest income increased by six percent driven largely by volume growth, lo wer funding costs and better spreads in Consumer Banking and strong earnings on asse ts and

liability management in Wholesale Banking. The Group also benefited by $57 milli on 24 from the unwinding of interest rate swaps relating to the Groups average interest earning assets rose by $2.9 billion compared to 2001. Net fees and commissions receivables have increased by one percent to $991 milli on compared to $977 million in 2001.The focus on a more sophisticated product set w ithin Global Markets generated higher fees in the Americas and the United Kingdom. In other Asia Pacific, India and MESA growth was largely in unsecured lending in Consumer banking offsetting the impact of bankruptcy containment actions in Hong Kong. Dealing profits have fallen by $ 50 million or eleven percent. Hong Kong, India and MESA performed well, increasing revenue by $22 million through strong trading. However, in addition to the hyper inflationary adjustment and translation losses relating to Zimbabwe, lower spreads and reduced volumes in a number of countries led to a fall in revenue. Total operating revenues were reduced by $ 28 million to $2557 million compared to $2585 in 2001.The benefits of the concentration and operational efficiency progr ams continue and the integration of Grindlays has led to higher than targeted cost s ynergies. This improvement is despite a $41 million charge in Latin America as a result of refocusing the strategy, and has been achieved while continuing to invest for fu ture growth. The cost income ratio for 2002 was 53.6 per cent, compared to 55.8 per c ent in 2001 on a normalized basis. The net provisions for bad and doubtful debts and contingent liabilities were $1 9 million lower than 2001 at $712 million. Wholesale banking improved its position year on year by $ 292 million, despite a $75 million charge for Argentina. This was achieved through a pro-active focus on risk management with a charge of $287 million in 2002 comp ared to $121 million in 2001. Post Tax return on equity (normalized) was 13.4 per cent, up from 12.0 percent i n 2001.This has been achieved through growing high return businesses, cost efficie ncy and active capital management. 25 SCB in Bangladesh 26 3.6 Standard Chartered in Bangladesh The Chartered Bank opened in Chittagong in 1948, which was, at that time, the ea stern region of the newly created Pakistan. The branch was opened mainly to facilities the post-war re-establishment and expansion of South and South East Asia. The Bank o pened

its first branch in Dhaka in 1966 and shifted its headquarter from Chittagong to Dhaka after the birth of the Republic of Bangladesh in 1971. At present the Bank has ten branches in Dhaka, it also have one offshore banking unit inside the Dhaka Export Processing Zone at Savar, one branch in Narayanganj, thr ee branches in Chittagong, one branch in Khulna, one branch in Sylhet, one branch i n Bogra. In the year 1999 Standard Chartered has acquired the operation of Grindla ys Bank in the Middle East and South East Asian countries. Former Grindlays Bank started its journey in Bangladesh in 1905 under the name of Grindlays Bank (when it forbears the National Bank of India opened in Chittagong). Standard Chartered Bank took-over the operation of ANZ Grindlays Bank in Bangladesh as a part of acquisition of the So uth East Asian and Middle East operation of the Australia and New Zealand Banking Gr oup. Standard Chartered Bank (SC) become the highest bidder quoting about AU$2.5 bill ion (US$1.5 billion) after ANZ Banking group decided to sell its subsidiary, the ANZ Grindlays Bank operating mostly in the Middle east and South East Asian countrie s. The SC with its 18 branches and booths across Bangladesh has employed more than 600 people. The acquisition has enabled Standard Chartered Bank (SC) to access 500,0 00 new customer and 40 branches in India, and this made them one of the biggest ban k in this region. 27 Comparison in Terms of Deposit Among The Foreign Banks Credit Agricole 17% SCB AMEX 34% 23% HSBC 22% OTHERS 4% Credit Agricole SCB AMEX HSBC OTHERS After acquisition, Grindlays Bank is a part of Standard Chartered Group. The Ban k presently has 18 outlets in 5 cities serving over 1,25000 customers. The network of SCB Bank in Bangladesh includes: 10 Branches in Dhaka city 1 Branch in Savar EPZ (recently started with full banking operations) 1 Branch in Narayanganj 3 Branches in Chittagong 1 Branch in Khulna 1 Branch in Sylhet.

1 Branch in Bogra Recently the bank opened a new branch in Bogra to reach out the in northern part of the country .The network of SCB engage itself for providing best quality banking ser vice in retail, commercial and corporate banking segments. The countries top Enterprises ; Multinational, Local Corporation and Financial institutions are served by SCB. W ith total asset based of BDT 17.5 billion and annual turnover of BDT 1.78 billion, SCB in Bangladesh is among the top performing multinational bank. 28 Products & Divisions of SCB 29 3.7 Product Division There are different divisions for targeting different type of customers. Mainly consist of two divisions, that is Consumer Banking Division (C B) and other is Corporate Ba nking Division named Corporate and Institutional Banking (C & I). Consumer banking division meets the needs of individual customers with various products like Savings Account, Extra Value Savings Account, Access Account, Call Deposit, FCY Deposit, NFCD Fixed Deposits, RFCD Account, Personal Loans, Auto Loans, Flexi loans, Cash Line, Installment loans, etc. This department also deals with other savings instruments like education savings scheme, rainy day scheme, marriage day scheme, millionaire scheme (some printed brochures are enclosed in the Appendix) Corporate and institutional banking meets the needs of companies, banks and other financial institutions. Standard Chartered provides a full range deposit a nd loan products to it s corporate clients. Rapid decision-making is an important feature of SCBs services to international and domestic companies doing business in Bangladesh. All accounts are assigned to a Relationship Manager to look after client needs. Each relationship manager keeps close contact with the client obtaining in-depth knowledge of the client s business and providing timely advic e. This divisions products include network banking and borrowing services like working capital loan, long term loans, short term loans, margin account, commercial large loans, real estate apartment loans, heavy transport buying loan s, real estate mortgage loans, construction loans, restaurant loans, and above all it includes all international trade related services like L/C issuing, L/C amendmen t, L/C Transfer, L/C Confirmation, Negotiation, Bank Guarantees, etc. These products are only served to the corporate clients of the bank, and those are mos tly local corporate, large and local corporations, multinational national companies. List of some of them are given in the appendix section. 30 The Relationship between Respective Customers to Different Departments of SCB Companies Banks and other Financial Institutions This focus allows the business to develop an in-depth understanding of the banks customers evolving requirements. This in turn enables SCB to develop the products and

services that help them to stand out from the competition. Treasury provides sup port to the customers of both these business and develops customers (both individual and organizational) of its own. 3.8 The Division of SCB Bangladesh The bank is divided into several divisions and business units, which are also fu rther subdivided. The divisions are mainly based on some service lines designed for and provided to targeted customers, other divisions and units are there to support the busine ss activities of the major service based divisions. The following is the list of the divisions of SCB in Bangladesh. Note that the divisions are little different compared to the major a reas of the Group. 31 Individual Organization Consumer Banking Corporate & Institutional Banking Treasury 3.9 Major Business Units 3.9.1 Corporate Banking Group Standard Chartered Bank offers its local customers a wide variety of financial s ervices. All the accounts of corporate clients, which mainly comprise the top local and multinational companies operating in Bangladesh, are assigned a Relationship Man ager (RM) who maintains regular and close contact to cater to their needs. The object ive of this department is to maintain a thorough knowledge of the client s business and to develop positive relationships with them. This is maintained through interaction s to offer timely advice in an increasingly competitive business environment. The expertise of the Financial Institution (former Institutional Banking) and Treasury groups is also available whenever required. The unique Off-shore Banking Unit (OBU) in Savar offers a ful l range of facilities to overseas investors, and recently that Savar Branch have e xpanded many of its activities. The Corporate Banking Group in Bangladesh has displayed a spirit of community involvement by working with NGOs to underwrite soft loans. Standard Chartered Bank offers its corporate customers: The wide varieties of lending needs are offered with skilled and responsive attention. Project finance and investment consultancy. Syndicated loans. Bonds and Guarantees. Local and International Treasury products. The trade finance of Standard Chartered Bank takes care of the commercial activi ty related issues, particularly those related to import and export finance services . Some of the services are: Trade finance facilities including counseling, confirming export L/Cs and issuin g of import L/Cs, backed by its international branch and correspondent loan network B ond

and Guarantees Project finance opportunities for import substitution and export oriented project 32 3.9.2 Treasury Division The foreign exchange and money market operation of the Standard Chartered Bank i n the world is extensive. Exotic currencies happen to be one of its special areas of s trength. A 24 hour-service is provided to customers in Bangladesh through the Bank s networ k of dealing centers placed in the principal of the world. The Bank s treasury specia lizes in offering solutions to those who wish to manage interest rate and currency exposu res that result from trade, investment and financing activities of other dynamic economie s of the region. Treasury operations are developed in line with changing market condition s to provide the best services to its customers. According to BAFEDA (Bangladesh Fore ign Exchange Dealers Association), Standard Chartered Bank presently controls 42% of the local foreign exchange market s traded volume. 3.9.3 Financial Institution Department (Former Institutional Business Group) Financial Institution Department (former Institutional Banking) is a specialized banking unit of Standard Chartered, providing products and services to the specific need s of other banks and financial institutions. It assists the local banks by taking care of t heir crossborder business through the worldwide Standard Chartered Bank networking over 40 countries. It offers various services like L/C Confirmation, Negotiation, Inter and intra Bank Guarantee, Local Bill Discounting, L/C Advising, L/C Transfer, L/C amendmen t advising, Reimbursement Undertaking and Authorities, Fund Transfers, Export proc eeds, BDT Draft Drawing, International Payments (T Ts), Account Services (Vostro Accoun t Management) 3.9.4 Consumer Banking Division Superior retail banking services comprising a wide range of deposit and loan pro ducts are offered by the Standard Chartered Bank to its individual customers. The Consumer Banking division constantly faces challenges and meets them by developing new 33 products and services to fulfill the specific requirements of local and foreign customers. Bank offers a 24-hour service in Bangladesh through its Moneylink ATM network an d Phone-link Phone Banking services. The below mentioned type of accounts are serv ed by the Consumer Banking Division. Personal Current Account Personal Savings Account Personal Access Account Consumer Fixed Deposit Account Personal Call Deposit Account

Non-resident Foreign Currency Deposit Account Resident Foreign Currency Deposit Account Convertible Taka Account Foreign Currency Accounts for Foreign Nationals Foreign Currency Accounts for Bangladeshi Nationals Escrow Account Private Non-Resident Taka Account 3.9.5 Card Division Card is the latest area that has been identified for rapid development. The bank is the one of the acquirers of three major cards in Bangladesh. Two of the credit cards are VISA and MASTER CARD and the one is the charge card known as Japan Credit Bureau (JCB). Standard Chartered Bank is the subsidiary or secondary agent of the credit cards and a primary agent of JCB. SCB started its cards operation in 1989 as a part of retail banking. Initially, SCBs card market was very small, with only 30 merchants. But seeing the economies and the consumers attitude towards the credit card has given the opportunity to expand th eir market base by acquiring high quality merchants in the chosen segment. The bank is the 34 first to introduce the TAKA CREDIT CARD. The card is issued basically to a perso ns name and the specific person can use the card in anywhere in Bangladesh. 3.9.6 Custodial and Clearing Service Headquartered in Singapore, Standard Chartered Equitor fulfils the group s strat egic commitment to the provision of custodial service in Asia. Equitor s customers ar e primarily foreign global custodians and broker/dealers requiring cross border in formation as well as sub-custodian services. Standard Chartered Bank, Bangladesh is respon sible for the planning in Bangladesh, but the overall management of the custody busine ss is based on Equitor s international business strategy. Supporting Departments 3.9.7 Information and Technology Department This department is instrumental in the running of all the computerized operation s of the bank. They help in the implementation and generation of computerized reports. An other major duty of the department is to maintain communication with the rest of the w orld. 3.9.8 Operation Operation is part of the support division, which helps to run the businesses of the bank in a smooth and controlled manner. Since it helps mainly in processing the works of the business units, any mistakes made can be easily detected and on time. Following are the main functions of the operations department: Central operations deals with the closing and opening of accounts and other paym ent and account related processing of the Personal Banking division 35 Treasury operations help to deal with the processing works of the treasury divis ion.

Loan Administration Unit (LAU) deals with the processing of the Corporate Bankin g division. Operations also have a department that deals with internal projects that arises from the need to deal with certain problems or to make certain changes. 3.9.9 Legal and Compliance In the UK, Standard Chartered Bank is regulated by the Bank of England, while in Bangladesh local banking laws regulate it and rules set by the Ministry of Finan ce and Bangladesh Bank. It also encourages its staff to conform to an internal culture of ethical behavior and sensitivities to the culture and religion of the country. Some of the key areas that the Legal & Compliance department has to take care of are: any kind of legal issues, to advise the CEO regarding all matters and the manage ment on legal and regulatory issues, correspond regulatory compliance issues to MESA Reg ional Head of Compliance, and supervise internal control (e.g. internal audit). 3.9.10 External Affairs This department deals with advertising, public relations, promotions, partial ma rketing which involves disseminating new products and services to customers and above al l ensuring service quality. 36 Human Resources & Structure of SCB 37 3.10 Human Resources Division This department manages recruitment, training and career progression plan. Stand ard Chartered Bank highlights the importance of developing its people to create a cu lture of customer service, innovation, teamwork and professional excellence. SCB recruits people by two ways. One is a Management Trainee that has a probation period of six months and after the probation period the trainees will be counted as an officer and th ey will do the different kinds of managerial works and another is Non Management Trainee whic h does not have any fixed probation period. Time required for training is departme nt on the recruited persons performance. In case of non-management trainee, two ways of recruitment is taken place. They are (a) taken by signing a contract with some o utside organization for three months and after three months the contract may be renewed or not depending upon the employees performance. These people coming through outside contract are called Out Source. (b) Taken by signing a contract with the bank for the three months and after three months the contract may be renewed or not depending on his/her performance. These people coming through bank contract are called In sour ce. 3.10.1 Controlling Structure at SCB Alike all other big multi-national companies, management in SCB consists of plan

ning organizing, directing, controlling all of the resources of an organization. The goal of Standard Chartered Bank is to be the "Bankers of First Choice." Towards that goa l, the overall planning in the Organization is done at the headquarters level in Dhaka by a Management Committee (MANCO), headed by the CEO and consisting of the business heads like Corporate Banking, Consumer Banking, Treasury, Global Markets, and fr om the support divisions the heads of Human Resource, Operations and Finance Departments. They meet once a month, or when special situations arise, to plan t he strategic decisions. The decision making, although apparently based on a top-dow n approach, leaves room for participation down to the level of department heads, w hich are responsible for carrying out the planning of their department within the broad g uidelines set by MANCOM. 38 Among the broad strategic objectives are: Creating a congenial work environment Modernization of the management information system to achieve full automation by drastically cutting down the paper works in long term. Focusing on service quality and consume needs Recruiting and maintaining top grade, efficient employees To invest in those technological systems which will upgrade and enhance financia l services Creating an excellent brand image of the bank. 3.10.2 Personnel Policies: The number of officers exceeds the number of clerk, which is a straight contrast to local banks specially the nationalized commercial banks. Standard Chartered Bank pays great attention to recruiting high quality staff through proper evaluation and improvi ng their skills through structured training. Reward and punishment base on strict perform ance evaluation and opportunities of promotion both in country and abroad are two imp ortant features of the personnel policy of Standard Chartered Bank. 3.10.3 Recruiting, Training and Career Progression: The recruitment process is based on references, advertisements and internships. Entry point screening is done both by the written and oral test. The medical record of the potential employee is very important and those suffering from potentially life t hreatening and performance deterring diseases are not hired, even if they were otherwise qu alified. The placement of the staff is done in two ways. Either the employee undergoes a management trainee program with a probation period of nine months and is categor ized as an officer leading to various managerial jobs, or is recruited at a non-manag ement level as banking assistance or support officer. There is a structured training f ramework for all the employees, and a channel for moving people from national to internat

ional positions. International graduate recruitment and personal skill development for entrylevel employees are a part of the human resources development efforts at Standard Chartered Bank. 39 3.10.4 Planning, Organizing, Directing and Controlling The top down planning approach is mostly followed at Standard Chartered Bank. Th e top managers have the authority to decide how they will achieve their goal because S CB group worldwide decides the goal. The Business Bank mainly does planning and Ret ail Bank Division, IT Department provides all the assistance and information that is required to create and execute long term and short term planning. Planning and IR Departm ent provides all the assistance and IT and other infrastructure in order to reduce t he paperwork IT has taken a plan to achieve the long tern plan. One branch manager in each of it is managing SCBs all branches. The performance of each branch is solely dependent on the branch manager. Management is partly authoritative and particip ant at the top level of SCB But every one has some assigned work to do for the day and they cannot deny this. Sitting arrangement is created in such a way that co-workers c an sit close to each other and have sharing of their work and at the same time can have easy contact with each department coordinator/ Head. The work environment is very fri endly. The room contains sufficient amount of light and is always cooled by high capaci ty air conditioners. 40 3.10.5 Five Values of Standard Chartered Bank Standard Chartered Bank has five values and these values are key to their succes s. These value determine how the employees achieve their goals, the way they work togethe r and how it feels to be a part of Standard Chartered Bank. In brief these values are: 1. Courageous: Being courageous is about confidently doing whats right. Often the task may seem insurmountable but with courage and tenacity, the odds can be overcome. A truly courageous act both inspires and builds character. 2. Responsive: How we response to our customer will influence their belief in ou r commitment to them. A proactive response is often unexpected and more effective for that. It clearly demonstrates our willingness to go beyond the unexpected. 3. International: As a member of global village we view the world from the wides t perspective. We are all global citizens and the world is full of new opportuniti es and exciting possibilities. We also deliver world class products and services. 4. Creative: Creativity belongs to those of us who are excited by challenges and engage them in fresh thinking and an open mind. Creative thinkers are not limite d by convention but allow their minds to soar beyond predictable solutions. 5. Trustworthy: Trust is the foundation of every successful relationship. We tru

st because we believe in the sincerity of our promise. Building trust can take fore ver. Losing takes only moments. 41 3.10.6 Chain of Command: Standard Chartered Bank in Bangladesh follows a hierarchy pattern of command. Th e chief Executive Officer (CEO) for the country reports to the Regional Manager, M ESA (Middle East South Asia) in Dubai. All other departmental Heads at the headquart ers report to the CEO. A manager or Senior Manager reports to the divisional heads. The respective Branch Managers or Branch Sales and Service Managers (BSSM) are responsible for the performance of their unit. Each branch is organized function ally along line divisions with some support facilities and the manager assigns tasks to his / her subordinate personnel and supervises their performance. Organograms of different division of the bank is given in the next few pages sep arately. 42 Chain of Command Chief Executive Officer (CEO) Head of Consumer Banking Head of Corporate & Institutional Banking Head of Global Market Chief Operating Officer Head of Finance &Administration Head of Human Resources Head of Institutional Banking Head of GSAM Senior Credit Officer Head of Legal and Compliance Head of Information Technology Head of Corporate & External Affairs 43 Head of Consumer Banking Product Secured, Unsecured, Liabilities Branches Direct Sales Credit Development Product sales in all channels Phone banking Product development Coll ection Product Launch Product Marketing & ATMs Marchant Acquiring Marketing campaign for all channels Priority Banking Customer Service Market Intelligence DSE Management Relationship Management Tele Sales Tele Sales Branches SQ Product/Fee Pricing Head of Consumer Banking Manager Service Quality(SQ) Manager Business Finance Support Executive Officer Compliance & Control Head of Product Development & Marketing Services Head of Banking

Products Head of Distribution &Priority Bank Head of Cards Head of Credit & Collection Officer 44 Finance and Administration Division Dispatch Operator Head of Finance and Administration Manager Finance Operation Manager Business Finance Head of Administration Finance Officer Finance Officer Business Support Senior Admin Officer Officer 45 Human Resources Division Head of Human Resources Head of Human Resources Operation Officer HR Operation Officer HR Admin 46 Legal and Compliance Division CORPORATE AFFAIRS Officer Head of Legal & Compliance Compliance Advisor Officer Audit and Compliance Manager Legal Support Head of Corporate Affaires 47 Treasury Division Corporate Dealer Dealer Money Market Foreign Exchange Dealer Head of Global Market Head of Money Market and ALM Head of Foreign Exchange Trading Head of Sales 48 Information Technology ( I T )Division Product Specialist Technical Analyst System Security Administration Senior Technical Analyst Product Specialist System Controller Shift Leader Head of I.T Manager IT Product Support Manager Manager Communication & Infrastructure Support 49 Corporate and Institutional Banking Sr. Relationship Manager Sr. Relationship Manager Relationship Manager Sr. Relat ionship Manager Relationship Manager Relationship Manager Relationship Manager Sr. Credit Analyst Credit Risk Manager Credit Risk Manager Sr. Sales Supporting Credit Risk Officer Credit Risk Officer Sr. Business Dev. Manager Sr. Relationship Manager Business Dev. Manager Relationship Manager (Trade, Projects, Cash, Trade, Manager --FI, Sales Support Sales) Manager FI, Chittagong Product Manager Officer- FI Sales Support Manager Electronic Banking

Head of Corporate and Institutional Banking Executive Assistant Head of Local Corporate Head of Network Banking Head of Structured Finance Head of Chittagong Corporate Head of Cash & Trade Head of Financial Institutions Head of Custody and Clearing Service 50 Service Delivery Account Service Trade Risk Control & Recon ATM Cards Cash Foreign Exchange Item Processing Credit Money Market Asset Operations and Docs Documentation Security Bonds Admin Chittagong Service Delivery Officers Officers Officers Chief Operating Officer Head of Consumer Service Delivery Head of Corporate Service Delivery Manager Manager Head of Global Market Service Delivery Manager 51 SWOT Analysis Of SCB 52 3.11 SWOT Analysis The acronym for SWOT stands for STRENGTH WEAKNESS OPPURTUNITY THREAT The SWOT analysis comprises of the organizations internal strength and weaknesses and external opportunities and threats. SWOT analysis gives an organization an insight of what they can do in future and how they can compete with their existi ng competitors. This tool is very important to identify the current position of the organization relative to others, who are playing in the same field and also used in the strategic analysis of the organization. 3.11.1 Strength SCBs Banking Experience for more than 55 years provides SCB the strength of being the market leader in the foreign banking sector. This strength of SCB is totally unmatched by any other multinational bank in Bangladesh, as the long ter m success of a bank heavily depends on its reputation while dealing with every sensitive commodity like money. SCB is the first bank in Bangladesh to issue Money link (ATM) card. As the market leader, they showed the most substantial corporate strength among the foreign banks by grabbing the opportunity that exists in the market. In Bangladesh SCB has wide range of customer base and is operating efficiently in this country. SCB has a bulk of qualified, experienced and dedicated human resources. SCB has the reputation of being the provider of good quality services to its potential customers 53 3.11.2 Weakness SCB has fewer branches than their competitors. Such as SCB have only 18

branches whereas Uttara Bank Limited has 198 branches and 12 regional offices. SCG has more and high fees and charges compared to its rivals. Such as minimum balance fee, ledger fee etc. as a result SCB is loosing its customers. SCB often has problem with market share as ATM machines. Customers often complain that the ATMs are out of order. SCB hasnt that much good market share as other multinational bank. Its as because SCBs marketing strategy is not aggressive they always follow defensive/ conservative strategy. This may be considered as weakness. 3.11.3 Opportunity The population of Bangladesh is continuously increasing at a rate of 7.3% per annum. The countrys growing population is gradually and increasingly learning to adaptation of consumer finance. As the bulk of our population is middle class , different types of products have very large and easily pregnable market. The activity in the secondary financial market has direct impact on the primary financial market. Investment is a national socio economic activity. And activity in the national economy controls the bank. Bangladesh have a huge consumer base for maintaining several accounts. So SCB has the opportunity to keep these customers by reducing its current fees and charges. 54 3.11.4 Threat In todays economy, substantial amount is remaining idle and currently the investment in the secondary market by foreign is relatively low. These economic situations of the country indicate political threats. Increased competition by other foreign banks is also another threat to SCB. At present HSBC and CITI Corp are posing significant threats to SCB regarding retail and business banking respectively. Furthermore, the new comers in private sector Prime Bank, Dutch Bangla Bank, EXIM Bank, BRAC Bank, Southeast Bank, Mercantile Bank, Social Investment Bank, Islami Bank are also coming up with very competitive force. 55 Opening Procedures & Charges of Various Products 56 3.12 Consumer Products of SCB In the consumer market, SCB is well reputed for introducing innovative and lucra tive offers and products to its customers. SCBs products have always been a master blaster in the banking market. 3.12.1 Personal & Joint Account For opening a personal or a joint account one needs to submit a valid passport o r any identification attached with photo, one passport size photograph and needs to be introduced by any account holder of SCB whose account is minimum six months old. To open the account the person needs to fill up a form mentioning his name, addr ess, telephone number, date of birth, occupation etc. as well as mode of operation an d specimen signature. Account holder must appoint a nominee with photograph and signature who also must attest nominees signature and photo. 3.12.2 Current Account To open a Current Account one has to deposit a minimum of Taka.50, 000. And account holder of those account need to have average balance of Taka 50000 at al l time, otherwise a charge of Taka 500 will be debited. And the closing charge for

those accounts is Taka 250, and if it is closed before six months, the charge will be Taka 500. Current Accounts (Local Currency & Foreign Currency): Minimum balance required Interest Rate BDT 50,000 or equivalent No interest is paid 3.12.3 Savings Account To open a Savings Account one has to deposit a minimum of Taka. 100,000 and Taka 300,000 for extra value savings account (EVSA). And account holder of those account need to have average balance of Taka 100,000 at all times, otherwise a c harge of Taka 500 will be debited. And the closing charge for those accounts is Taka 2 00, 57 and Taka 300 for EVSA accounts. If the A/C is closed before six months, the char ge will be Taka 500 and Taka 1000 for EVSA. Average Balance Interest Rate Average balance below BDT 100,000 00.00% Average balance BDT 100,000 to 500,000 04.50% Average balance BDT 500,000 to 1,000,000 05.00% Average balance BDT 1,000,000 05.50% 3.12.4 Short Term Deposit (STD) Accounts: Minimum balance for maintaining a STD (Short Term Deposit) or Call Deposit Accou nt is required BDT 250,000. Interest Rate on this type of account is 4.00% to 6.00% (Rate varies on amount). The main reason for big clients to maintain this type of acco unt is just to earn interest on big amount on a daily basis. 3.12.5 Access Account Access account is quite new feature of SCB that allows customers to have an acco unt with SCB without any charges that are present in other types of accounts. Access account differs from its other account services in the way that it requires no m inimum deposit size and hence it doesnt provide any interest. The advantage is that stud ents / people of medium income level trying to avoid high bank charges can use this acc ount to meet emergency cash requirements. The account holders do not get any facility of cheque book and cannot withdraw more that Taka. 20, 000 in a day and also cannot overdraw their account. The charges include Taka. 150 per year and Taka. 250 for government excise duty. And the closing charge for those accounts is Taka 200. 58 3.12.6 Resident Foreign Currency Deposit (RFCD) Specially designed foreign currency account for resident Bangladeshis. Offers wonderful opportunity to build a deposit base in foreign currency. Helps make fo r overseas commitments and dues like credit card bills, traveling expense, recreat ion tours, etc. This service is offered in currencies like USD, GBP and Yen. The int erest that SCB offers is very competitive, but the deposit can only be made in foreign currency. The withdrawals can only be made in local currency. It offers fund Remittance in LCY and FCY to any place in and out of the country. 3.12.7 Foreign currency current account Applicable to Bangladeshis working abroad, it can be opened in USD, GBP and Yen

without restriction on transaction frequency. Can be operated through nominees, in absence of the account holder. Fund remains in foreign currency and is freely remittable. The deposit can be made in foreign currency only (Cash, TC or Drafts or transfer from other FCY account). But cash withdrawals can only be made in local currency only. Fund can be used to make investment in Wage Earners Development Bond 3.12.8 Non - Resident Foreign Currency Deposit (NFCD) * A short-term foreign currency deposit account suitable for Bangladeshis living abroad, offering most competitive interest rates available in both local and international markets. The interest paid in this account is in foreign currency, it can be opened for a term of 1 months, 3months, 6 months and 12 months. The interest rat es are tiered (based on amount and term), but payable on maturity, but automaticall y renewable. It can be used as security against personal/commercial loan 59 3.12.9 Account Statement Charges The charge for holding statements is BDT 1000 per annum per account, and for Additional/ Duplicate statement (Per cycle) is BDT 200 per statement. Photocopy of statements is Taka 1000. 3.12.10 ATM Card Charges The annual fees for ATM card is Taka 150 per card, and the charge in case of damaged or lost card is Taka 300 per card. And phone banking is absolutely free. 3.12.11 Charges for Cash and Travelers Cheque Foreign Currency For issuance of FCY cash, customers need to pay 1% of the transaction plus Taka 200/= per passport. And for issuance of Travelers cheque 1% of the transaction p lus Taka 200/=. The charge for encashment is absolutely free in case of travelers ch eque issued by SCB.And encashment for other banks issued T.C is 0.25% of the transaction value or minimum BDT 500. SCB also provides encashment facility for non-customers, is 0.25% of the transaction value or Taka 1,000. 3.12.12 Charges for maintaining Student file For customers, opening student file for SAARC countries, they charge BDT 3500 pe r student, per annum plus Taka 500 per remittance. This is a centralized system. N o matter where the customers conduct his/her banking, for opening and maintaining student file, he/she is bound to come to SCB Kakrail Branch, which is at 109, Ka krail. That branch exclusively deals with Student File. And, the charge for other count ries is Taka 5000 per student file plus Taka 500 per remittance. This opening of student file is not available for non-customers. 60 3.12.13 Fixed Deposit Account For a fixed deposit account a person needs to deposit a minimum of BDT 100,000. After the maturity of the fixed deposit the depositor will get the principal alo ng with the interest. The interest rate for this fixed deposit varies with the amount an d period. The rate increases as the amount and time period increases. Fixed Deposit (effective from 1st February 2003): Local currency for Consumer Customer Tenor Minimum amount

required BDT 10M & Below BDT Over 10M 3 Months BDT 100,000 7.00% 7.75% 6 Months BDT 100,000 7.50% 8.25% 12 Months BDT 100,000 7.75% 8.50% 2 Years BDT 100,000 8.25% 8.75% 3 Years and above BDT 100,000 8.50% 9.00% But the above deposit rates may be increased by 1.00% for priority/Wholesale cli ents at the discretion of the Management. In that case, the branch sales and services ma nger needs to obtain approval from HOC&I and HOCB for C&I and CB deposit respectively with regard to above discretionary interest rates. 3.12.14 Lending Rates For Consumer Banking: a. Money Builder 12.00% to 14.00% b. Cash Line (Loan) 11.00% to 13.00% c. Cash Line (Overdraft) 12.00% to 14.00% d. Instalment Loans: i. Type A (100% Covered) 13.00% to 15.00% ii. Type B (50% to 99% Covered) 15.00% to 17.00% iii. Type C (30% to 49%) 17.00% to 19.00% e. Personal Loan 18.00% to 20.00% f. Supra National Organizations Personal 07.00% to 09.00% 61 3.13 Company Account 3.13.1 Sole Proprietorship Account Just like the personal and joint account, an account opening form and one passpo rt size photograph is required. The customer also needs to submit a copy of his tra de license, Sole proprietor Declaration From and signature. The account holder must attested nominees signature photo. 3.13.2 Partnership account Just like the sole proprietorship account, an account opening from and one passp ort size photograph is needed. Account holder must appoint a Nominees signature and photo. Moreover the customer is required to provide the following documents: Required Certified copy of the Partnership Deed of the firm. Certificate of Registration of the firm. List of partners with their address. Latest copy of Balance Sheet. Extract of resolution of the partners of the firm for opening the account and authorization for its operation duly certified by the firms Managing Partner. List of names with appointments and specimen of the persons who are authorized to operate the account duly certified by the Managing Partner of the firm. 3.13.3 Limited Company Account To open a limited liability company account the customer is required to submit t he following documents: Certified copy of the memorandum and articles of association of the company. Certificate of incorporation of the company. Certificate from the Joint Stock Registrar that the company is entitled to commence business. 62 Latest copy of Balance Sheet. Extract of Resolution of the Board / General Meeting of the company for opening the account and authorization for its operation duly certified by the Chairman o r

Managing Director of the company. List of names with appointments and Specimen signatures of the authorized to operate the account and request the bank to open a t / Guarantee duly certified by the Chairperson or Managing Director company. Corporate Investment Deposits: Tenor BDT 10M & Above 1 Months 7.00% Fixed Deposit Local currency For Corporate Customer: Tenor Minimum amount required BDT10M & Below BDT Over 10M 3 Months BDT 100,000 7.25% 7.50% 6 Months BDT 100,000 7.50% 8.00% 12 Months BDT 100,000 7.75% 8.25% 2 Years BDT 100,000 8.00% 8.50% 3 Years and above BDT 100,000 8.50% 8.75% Fixed Deposit foreign currency for Corporate Customer: The rates are based on the international market rates, which are e bank regularly. 3.13.4 Lending Rates For Corporate Banking: 1) Agriculture: a. Overdraft 09.50% to 11.50% b. Short Term Loan 09.00% to 11.00% 2) Large & Medium Scale Industry (Term Loans): One to Three Years: a. Multinational Corporate Clients 10.00% to 12.00% b. Large Local Corporate Customers 11.00% to 13.00% c. Local Corporate Customers 12.00% to 14.00% d. Small Corporate Customers 13.00% to 15.00% 63 Four to Five Years: a. Multinational Corporate Clients 11.00% to 13.00% b. Large Local Corporate Customers 11.50% to 13.50% c. Local Corporate Customers 12.50% to 14.50% d. Small Corporate Customers 13.50% to 15.50% 3) Working Capital: a. Multinational Corporate Clients: Overdraft 09.75% to 11.75% Short Term Loan 09.00% to 11.00% Revolving Promissory Note 08.00% to 10.00% b. Large Local Corporate Customers: Overdraft 11.00% to 13.00% Short Term Loan 12.00% to 14.00% Revolving Promissory Note 08.00% to 10.00% c. Local Corporate Customers: Overdraft 12.00% to 14.00% Short Term Loan 12.00% to 14.00% Revolving Promissory Note 10.00% to 12.00% d. Small Corporate Customers: Overdraft 11.50% to 13.50% Short Term Loan 13.00% to 15.00% Revolving Promissory Note 11.00% to 13.00% 4) Export (Packing Credit) 07.00% to 09.00% 5) Other Commercial Lending:

persons letter of Credi of the

available at th

a. Multinational Corporate Client 11.00% to 13.00% b. Large Local Corporate Customers 12.00% to 14.00% c. Local Corporate Customers 14.00% to 16.00% d. Small Corporate Customers 15.50% to 17.50% e. Fully Secured Customers: Overdraft 10.00% to 12.00% Fully Secured Overdraft-Industrial Bond 09.25% to 11.25% Short Term Loan 09.00% to 11.00% 6) Small and Cottage Industry (Term Loans): a. Local Corporate Customers 09.00% to 11.00% b. Marginal Credits 12.00% to 14.00% 64 7) House Building/Real Estate: 13.00% to 15.00% 3.14 Tele Banking Services Tele banking service allows the account holders to make inquiries and service requests over the telephone. To get this Service all a customer needs to do is t o fill up a Tele-Banking form mentioning his name, account number, contact address, and telephone number. After the application TIN (Telephone Identification Number) is given to that customer. TIN is a personal security password, which a customer ca n change at any tine. A person who requests service through Tele Banking is requir ed to take delivery of the service by nominated branches within two days of requests. If a customer fails to receive this service within two days the request will be cance lled and Taka. 200 will be charged from his personal account 3.14.1 Services Provided by Tele Banking Facility Inquiries Relating to Requests for Advice of Account Balance Balance Certificates Stop payment Exchange Rates Account Statements Change of address Interest Rates Access Card Activation Lost Cheque Books Issue of Cheque Books Fund Transfer Pay Order 3.15 Speed Cheque Deposit The Speed Cheque Deposit system saves a customers precious time by allowing him to drop the Cheque in the Speed Cheque Deposit Box. All a customer needs to do i s to complete the Cheque deposit slip and keep the counterfoil. To complete the Chequ e deposit slip a person has to mention the account number of the Cheque, the name of the bank with branch, cheque number and amount. After finishing writing the cheq ue deposit slip the customer needs to staple the cheque with the slip and drop it i nside the box. 3.16 Money Link (ATM) Card 65 SCB Launched Automated Teller Machine (ATM) in Bangladesh in the year of 1998. A person can access his personal, current and savings account 24 hours a day by using a Money Link Card or ATM card in this machine. This card can be used for cash withdrawal, cash / cheque deposit, fund transfer between accounts, balance inqui res, statement requests etc. Apart from SCB Money Link cards (ATM) it also accepts bo th local and International Master Card and VISA Credit Cards. Taka 150 is charged p

er ATM card for a period of 1 year. For security reason a person cannot access his account without his PIN (Personal Identification Number). 3.17 Credit Card Types of credit cards 1. Gold Master Card 2. Silver Master Card 3. VISA Silver Card Requirements 1. Completed credit card application form. 2. One copy of passport size photograph. 3. Minimum monthly income of Tk. 10,000 for Master and VISA Card Silver. 4. Minimum monthly income of Tk. 55,000 for Master Card Gold. 5. Documents (e.g. Salary Certificates, Income Tax Certificates, 6 months bank statement, Photocopy of passport or other Documents). 6. For foreigners, work permit from the ministry is required. 3.17.1 Features of Credit Card Wide Acceptance: SCB Credit Card is accepted at more than 3,000 outlets around the country. One can use his/her card for everyday purchases as well as for high value purchases. Its wide range of merchants include hotels, 66 restaurants, airlines & travel agents, departmental stores, hospital and diagnostic centers, jewelry shops, electronic and computer shops, leather goods, mobiles and ISPs and many more. This number is increasing everyday to cater to customers growing needs. Easy Credit: With SCB Credit Card customers have the convenience to pay as little as 5% of their outstanding on the card account every month, thus having the power and flexibility to plan their payments. Minimum monthly payment is 5% of the cardholders closing balance or Tk. 500 whichever is higher. If the closing balance is more than Tk. 500 it must be paid in full. Instant Cash Advance: SCB Credit Card gives its customers to access to cash up to 50% of the credit limit. Customer can withdraw cash advance from all SCB and SCG ATM around the country, thus having access to cash 24 hours a day. Besides, cash advance can also be taken from any of its branches across the country. Safe and Secure: Customer does not need to carry cash anymore if he/she is carrying SCB Credit Card. If someone last his/her card can be protected from the financial charges from the moment he/she reports to the bank. Air Accident Insurance: SCB Credit Card gives the customer free air accident insurance coverage up to Tk.100,000 (Silver Card) and Tk.500,000 (Gold Card). This coverage is also applicable for supplementary cardholders. Supplementary Card: Customers can apply for supplementary card(s) for their spouse, parents, sisters, brothers, friends of children over 18 years of a ge. All charges on the supplementary card are reported on the monthly statement. Besides, for customers peace of mind one can assign monthly spending limit on each Supplementary Card. From March 2002 first supplementary card is free for lifetime. 67 3.17.2 SCB Credit Card Features Details Gold Master Card Silver VISA/Master Card Annual Fee for Primary Card Tk. 3,000 Tk. 5,000 Joining Fee Nil Nil 1st Supplementary Card Fee Free Free Additional Supplementary Card Fee Tk. 2,000 Tk. 1,000 Over Limit Fee Tk. 500 Tk. 200 Replacement Fee Tk. 500 Tk. 200

Interest Rate on Outstanding 2.5% Per Month 2.5% Per Month Returned Cheque Fee Tk. 500 Tk. 500 Duplicate Statement Fee Tk. 50 Tk. 50 Certificate Charge Tk. 100 Tk. 100 Outstanding Cheque Processing Fee Tk. 100 Tk. 100 Sales Slip Retrieval Fee Tk. 100 Tk. 100 68 Ratio Analysis of SCB 69 3.18 Ratio Analysis Ratio analysis is an analytical tool that can be applied to a banks financial sta tements so that management and the public can identify the most critical problems inside each bank and develop ways to deal with those problems. Some selected ratios are analyzed here to give an insight about Standard Chartered Bank. For limited information some are analyzed very briefly. 3.18.1 Return on Equity: ROE (in %) = Net income / Shareholders equity. 1999 2000 2001 2002 33.59 42.21 46.77 31.20 The figure shows that the growth rate was positive in 2000 and 2001 but declined in 2002. Since the growth rate of equity was much higher than that of net income, overall ROE declined in 2002. The 105% growth in retain earnings was the notable reason for the 62.52% growth of equity as compared to 8.42% growth of net income in 2002. It can be inferred that Standard Chartered Bank retained this amount in order to boost their investment which was in declining trend in 2000 and 2001. But the y took a conservative and a risk averse approach to boost investment and hence inc ome from it. They increased their investment only in Government securities which gav e them low return (but least risky) whereas their investment in stock market remai ned stagnant, where they could earn more (but the risk was also high). The balance s heet of 2002 supports this fact as investment grew by 140% but income from investment grew by 62%. On the other hand their non-interest expenses rose by 144%, which a lso pull their net income down. 70 3.18.2 Return on Assets: ROA (in %) = Net income / Total asset. 1999 2000 2001 2002 2.62 3.19 2.81 1.61 Declining trend in 2001 and 2002. Same reason as above high growth in assets as compared to low growth in net income. Low growth in net income can be justified by Standard Chartered Banks high growth in non-interest expenses, which grew by 144% in 2002. The salaries & allowances account grew by 113%, advertisement cost by 143%, repair & maintenance cost by 117%. One reason for increasing this cost was high competition in banking sector. Standard Chartered Bank tried to win this competition by recruiting & retaining their creative personnel through attractiv e salary

& compensation package, intensive promotional campaign, adopting new software and computer systems etc. These activities substantially increased the cost and lowered the net income. 3.18.3 Net Interest Margin: Net Interest Margin (in %) = (Interest income Interest expense) / Total assets. 1999 2000 2001 2002 4.72 5.04 4.97 4.50 Net interest margin was relatively stagnant over the years. The key reason was t he growth rate of the spread between interest income and interest expense was not satisfactory as compared to the growth rate of total assets. One way to overcome this stagnancy is to invest more in loans and advances which will yield more interest income rather than investing in Government securities. From this Standard Charte red Bank can maximize their spread between interest income and interest expense by using the same assets and boost their net interest margin ratio. 71 3.18.4 Net Non Interest Margin: Net Non Interest Margin (%) = (Non-interest Income Non-interest Expense) / Total Assets. 1999 2000 2001 2002 0.84 1.34 1.07 0.27 Though a rise in 2000, 20% decrease in 2001 and 74% decrease in 2002. Major reason was the spread between non-interest income and non-interest expense went down. Standard Chartered Banks other income gone down sharply in 2002 (73.85%). Some reasons behind this may be sluggish recovery of bank charges, low income from the credit cards and locker services, less capital gain from sale of shares, low service charges on remittances but the real cause is Competition. For e.g. a student can open a file in AB Bank with only Tk.1200 whereas the charge for the same in Standard Chartered Bank is Tk.5750. If anyone wants to send remittances through demand draft or telegraphic transfer from Standard Chartered Bank the charge is Tk.1250 and Tk.1956 whereas the charge for the same in IFIC bank or AB Bank is half of Standard Chartered Bank. The yearly charge for Standard Chartere d Master/Visa silver card is Tk.1500 and for Gold card Tk.3000. But for Prime Bank Master Silver card the yearly charge is Tk.500 and for Gold card Tk.1000. So why a customer should bank with Standard Chartered Bank where he is getting the same service from others in a more valued and cost saving way? Thats why Standard Chartered Banks other income is decreasing year by year. On the other hand Standard Chartered Banks non-interest expenses is going up. To improve quality the management spent heavily on training, seminar and workshop. Expenses on business development and advertising also gone up. And the cumulativ e effect of all those factors pulled the non-interest income down. 72 3.18.5 Earning Spread: Earning spread (%) = (Total interest income / Total earning assets) (Total inter est expense / Total interest bearing liabilities). 1999 2000 2001 2002 5.82 6.19 5.87 5.62 The spread measures the effectiveness of the banks intermediation function in borrowing and lending money and also the intensity of competition in the banks market area. Greater competition tends to squeeze the differences between averag e asset yield and average liability costs. If other factors are held constant, the banks

spread will decline as competition increases, forcing management to try to find other ways to make up for an eroding earning spread. Standard Chartered Banks earning spread decreased by 13% in 2001 and 10% in 2002. Their asset liability growth rate is harmonious but interest paid on depos its gone up because of competition. While local banks were giving 8.5% - 10% interests on fixed deposits, Standard Chartered Bank was giving only 7%. When they observed customers are moving away from their banks, specially in 2002, they started givi ng 7.50% to highest 9.50% (for more than Tk.10,000,000) while the interest on loans are kept more or less industry standard. And the overall effect is reflected in earn ing spreads. 3.18.6 Asset Utilization Ratio: Asset Utilization Ratio (%) = (Interest income + Non interest income) / Total as set 1999 2000 2001 2002 13.16 12.60 10.98 10.68 This earning measure can be broken down into two components, the average interes t return on assets and the average non-interest return on assets. As competition f or loans and other income generating has grown and many loans turned sour, banks ha ve shifted their attention to increase their non-interest income. Standard Chartered Banks asset utilization ratio is decreasing not in an alarming manner but they should be aware of this. Especially on their investment function s. 73 The growth rate of non-interest income and income from loans is well enough to k eep pace with the growth of assets except the investment. As I mentioned above, thei r investment is yielding very low income and therefore they need to rethink where to put the money to maximize the value. 3.18.7 Earning Base in Assets: Earning Base in Assets (%) = Total earning assets / Total assets 1999 2000 2001 2002 82.59 81.64 84.04 82.34 The ratio shows how much of the total assets are contributing to the profits. Fo r Standard Chartered Bank the ratio shows a relatively stable situation. The reaso n is earning assets (investment, loans, money at call and short notice, balance with other banks) has not been increased as compared to total assets. Since all the earning assets are mostly financed by interest bearing liabilities, the deposited/ borrowed amo unt is significant for the bank. So it can be assumed that if deposit amount goes up, t he banks investment, loans & advances will also go up. But with the increase of deposits, the bank also has to put more money at the vault of Bangladesh Bank an d Sonali Bank to fulfil the reserve requirement of Central bank. As a result it wa s very tough for Standard Chartered Bank to increase earning assets from the deposits.

The other way to increase earning assets (from balance sheet perspective) was to retain more from the net income. For that, net income has to be increased substa ntially which Standard Chartered Bank failed to do so. The factors pulling down the net income are mainly: a. High tax b. High expenses. c. Low income from the investment. Since I have mentioned earlier about investment and expenses (and more will be discussed in recommendation part), I would like to say about taxes here. Net inc ome can be boosted in several ways (discussed in the recommendation part). One is controlling the tax. But the banks are entitled to pay highest taxes in the mark et (for e.g. in the budget of 2002-2203, companies listed in stock exchange will have to pay 30%, non-listed 37.5% and banks 45%). As a result, though Standard Chartered Ban k 74 was boosting their profit before taxes, high tax bracket (along with high expens es & lower income from investment) pulled their profit after tax comparatively lower. And the final outcome was the stagnancy in the growth rate of earning assets. 3.18.8 Net Bank Operating Margin: Net Bank Operating Margin (%) = (Operating income Operating expenses) / Total assets. 1999 2000 2001 2002 5.56 6.38 6.03 4.77 This ratio says how effectively management is running its operations by using as sets to generate income and expenses. This ratio is in decreasing mode in 2001 & 2002 . The vital reason is upward moving tendency of overhead expenditures. Standard Chartered Banks printing, repair, maintenance, postage and telephone cost was significant over these periods. Printing and stationary cost went up by 63% in 2 001 and 143% in 2002, repair & maintenance cost went up by 250% in 2001 and 117% in 2002. Other operating income account also gone down by 73.85% in 2002 whereas other operating expense went up by 144% in 2002. As a result the net non-interes t income in 2001 increased by only 8.88% and in 2002 it decreased by 52.96%. And t he final effect is decreasing net operating margin. So to boost up this ratio, Standard Chartered Bank should adopt a stringent policy to control overhead/ non-interest expenses and find out ways to earn more as non interest income. 3.18.9 Net Profit Margin: Net Profit Margin (%) = Net income after taxes / Total operating revenue. 1999 2000 2001 2002 19.92 25.35 25.55 15.08 This ratio reflects effectiveness of expense management, cost control and servic e pricing policies. We find it relatively stable in 2000 and 2001 but decreased by 15.08% in 2002. The effect of operating expenses and taxes is obvious for this l ower trend. Provision for taxes increased by 107% in 2002 and interest paid on deposi ts increased by 106% in 2002. As a result, though provision for loans decreased by

23%, the net income increased only by 8.42%. 3.18.10 Equity multiplier: 75 Equity multiplier (in x) = Total assets / Total equity. 1999 2000 2001 2002 12.81 13.22 16.67 19.37 This ratio reflects the leverage or financing policies; the sources chosen to fund the assets. The percentage growth rate of assets, liabilities and equities are given below: % Increase of FROM 992000 FROM 20002001 FROM 2001-2002 Assets 18.56 36.56 88.82 Liabilities 18.87 38.88 90.50 Equity 14.91 8.29 62.52 It is obvious from the table that equity accounts for less than 20% in financing assets. This is a common issue for all the banks. Since banks lend the same fund what they borrow from the savers, liability contributes most in financing assets. Sin ce the liability is higher risk is also higher. It gives the management high pressure t o make good loans. Because if they have to write off a loan, they have to write it off from the equity portion. So there may be a chance to have a negative equity which may put the bank under severe control and regulations adopted by the Central Bank. 3.18.11 Tax management efficiency: Tax management efficiency (%) = Net income after taxes / Net income before taxes . 1999 2000 2001 2002 54.91 52.12 51.23 35.47 This ratio indicates a companys efficient use of tax management tools (such as buying tax exempt Govt. bonds) and thus controlling the tax effect to boost n et income. This ratio for Standard Chartered Bank was relatively stable 1999, 2000, 2001 but decreased in 2002. It can be inferred that since earning before taxes increased by 56% in 2002, Standard Chartered Bank fell in the higher tax bracket and thus paid higher taxes. As I have mentioned earlier, banks are entitled to pay t he second highest amount (tobacco companies pay the highest amount of taxes, for e. g. BATs taxes account for 9% of the total tax collection by the Government) to the national exchequer in the form of taxes. Since it is the Government who fixes th e rate 76 of tax and monitors it, Standard Chartered Bank has least to do in managing taxe s. In foreign countries, to control the taxes companies usually purchase tax exempt municipal bond. But in our country this type of bonds are not available.

3.18.12 Expense control efficiency: Expense control efficiency (%) = Net income before tax & security gains / Total Operating revenue 1999 2000 2001 2002 36.29 48.63 49.87 42.52 It is a measure of operating efficiency and expense control. It indicates the am ount of revenue survive after operating expenses are removed. For Standard Chartered Ban k this ratio was stable in 2000 and 2001 but not so satisfactory in 1999 and 2002. Particularly in 2002 the salaries and allowances increased by 113%, rent, taxes, insurance cost increased by 50%, advertisement rose by 143%, other operating expenses rose by 144%, repair, maintenance by 233%. Mainly for competition Standard Chartered Bank increased these expenses. They increased the salary structure to get the most energetic, visionary personn el from the market. They increased advertisement to create awareness among the customers and to let people know who they are, what value-yielding product they are offeri ng, their benefits etc. Moreover to retain customers, top management arranged family day, customer weeks in which the premium clients were invited and awarded gifts. These activities increased the overall expenses. But one thing is important to m ention here that these expenses might be seen as an investment by Standard Chartered Ba nk to increase the image and customer values. May be they were sacrificing their pr ofits by these activities but they were strengthening their customer base. So it will not be a surprise if there is boost in the net income of 2003 / 2004. 3.18.13 Average asset yield: Average asset yield (%) = Total interest income / Total earning assets. 1999 2000 2001 2002 77 11.69 10.71 8.73 8.60 This indicates management efficiency on how they price their assets to generate income. The trend is declining over the years. Three reasons can be worth mentionable: a. Standard Chartered Bank usually doesnt give long-term loans. This is also true for other foreign banks. Usually they grant loans for a maximum maturity period of three years. Since the maturity period is short, risk is low and return is al so low. b. Lack of interest in investing in the stock market. Their stock market investm ent is only 0.15% of Government security investment. So logically the earning from investment is low. c. Political turmoil, lack of good governance and macroeconomic unstability is t he third reason of such declining trend. Loan defaulters can get away from punishment under political shelter. So Standard Chartered Bank doesnt give long term loans. And stock market of Bangladesh is an inefficient and unstable organization which discourages the management to invest there. 3.18.14 Average Liability cost: Average liability cost (%) = Total interest expenses / Total interest-bearing li abilities. 1999 2000 2001 2002 5.87 4.51 2.86 2.98 This ratio indicates the cost of sources to finance the assets. The ratio for Standard Chartered Bank shows a declining trend, which is good in the sense that they

are getting cheap sources to finance their assets. But it can be seen only as a shortterm gain and in the long run it is alarming also. Since every local bank is giving m ore interests on deposits and investors also have found that depositing money in the bank is the safest investment, rationally they will move to banks which will offer th em maximum value on their deposits. In that case Standard Chartered Bank might lose their individual customers and they may face lack of sources to finance their as sets instead of their cheap sources. 78 Liquidity Indicator: 3.18.15 Cash Position Indicator: Cash Position Indicator (%) = Cash and deposit due from other banks / Total assets. 1999 2000 2001 2002 0.01 6.95 3.66 0.04 A greater proportion implies that the bank is in a stronger position to handle immediate cash needs. For Standard Chartered Bank this ratio represents severe u ps and downs. This ratio drastically falls below 1% in 1999 and 2002. The main reas on is that in these two years the banks balance sheet shows nil amount of money at ca ll and short notice. This indicates a serious liquidity crisis. If this liquidity cr isis remains in 2003, the bank may has to borrow money from other banks at a high call money rate (for e.g. during Eid) which in turn will increase interest cost of th e bank. 3.18.16 Capacity Ratio: Capacity Ratio (%) = Net loans and advances / Total assets. 1999 2000 2001 2002 61.39 62.19 71.61 71.19 This is a negative liquidity indicator because loans and advances are most illiq uid assets of a bank. In 1999 and 2000 it was an average of 62.5% and in 2001 and 20 02 it was an average of 71.5%. It means that their liquid asset is going down which might be alarming in case of short-term necessity. 79 Findings & Recommendation 80 3.19 Drawbacks found in SCBs various customer services. At SCB, customers often feel problem with the ATM card, when a credit card is retained in the ATM due to technical failure, the customer is requested to take delivery of the card on the next working day. It is not possible, for SCB to ret urn the card on the same day. This creates inconvenience for the customer, as this unabl e them to withdraw their fund at that point in time. It is found that in most bran ches of SCB, there is huge queue waiting for deposit or withdrawals. SCB have also arran ged isolated queue for the account holders only. But, even these have not helped muc h, as

still now huge queue is observed at the Branches. For opening an account differe nt forms have to be filled out with the same information like name, address, nation ality, date of birth, etc. Many customers complained found that SCB sometimes delay in issuing cheque book, ATM, PIN, Telephone Identification Number (TIN) for their customers, and this in result creates huge inconvenience for the account holders . More significantly, account holders often complain that they do not receive the state ment for their account, as per the instruction. Above all, most of the customers complain that SCB charges very high charge for their services. This in result, have discouraged many prospective customers to s tart relationship with SCB. On an average it is found that most of the account holder s who are closing their account, are due to the fact of high fee and charges. Everyday three to four accounts are closed in every branch due to high charges. 3.19.1 Findings and Recommendation SCB is a well-known international bank with a reputation to live up to. It is hi gh time to improve the performance of the SCB branches before more damage in the form of customer dissatisfaction occurs. A set of recommendation is set forth below to improve customer service. Every local branch should be authorized to handle all problems in connection with the retention of credit cards by ATM. 81 More manpower is required to handle the manifold problems associated with customer service. The bank personnel should explain the speed cheque box purpose more clearly because many customers are afraid to use it. The bank should do away with the procedure of asking the same information from the customers more than once in connection with opening a bank account. The bank should issue chequebooks, ATM, statement, PIN and TIN on time. The bank should immediately revise its tariffs to retain its customers. The branch officials should go through training and other motivational programs more often that would liven up their spirit of work to a great extents 82 Operational Process and Products of F.I 83 4. Financial Institution Department Standard Chartered has an established presence in Asia for almost 150 years and have an extensive network throughout the region, and have built up a wealth of experi ence in the servicing and financing of trade for both local corporate customers and n umber of correspondent banks. Financial Institution Department (Former Institutional Banking Group) of SCB, Dhaka Commenced business from 1995. FI markets Trade and Payment products through its strong Global Network. Within a short span of time FI has tremendous ly increased its market share in Bangladesh. At the end 2002 FI has expanded relationship with 34 local banks and managed approximately 29% of market share. Financial Institutions credit exposure is largely on the trade finance sector of local banks.

4.1 Nature of Business: Leveraging on the world-wide network of SCB branches, FI provides trade related services i.e. advising & confirming, negotiating and discounting of letters of c redit, reimbursement and fund transfer under letters of credit and account services i.e . deposit of export proceeds, term and overnight investment of excess cash. The bulk of the business relates to the Ready Made Garment Industry (RMG), oil a nd other commodities and capital equipment. Almost entire business is true trade wi th tenors less than 180 days. Over 50% of bank limits are used for the import of ra w materials from the Far East for the RMG industry, whereby garments are made up i n Bangladesh and then shipped out to Europe and the US against export L/Cs. 4.2 Establishment of new correspondent relationship FI-Bangladesh is responsible for promoting correspondent banking tie-ups with lo cal banks and financial institutions with a view to maximizing the overall revenues globally from each relationship. Thats why Agency Arrangement are generally 84 initiated by Relationship Managers (RMs) of FI-Bangladesh. Consideration is given to account profitability, reputation of the customer and future growth prospect of the relationship before establishing any agency arrangement. Agency arrangement means establishment of correspondent relationship between two separate banks situated in two different countries. Agency arrangeme nt is established in order to channelise foreign exchange transactions of the two b anks under the arrangement with ultimate goal to ease and promote the business of the banks, in broader sense, of the two countries involved. Common business transact ions done through agency arrangement are Establishment of L/C Collection Items L/C Reimbursement Add Confirmation of L/Cs Credit Lines etc. While approving the setting up of a new correspondent relationship with another institution, it is the responsibility of the local FI RM to confirm the bona fide existence and regulated status of the concerned institution. After receiving a f ormal request from the customer, an assigned RM negotiates the terms & conditions with the prospective customer. These agreed terms and conditions are then incorporated in the agency agreement, which also outlines the modus operandi of the arrangement. Following documents are also collected from the customer which are kept in safe custody by FI-Bangladesh: i. Copy of Banks License. ii. Article and Memorandum of Association. iii. Certificate of Incorporation. iv. Copy of the Statute. v. List of authorized signatories (Signature Booklet). 85 The signature booklets are also distributed to major SCB branches after consulti ng

with the customer. FI, RM may waive the need to obtain any one of the above documents if he is otherwise satisfied about the credentials of the new correspo ndent. Telegraphic test Keys and SWIFT Authenticator Keys (BKE) are to be established once agency arrangements are finalized. FI-Bangladesh will request Agency Arrangement, London to issue Text keys or swift Authenticator Keys for mutual us e and to forward keys directly to the customer.Products of Financial Institution Department: 4.3 The key products of Financial Institution Department are divided into two categories. 4.3.1 Risk Products L/C Confirmation Negotiations Inter and intra Bank Guarantee Local Bill Discounting 4.3.2 Non-Risk Products L/C Advising L/C Transfer L/C amendment advising Reimbursement Undertaking and Authorities Fund Transfers Export proceeds BDT Draft Drawing International Payments (T Ts) Account Services (Vostro Account Management) 86 4.4 Description of Products: RISK PRODUCTS: 4.4.1 L/C Confirmation When the beneficiary or the seller receives the letter of credit from the issuin g bank he wants to be sure that he must get paid after delivering the goods. In this ca se the seller wants the confirmation of payments from the advising bank. Standard Chart ered Bank, when acts as an advising bank gives the add confirmation to the seller tha t this letter of credit is authenticate and the payments will be made after full fillin g all the terms and conditions of the letter of credit, so Standard Chartered is prepared to add its confirmation to the letter of credits advised through its network, subject t o credit and country limits being available. 4.4.2Negotiation As the letter of credit is a freely negotiable financial instrument, any bank in the sellers country can be a negotiating bank. Negotiation of a letter of credit mean after delivering the goods to the buyers and full filling all the terms and conditions of the letter of credit, the seller presents the documents to a bank, like Standard Cha rtered. Then, it will examine all the documents as per the letter of credit. If the docu ments are correct and up to date the negotiating bank pays the seller or its like just pur chases the documents from the seller. Standard Chartered advising and negotiation fees for each

market are based on local practices and applicable regulatory guidelines. This i s subject to periodic review and revision. 4.4.3 Inter and Intra bank guarantee By this risk product Standard Chartered gives facilities to both the local and international corporate customers. This types of inter and intra bank guarantees gives the buyers a certainty over receiving pre-agreed payments if a suppliers fails t o meet its contractual obligations. Standard Chartereds Financial Institution Banking is sues 87 guarantees and advance payments guarantees against counter guarantees received from correspondent banks worldwide. 4.4.4 Local Bill Discounting Standard Chartered understands the working capital needs of a company and offers Discounting of letter of credit at when a seller gets an usance or deferred lett er of credit from a buyer, the seller may wants to get the money for acquiring goods i n advance or production cost earlier than the credit expires. Standard Chartered Banks Financial Institution banking offers discounting of bill s of exchange/drafts that have been accepted by the letter of credit issuing bank und er local letter of credit, master export letter of credit. By this type of service Standard Chartered facilitates the manufactures or suppliers to manage their cash flow mo re effectively and get access to bank easy finance. NON-RISK PRODUCTS: 4.4.5 L/C Advising When a corporate customer process a letter of credit from a local bank favoring the buyers in the different country the letter of credit has to be advised to the se llers or beneficiary. It means after the contract between the buyer and seller, the buyer issues a letter of credit from his bank to the sellers bank to notify that he wants to b uy the goods. But, in this case the sellers bank does not know the buyers bank. When the buyers and sellers are in the different countries, the risk of the non-payment i s high and the authenticity of the letter of credit also major issue. In these situation international or global banks or any other nominated banks, l ike Standard Chartered Banks takes the responsibility to advise the letter of credit to the s ellers or sellers bank. The beneficiary receives the letter of credit promptly and the authenticit y is checked though the seller can start the process to deliver the goods right in time to th e buyers. 88 Add instructions & send to SCB Payments sing Beneficiary Advising beneficiary Processing documents Payments Collecting payments Processing

Documents L/C application Goods 89 Issuing Bank Importer Negotiating Bank Exporter Standard Chartered Bank 4.4.6 L/C Amendment: Parties involved in a L/C, particularly the seller and the buyer, can not always satisfy the terms and conditions in full as expected due to some obvious and genuine rea sons. In such a situation, the credit should be amended. In case of favorable credit, it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable c redit, it can neither be amended nor cancelled without the agreement of the issuing ban k, the confirming bank (if any) and the beneficiary. Amendment of a L/C is required for the following reasons: i) If the value of the L/C ha been increased or decreased. ii) If the expiry date of the L/C has been extended iii) If the name of reimbursing bank mentioned wrongly, etc. 4.4.7 Reimbursement Undertaking and Authorities On the other side the buyer is also concern that when and how to pay the seller. Letter of Credit Reimbursement helps the buyer simplify a complex trade finance problem ; how to settle payment when the issuing bank is not a correspondent of the benefi ciary bank. When the sellers opens a letter of credit, incorporate a reimbursement instruction into the terms of the letter of credit allowing a beneficiary bank a nywhere in the world to claim payments from the Standard Chartered branches in the count ry where the issuing bank has established its account relationship. When the buyer uses a letter of credit along with that simply send a separate reimbursement Authorization to Standard Chartered to effect reimbursement, preferably in a written paper. Standard Chartered Bank offer the flexibility to stipulate an exact or an approximate amount, as well as choosing whether the claim may or may not be restricted. On the receipt of a claim from any bank from the benefici ary, Standard Chartered will be processed on the day received or on the following day depending on the agreement. 90 4.4.8 Fund Transfers Fund transfer is a non-risk product which helps the buyers and sellers to settle their payments intensely according to the letter of credit directly to the beneficiarys account any where in the world. Standard Chartered continuous link service gives customers to send their funds in any where in the world at any time. 4.4.9 Export proceeds To an exporter it is very important to keep control over his goods until he is c onfident enough that he is going to receive payments from the buyers or importers. Standa

rd Chartered Export proceeds collection service take charge of the process document transfer adding greater whole transaction. In this process Standard Chartered will collect all the documents from the expor ter and arrange for them to be held at the exporter disposal during the transaction period. Once the process is complete Standard Chartered will liaise with the buyers bank on behalf of the exporter, arrange the documents to be transfer to that bank and co llect the payment. 4.4.10 Discounting Discounting of letter of credit at Standard Chartered Bank mean, when a buyer or beneficiary get an usance letter of credit from a buyer, he may wants to get the money for acquiring goods in advance or production cost earlier than the credit terms. By this type of service Standard Chartered facilitates the manufactures or suppliers to manage their cash more effectively. 4.4.11 Vostro Accounts Financial Institution Department, Bangladesh maintains Vostro Accounts of bankin g and financial institutions worldwide, customer maintaining such account can remi t funds throughout the country through the Standard Chartered Bank branch network as well as through- Chartered Bank s local correspondent relationships. 91 4.4.12 Nostro Accounts In order to increase and promote the correspondent banking business worldwide, F .I uses Nostro accounts to Bangladeshi banks and financial institutions in almost a ll spanning the Standard Chartered Bank global network. Group branches and sides provide full clearing and payment services in the UK, USA, Hong Kong, Malaysia, Singapore and many African countries. Worldwide payments services are facilitate d by a network of branches supported by electronic cash management (available in select locations), fund transfer system and membership of SWIFT. 4.4.13 Account Services F.I offers the full range of services available under Trade Finance to its custo mers. The Standard Chartered Bank network in China, the Far East, the Middle East, the Indian sub-continent, Africa, UK and USA makes SCB the natural choice of correspondents for advising, confirming, and negotiating their letters of credit in these territories. 92 4.5 Operational Process of Products Issuing a Letter of Credit: Before issuing a L/C, the buyer and seller located in different countries, concl udes a sales contract providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank-the issuing bank-to issue a credit in favour of the seller (beneficiary). Instruction/Application for issuing a credit should be mad e by the

buyer (importer) in the issuing banks standard form. The credit application which contains the full details of the proposed credit, also serves as an agreement be tween the bank and the buyer. After being convinced about the necessary conditions contained in the application form and sufficient conditions to be fulfilled by the buyer for op ening a credits the opening bank then proceeds for opening the credit to be addressed to the beneficiary. Reimbursement Authorities: Reimbursement authorisation means an instruction or authorisation, independent o f the credit, issued by an Issuing Bank to a Reimbursing Bank to reimburse a claim ing Banker if so requested by the issuing bank, to accept and pay a time draft drawn on the reimbursing Bank. In fact, FI of Standard Chartered Bank Dhaka acts as a corresponding bank of Reimbursing Bank i.e. Standard Chartered Bank, New York. Performing as the corresponding bank of Reimbursing Bank (SCB, New York), the FI of SCB, Dhaka, acts on the instruction and under the authority of the Issuing Ba nk. In case of Reimbursement Authority, these should be a reimbursement claim from t he Claiming Bank to the Reimbursing Bank (SCB, New York). Except as provided by the terms of its Reimbursement undertaking, a Reimbursing Bank (SCB, New York) is not obligated to honor a Reimbursement Claim. Local banks branches in Bangladesh send reimbursement authorizations (RAs) to FI Unit at Dhaka. These RAs are either collected by nominated courier service or se nt 93 directly by the branch. On many occasions FI peon collects RAs from branches of customer banks. All RAs are to be signed by two authorized signatories of the concerned bank bra nch. Signatures appearing in the RAs are to be verified by any Group Signatory using Authorized Signature Booklet of the banks and/or List of Authorized Signatories received from branches. RAs should contain L/C number, L/C Expiry, Amount, Charges, the account to be debited and in some occasion the name of the claiming bank. Prior to process/forwarding, FI clerk checks these details and in case of any clarificati on, contacts the concerned branch. As it is a legal requirement that all Reimbursement Authorizations and Reimbursement Amendments must be issued in the form of an authenticated teletran smission thats why Swift/Telex usually sends Reimbursement Authorizations (RAs) to respective network offices. RAs are sent through swift MT 799. RAs are also sent by courier. Processing of RA: Where courier service is used for onward transmission of RAs: Original copies are sent to receiving group office e.g. SCB NY, Attn. Trade Reimbursement Dept. And copies are retained for future reference. Where RAs are sent by SWIFT: FI- ops clerk prepares the reimbursement authority in MT 1999 on behalf of the local bank. FI-Ops officer verifies the message. Any of the Relationship Managers authenticates & sends the message. The following morning FI receives the original/copies of the SWIFT message.

Clerk sends a copy of the message to the concerned bank. 94 Another copy of the transmitted message is filed along with the original RA received from the local bank. Where RAs are sent by Telex: Having completed the above, clerk prepared an authority on behalf of the local bank. Clerk takes a print out of the message, checks and puts his initial on the print-out. At the same time he also saves the file in a diskette for communications room. Manager/RM FI checks the print-out against instructions received and puts his signature in full on the print out and sends the same to communications room for dispatch. Communication room authenticates and dispatches the RA message. The following morning FI receives the original copy of the dispatched message and ensures it agrees with the original instruction. Checking clerk/officer initials the copy. Clerk sends a copy of the message to the concerned bank. The original transmitted copy is filed along with the original RA received from the local bank. Fund Transfer: Fund Transfer or payment Instruction means an instruction issued by an Issuing B ank to a Reimbursement Bank to debit its respective account directly on the value da te mentioned in it. Payment services are facilitated by this product of FI. In case of fund transfer there need not to be claimed. On the value date the instruction of the issuing bank is executed. Local banks branches in Bangladesh send Fund Transfer (FT) Instructions to FI Un it at Dhaka. These FTs are either collected by our nominated courier service or sen t directly by the branch. On many occasions FI peon collects FTs from branches of customer banks. All FTs are signed by two authorized signatories of the concerne d 95 bank branch. Signatures appearing in the FTs are to be verified by any FI-Ops St affs using Authorized Signature Booklet of the banks and / or List of Authorized Signatories received from branches. The FTs contain L/C number, Amount, Value date, Beneficiary details, Ordering customer, Charges, the account to be debited etc. FI clerk checks the FTs for al l these details and in case of any incomplete information/clarification, he/she contacts the concerned branch. Any subsequent amendments are made through an authorized signatory of the concerned bank and this is further verified at our end. Having completed the above clerk inputs the Fund Transfer-Connect paying particular attention to the amount, currency, value date and other beneficiary details. TRANSACTION FLOW Fedwire MT202 Book TRF Chips Processing of Fund Transfer: Where FTs are sent by SWIFT The FTs are inputted in SWIFT format MT 202 FI-Ops officer verifies the message Any of the Relationship Managers authenticates the message and sends it.

The following morning FI receives the original/copies of the swift message. 96 Import Customer L/C Importers Bank SCB New York U.S. Correspond ent Bank Standard Chartered Bank U.S. Correspond ent Bank SCB Dhaka L/C Beneficiary Banks Account L/C Beneficiary Banks Account L/C Beneficiary Banks Account Clerk sends a copy of the message to the concerned bank. Another copy of the transmitted message is filled along with the original FT Instruction received from the local bank. Where FTs are processed by Telex: After inputting details clerk takes a printout of the same, checks and puts init ial on the computer print-out. At the same time he also saves the file in a diskette. FI-Ops Officer checks the printout against instructions received and puts his signature in full on the printout and sends the same to communications room. Communications room authenticates and dispatches the FTs to the receiving bank e.g. SCB NY, Attn. Fund Transfer Department. Original FT Instructions received from customer banks are retained at FI Dhaka. Transmitted copy of FTs are checked against the original copies, signed by FI-Op s officer and retained at FI Dhaka. A duplicate copy is sent to the concerned bank branch originating the FT. L/C Confirmation A confirmation of a Letter of Credit is a conditional undertaking given by the Confirming Bank to the Beneficiary (Exporter), to pay or negotiate/accept Bills of Exchange (Drafts), if the stipulated documents are presented to the Confirming B ank in Compliance with the terms and conditions of the L/C such confirmation, author ized by the Issuing Bank, Constitutes a second, separate conditional guarantee of pay ment from the confirming Bank to the Beneficiary. In this regard SCB only consider ad ding

its confirmation to irrevocable Documentary L/Cs. Here silent confirmation is no t considered by SCB, Dhaka. As Beneficiary wants to be more secured thats why it wants confirmation from SCB centre. At this point Trade Approval System (TAS) raises. To get confirmation, t he Beneficiary at the counter of SCB Centre request them to add its confirmation so that 97 he/she could be more secured SCB centre then raises TAS and sends it to SCB, Dhaka for approval. TAS is a formal electronic application for approval which contains all the details of a particular documentary credit SCB, Dhaka, at its c ounter approve TAS by considering some quantitative & qualitative factors. Transaction Process On receipt of the instructions to confirm a letter of credit, the processing uni t must ensure that: The letter of credit is authentic. Sufficient Product limits are available in the name of the Issuing Bank and Country-including any tolerance allowed with regards to amount. The terms of the L/C are clear and unambiguous. Clarification is sought immediately from the Issuing Bank where necessary. The reimbursement instructions are clear and concise. The beneficiary agrees to the payment of confirmation fees (when they are for hi s account). This is particularly important in certain Asian markets. When the forwarding the confirmed letter of credit to the beneficiary, it is cri tical that the amount confirmed and the period of confirmation is clearly stated. In cases where discrepancies are found in documents under a usance Confirmed L/C, which are subsequently accepted by the Issuing Bank, SCB must: Obtain approval from the original approving units to extend the confirmation period if appropriate (e.g. the L/C has expired or the amount has exceeded);or Consider whether it still wishes to extend the confirmation period. If not, the L/C beneficiary must be advised that SCBs confirmation has fallen away at the same time as they are advised that the Issuing bank accepts the discrepancies. Risk: The main purpose of a Confirmation is to remove the Bank and Country Risk associated with the transaction from the beneficiary, with the Confirming Bank undertaking these risks. A Confirmation also gives the beneficiary the opportuni ty to obtain non-recourse, post-shipment finance against compliant documents. 98 Accordingly, the exporter should request the establishment of an irrevocable, Confirmed Documentary Letter of Credit. The main risks that (SCB) undertakes with this product are summarized as follows : Risk Description Country Issuing Banks Credit Issuing Bank Operational Documentary The transactions should reflect the nature/size of the customers business and the terms of trade for the industry. The maximum tenor for this product is : Validity period: 180 days Usance Period: 180 days Combined validity and usance period : 270 days

Any exceptions must be documented and require separate appropriate credit approv al. The main risks that SCB undertakes: Risk Country Risk Bank Risk Operational Risk Country Risk: This is the risk that SCB undertakes on the country of the L/C Issuing Bank once the Credit has been issued and confirmed. Formal approval of the associated Bank and Country risks must always be obtained from the centre(s) responsible for providing such approvals prior to the custome r being advised that SCB has added its confirmation to the transaction. Exposure should be booked as a contingent liability against the Issuing Bank and Country in question. The ability to confirm our own branch paper has always been presumed to be implicit, due to the fact that a branch issued the letter of cred it in the first instance, and consequently the Bank would stand behind the paper. 99 Bank Risk: This is the risk that SCB undertakes on the L/C Issuing Bank once the L/C has be en issued and confirmed. Confirmation of a sight L/C is considered lower risk than confirming a usance L/ C of similar value, similar total duration and issued by the same Issuing Bank. Sight L/C Day1 Day 180 L/C confirmed Documents present on L/C expiry date In the above example, the Confirming Bank has a 180-day confirmation contingent liability risk. If the L/C Issuing Bank (or its country of domicile) fails durin g the 180day period, the Confirming Bank may not suffer loss if documents subsequently presented are found discrepant. 180 days Usance L/C Day 1 Day 20 Day 180 L/C Confirmed Documents Documents presented on Presented L/C expiry date. In this example, assuming compliant documents are presented on day 20, the confirming Bank must pay at maturity even it the L/C Issuing Bank (or its countr y of domicile) fails between day 20 and day 200. This is due to the fact that from da y 20 the Confirming Banks undertaking has become unconditional. In the event of an Issuing Bank failing to reimburse the proceeds of a bill under compliant documen ts, the FI Relationship Manger for this bank must be informed immediately for furthe r action to be taken. 100 Operational Risk: The key operational risks are: Where SCB is the Confirming Bank it has a duty to check the documents and ensure their conformity with the L/C; in other words, SCB is exposed to Documentary ris ks, and any payment effected is without recourse to the beneficiary once SCB certifies the documents as clean. Procedures for handling the checking of documents must b e in accordance with existing operational processes and internal guidelines.

There is a risk that a Confirmation could be issued without approval when approv al is required. all Service Delivery areas must ensure that approval to confirm L/Cs i s requested and obtained on case by case basis in accordance with laid down proced ures and relevant Group Instruction Circulars. Other Risk: SCB also faces inherent risk when it adds confirmation to a L/C where the reimbursement clause states that the Issuing Bank only agrees to reimburse the Confirming Bank to receipt of compliant documents at its own counters. SCB can choose either not to confirm, or confirm the L/C subject to conditions agreed with the beneficiary. If the Confirming Bank fails to spot any adverse terms or ambiguous clauses in t he L/C, the Bank may not be able to obtain payment from the Issuing Bank. Therefore , the Confirming Bank should ensure that the L/C is scrutinized for any ambiguitie s before Confirmation is agreed. Discounting of Drafts 101 SCB can offer Corporate Customers without recourse discounting of local currency bills of exchange and drafts that have been accepted by the buyers bank (the Accepting Bank). Such drafts are hereinafter called Accepted Drafts and are transferable to a third party. Transaction Process: A typical transaction would be: a) Customer sells goods or services to its Buyer. The buyer issues a draft drawn on its bank and asks its bank to Accept it. The date for payment of the Accepted Draft will reflect the agreed payment terms between customer and the buyer. b) The buyer sends to customer the Accepted Draft. c) Customer requires SCB to discount the Accepted Draft on a without recourse basis. d) Upon request to discount the Accepted Draft, SCB telex request via SWIFT the Acceptance Bank to confirm by authenticated telex/SWIFT that proceeds are to be remitted to SCB on due date (specifying the due date). e) At presentation on maturity, the Accepting Bank honors the Accepted Draft and remits proceeds to SCB Risk: The main risks here are: Risk Without recourse Customer Credit Risk No Accepting Bank Risk and Country Risk Yes Operational Risks (including fraud) Yes Market Risk Movements in interest rates if not match funded The tenor of the Accepted Drafts should reflect the usual terms of trade for the industry with a maximum tenor of 180 days. Risk Credit Risk Bank Risk & Country Risk Operational Risk Market Risk 102 Credit Risk: SCBs obligor under this program is the accepting bank SCB normally has no recourse to the corporate customer, except in the event of fraud alteration of b ills etc. Transactions should reflect the nature/size of the customers business and the te rms of trade. Local practice should be to introduce nominal credit ceilings for borrowi

ng customers but these should not be advised to customers. For non-borrowing corpor ate customers, the value of Accepted draft per transaction must not to exceed USD250, 000. Any exceptions must be approved by the SCO. Bank and Country Risk: This is the risk that SCB undertakes on the Accepted Bank (and associated countr y risk where applicable) who has guaranteed the payment of the draft. In these circumstances the primary recourse is to the Accepting Bank, and it is without recourse to the corporate exporter. Discounting should only be undertaken where appropriate bank and country risk approval has been obtained. In countries, wher e the risk of late or non-payment depends on individual branches of the Accepting Bank , the limit approval must be on a branch basis. This must be covered in the Countr y product Template. If the Accepting bank (or branch) fails to honor a valid presentation of an Acce pted Draft, the SCO and the FI Relationship Manager for this bank must be informed immediately. Operational Risk: Normal operational risk in the handling of drafts apply (e.g. safekeeping, prese ntation, checking for alteration, fraud etc.) To mitigate the risk of fraud or accommodation paper, the Customer should provid e SCB with the original supporting commercial documents to support the Accepted 103 Draft including but not limited to sales order, commercial/VAT invoice, transport/shipping documents etc. Market Risk: There may also be a basis risk due to movements between the reference rate for interest charges for the product and the banks actual cost of funds (eg Prime/Int er bank spread etc.). The product should, wherever possible, be match funded to rem ove this risk. 104 Opportunities On Local Bill Discounting For Non-Corporate Entities 105 5. Local Bill Discounting for Non-Corporate Entities by Financial Institution Department 5.1 Introduction: Foreign Trade in Bangladesh is still dominated by imports resulting in adverse balance of trade. Export has registered a significant volume growth over the pas t years and the export import gap is reducing every year. In early seventies, the export of Bangladesh was dominated by jute items only. In fact 90% of the export earning a t that time was from jute sector and the rest 10% from leather and tea sectors. Th e situation, however, started changing with the introduction of non- traditional i tems

like shrimps, fish, readymade garments, finished leather, newsprint, handicrafts etc. The over all export earnings also increased considerably over the years and reac hed a level of 5.31 billion US dollars in 1998-99 and at the end of 2002, at was US$8. 1 billion. The Total exports during 1997-2002 was: Source: EPB Year wise Export trend 106 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 USD (Million) Others 1,537 1,696 1,918 2,208 2,500 Knitwear 983 1,178 1,412 1,687 2,010 RMG 2,500 2,756 3,010 3,280 3,590 1997-98 1998-99 1999-2000 2000-01 2001-02 Considering the above information, it has been observed that Readymade Garments and Knitwear are the two dominating sectors, which are contributing almost 70% o f the total export. Source: EPB Export composition for the year 2001-02 Local Bill Discounting (LBD) refers to discounting of BDT/US$ usance bills drawn under in-land Letters of Credit utilizing either the exposure on corporate or the L/C issuing bank. The product is directly related to export of readymade garments, as in Bangladesh, most of exporters require pre-export financing, which is covered by discounting of export bills. Currently Corporate Banking is offering this product to their regular client base using exposure on both customer as well as L/C issuing banks. Financial Institution Department is contemplating to offer standard Local Bill Discounting product to a clientele base currently in the status of non-corporate or non-borrowing corporate customer. FI intends to leverage on the strong relations hip with local banks and use a portion of trade limits currently extended to these b anks for this product. 5.1.1 The Environment Banking Industry is passing through various phases of reforms. Overall, the Indu stry has shown gradual improvement with significant reduction in NPL. Government and Bangladesh Bank (Central Bank) have started the IMF financed Nationalized Commercial Bank (NCB) reform initiative. Management of Agrani Bank has been 107 Jute goods Leather 4% 4% Frozen food 5%

Knitwear 25% Others 18% Readymade Garments 44% awarded to Price Waterhouse Coopers (PWC), under this reform plan for a three ye ar term. As a pre-condition to this reform plan all the four state owned banks have signed an MOU with Bangladesh Bank under which activities of the banks have been severely restricted. BB has adopted the risk weighted capital adequacy requirement a couple of years ago. Current requirement, effective from June, 2003, is 9% while this was 8% earlier. Minimum Capital requirement has been elevated to BDT1 billion (US$17.25 million) . Each bank must build up that capital base by March, 2005. Cash Reserve Ratio (CRR) remains same as 4% while Statutory Liquidity Ratio (SLR) requirement has recently been reduced to 12% from 16%. From the year 2002 it was decided by BB that FCY balance with Central Bank will not be considered as part of CRR. Recently the bank rate has also been reduced to 5% fr om earlier 6%. Government has also decided to align the interest rate of Saving Certificates with that of interest of Treasury Bills. However, a separate move i s on to segregate the pensioners by offering them a higher yielding instrument. BB and Government have expressed their intention to bring down the interest rate to sin gle digit. The countrys banking sector is entering into a competitive era as newly established private commercial banks have started operation. A total of 30 priva te commercial banks are operating as of December31, 2002. 5.1.2 Product Description SCB offers Corporate Customers with or without recourse discounting of bills of exchange / drafts that have been accepted by the Issuing bank (the Accepting Ban k) under local L/Cs. In some countries these local L/Cs can also be issued in a for m of Quasi Back to Back L/Cs with Export L/Cs held as a security. A typical transaction would be: 1. An exporter receives export L/Cs from its importer (the master L/C). 108 2. Local usance L/Cs issued from the exporters bank in favor of its Domestic Suppliers (SCB Customers) and advised through SCB. These L/Cs can be Quasi Back to Back L/Cs if the master LC is held as security. 3. The Domestic Supplier (beneficiary of the local L/C) presents L/C documents t o SCB with a usance bill drawn on the Issuing Bank. 4. The Domestic Suppliers Bank (SCB) will forward documents to Issuing Bank on approval basis acceptance under UCP 500. 5. The issuing bank of the local LC (the importers bank) accepts the documents an d drafts and send the advice of acceptance mentioning the maturity date to the Domestic Suppliers bank (SCB) under the L/C. 6. The Domestic Supplier asks SCB to discount the Bill on the strength of the Issuing Banks confirmation of acceptance and maturity date of the bill for payment as per L/C terms. 5.1.3 Client Base: The target customers will be the entities mostly involved with Ready-made Garmen

t Industries. Fabric Manufacturers (includes Spinning, Weaving, Dyeing & Finishing Mills), Accessories Manufacturers (Zippers, buttons, thread, carton, interlining etc) and other service providers such as Washing and Embroidery. Another segment will be the leather manufacturers who supply finished leather to Shoe; Bag and other leather based end product manufacturers. Any other entity meeting their cash flow needs, through LBD, will also be amongst the target mark et. Except for the Spinning Mills and big Tanneries these entities are small compani es and only a portion of their deals are done through local letters of credit while the rest is on cash basis. These companies require 109 Very quick processing of their bills once accepted. Local banks often delays the process of discounting an L/C while establishing authenticity of the L/C , completing other internal formalities within the bank. Within the bank it should be able to improve turn around time by a close co-operation between Trade Services and FI. A dedicated desk needs to be established at Trade Services to provide this product for the target customer base. Maximum percentage of Discounting. Practice among local banks is to discount around 80% of bill value. Based on the level of confidence and experience on the customer and on the L/C issuing bank, FI can extend this upto 95% Support in realizing payment in time from the L/C issuing banks This is the area where FI is in a position to add significant value to this prod uct. Unfortunately, it has become a market practice, particularly in the NCB segment, to delay the payment of these local bills from maturity date on various pretexts. W ith deep-rooted branch level contacts FI should be able to expedite such payments wi thin reasonable time. For some selected banks / customers FI can even offer this prod uct as a non-recourse one. This will mitigate the risk of delayed payment for the cu stomer and bring in additional revenue for the bank. 5.1.4 Blanket Assumptions L/C advising fee is set at flat USD 40. Although L/C advising fee varies from US$100 in USA to US$20 in India the rationale for such assumption can be traced back to the fact that majority L/Cs are routed through Far Eastern countries whe re fee is around US$50. 5% of total number of L/Cs have been set aside from our calculation assuming these get routed within country. 70-80% of confirmed L/Cs gets discounted. 110 5.1.5 Bank Briefs AGRANI BANK DYNAMICS Large ticket items including PDB, telecommunication and defense L/Cs Fragmented business ( spread over a large number of branches) Significant concentration of Ready-made Garments related b/b L/C business Oil deals are in pipeline ASSUMPTIONS India bound L/Cs represents 8% of sight L/Cs

Confirmation is required for 60% of back to back L/Cs and 30% of sight L/Cs. AL- ARAFAH ISLAMI BANK DYNAMICS Considerable amount of Ready-made Garments related b/b L/C business Good payment record Not much large ticket items ASSUMPTIONS India bound L/Cs are 20% of total sight import. 90% of sight L/Cs require confirmation. Cent percent of back to back L/Cs require confirmation. Total 6 RA s per 4 L/Cs. Reimbursement Authorizations (RAs) used only for 10% of sight L/Cs and the rest are effected through fund transfer. 111 BASIC BANGLADESH DYNAMICS Booked some large ticket fertilizer L/Cs Healthy financials and the only B graded SCB relationship A blend of small, medium and large ticket items ASSUMPTIONS India bound L/Cs are 29% of total sight import. 50% of sight L/Cs require confirmation, while 80% of back to back L/Cs require confirmation. Total 6 RA s per 4 L/Cs. DHAKA BANK LTD. DYNAMICS Healthy business growth over the years Competent management team ASSUMPTIONS 14% of sight import is from India, thus require no confirmation. 75% of sight L/Cs require confirmation while 95% of back to back L/Cs require confirmation. DUTCH BANGLA BANK LTD. 112 DYNAMICS Increasing their focus on RMG Good payment record Major business growth in 1999 ASSUMTIONS 18% India bound sight L/Cs. Confirmation required for 80% of sight L/Cs and 90% of back to back L/Cs. EASTERN BANK LIMITED DYNAMICS Considerable number of large ticket items Good mixture of back to back and cash L/Cs Overwhelming share of business enjoyed by SCB Excellent payment track record ASSUMPTIONS Garments related import volume is about 70% of total garments export. 10% of sight import is from India. 50% of sight L/Cs will require confirmation, 80% of garment L/Cs will require confirmation. No confirmation required for India bound L/Cs. IFIC BANK DYNAMICS Mixture of back to back and cash L/Cs No large ticket items Good payment track record 113 ASSUMPTIONS 50% India bound sight L/Cs.

10% of sight L/Cs require confirmation, 70% of back to back L/Cs require confirmation. ISLAMI BANK BANGLADESH LTD. DYNAMICS Very large concentration of Ready-made Garments related b/b L/C business American Express Bank traditionally enjoys overwhelming share of Islamis business ASSUMPTIONS 50% of sight L/Cs get confirmed. 80% of back to back L/Cs get confirmed. Reimbursement Authorizations are used only for 10% of sight L/Cs. 50% of sight L/Cs payments are effected through fund transfer, the rest is effec ted through direct debit. JANATA BANK DYNAMICS Handles government food, oil, defense and project related deals Large ticket but low volume of L/Cs Large number of branch relationships though business in heavily concentrated with their local office 114 ASSUMPTIONS 10% of sight L/Cs are India bound. $ 150 million worth of oil L/Cs. Average confirmation fee from the oil deals is around 0.25% per quarter. NATIONAL BANK LIMITED DYNAMICS Huge trade potential with considerable concentration in RMG related trade Only 2 years old relationship Large ticket items The most profitable bank among the Private Commercial Banks ASSUMPTIONS India bound L/Cs represents 15% of total sight L/Cs. Confirmation required for- 70% of back to back L/Cs, 35% of sight L/Cs. NCC BANK DYNAMICS Business focus is on trade finance Healthy trade growth over the last 4-5 years Mixture of sight and back to back business 115 ASSUMPTIONS 15% of sight L/Cs are India bound. Confirmation required sight 45%, back to back 80%. PRIME BANK DYNAMICS Large volume of back to back business Huge volume of India bound business Good management team ASSUMPTIONS 20% India bound L/Cs. SONALI BANK DYNAMICS Significant slump of business in last year Combination of RMG, government oil, defense and large ticket items ASSUMPTIONS Out of USD 367 million sight L/Cs, USD 145 million represents defense L/Cs where SCB has no role to play. Confirmation revenue from USD 170 million oil L/Cs is calculated using 100 basis points par annum. Revenue potential from the remaining USD 52 million L/Cs is calculated using standard pricing. 80% of garment L/Cs will require confirmation. No confirmation required for

India bound L/Cs. 116 No role is expected to play for Soanlis India bound L/Cs since Sonali has its own branch in India. SOUTHEAST BANK LTD. DYNAMICS No back to back focus Typically, large ticket low volume business Majority of business is India bound ASSUMPTIONS 40% of sight L/Cs are India bound. 50% of sight L/Cs and 80% of back to back L/Cs get confirmed. UTTARA BANK DYANMICS Remarkable trade growth in last few years Good blend of back to back and cash L/Cs SCB limit does not allow to accommodate large ticket items Focus is on non-risk products ASSUMPTIONS 10% India bound L/Cs Confirmation is required for 35% of sight L/Cs and 85% of back to back L/Cs. 117 5.1.6 Revenue & Volume Dynamics: Assumptions Transfer Pricing 7.5% pa (approximate rate taken) Discount Interest rate 13.0% pa average US$ Spot Rate 57.70 Revenue streams from a typical 120 days usance, US$10,000 bill will be: Interest Income BDT10, 578.00 Fee based Income BDT 1,500.00 To achieve yearly revenue target of BDT45m (NII and Fees combined) FI will need about US$45m (BDT2,500m) worth of bills per annum with an average usance period of 120 days. Peak outstanding target based on that volume is BDT800m. Volume wil l gradually build up from the beginning of the year and remain fairly static once the peak outstanding target is reached. A Chart of monthly volume target and average peak outstanding is shown below. 118 LBD Monthly Volume Forecast 0 50 100 150 200 250 Month Volume(in million BDT) Average LBD Outstanding 100.00 200.00 300.00 400.00 500.00 600.00 700.00 800.00 900.00 Month

5.1.7 Risk & Mitigants: 119 Credit: This product carries credit risk on local banks. Bank will be exposed to risk only if the L/C issuing bank defaults on payment due to bankruptcy. As most of t he deals will be on recourse basis, FI will be able to legally claim on the benefic iaries even if bank defaults on its payment obligation. Delay in payment: A more common risk to this product is the possibility of delay in making payment by the L/C issuing banks. As already discussed above FI is in a position to minimize this risk with its very good relationship with the local ba nks. Documentary risk / fraud: All LBDs are on acceptance basis. Documents submitted by the beneficiaries do not carry any risk, as these will be forwarded to issuin g bank for their acceptance. Issuance of the L/Cs and subsequent acceptances for each a nd every item will be carried out to avoid any chances of documentary / transaction al fraud. Precaution will also be taken while signing in customers for this product . To mitigate the risks, the local LC must be freely negotiable in this type of tr ansaction so that SCB can be the Negotiation bank. To maximize the revenue SCB should be the Advising bank wherever possible. The main risks for this product are summarized as follows: Risk With Recourse Without Recourse Customer Credit Risk Secondary No Accepting Bank and Country Risk Primary obligor Yes Operational Risks (including fraud) Yes Yes Market Risk Movement in interest rates and foreign exchange risks Where the discounting is provided in local currency and the Bill drawn under the local LC is in foreign currency, the foreign exchange risk must be hedged. Where no forward FX deal is contracted, the maximum margin of financing permitted will be limited to 90% of the draft value. 120 The transactions should reflect the nature / size of the customers business and t he terms of trade for the industry. The tenor of the Accepted Bills should reflect the credit conversion cycle but should not in any case exceed 180 days. Because the potential higher risk associated with local LCs, discounting without recourse should only be undertaken when approval has been obtained from Country Head of C&IB and SCO. The use of such bills for accommodation or related party finance is specifically excluded from the program. 5.1.8 Product Risk Return The facilities must be priced such that risk-adjusted minimum hurdle rates are achieved taking into account product mix, customer credit grades and security. The product risk/return must provide a value-added contribution after costs on a stand-alone basis. Value added means the product or customer relationship must b e profitable after including all business stream revenues and after deducting cost s,

including risk costs and a charge for capital costs. Minimum pricing should be set out in Country Product Template according to local business plans and underwriting Standards. 5.1.9 Risk Management This section should be read in conjunction with the standard Product Risk Management Framework, which lists the definition, mitigation and control measures of generic risks. Where there is electronic transaction initiation or delivery of electronic infor mation, please refer to the specific risk mitigants and controls referred to in the fram ework. 121 5.1.10 Customer Credit Risk Customer selection criteria and maximum transaction limits must be set out in th e Country product templates. For with recourse discounting, the primary obligor is the Issuing Bank and secon dary recourse is to the Corporate customer. A Cat1 facility limit should be establish ed on the Customer for the full amount of any with recourse discounting with an FSV ba sed on the prime obligor (the Issuing Bank). For without recourse discounting, SCBs obligor is the Issuing Bank. SCB normally has no recourse to the corporate customer, except in the event of fraud, alterat ion of the bills etc. However the customer should be known to SCB and the transactions should reflect the nature/size of the customers business. Discounting without recourse should only be undertaken when approval has been obtained from Country Head of C&IB and SCO. 5.1.11 Bank and Country Risk This is the risk that SCB undertakes on the Issuing Bank (and associated country risk*) of the local LC who has accepted the bill. The exposure is booked against Issuing Bank and Country risk for both with recou rse and without recourse discounting. Discounting should only be undertaken where appropriate Bank and Country risk approval has been obtained. In countries, where the risk of late or non-payment depends on individual branch es of the Accepting Bank, the limit approval must be on a branch basis. This must be covered in the Country Product Template. In the event that funding is in local currency with a local bank, with remittanc e at maturity in local currency, this does not impact Country limit. This must be cov ered in the Country Product Template. 122 5.1.12 State Owned Banks The nationalized banks combined earned a profit of BDT 2.46 billion in 1999, dow n from BDT 3.69 billion in 2000. The deposit mobilization for the NCBs, however, decreased by 14% from BDT 331 billion to BDT 283 billion during the same period. The main state owned banks continue to dominate the domestic retail and corporat e market as well as undertaking most government business. In 2002, the over all foreign exchange business is done by these three large nationalized banks. 123 Total Asset of NCDs 24%

23% 53% Agrani J anata Sonali Deposit & Loans/Advance 0.00 50,000.00 100,000.00 150,000.00 200,000.00 250,000.00 1 2 3 Export/Import/Remmitance-NCBs 10,000 20,000 30,000 40,000 50,000 60,000 Sonali Agrani Janata Series1 Series2 Series3 5.1.13 Policy: Credit Policy will continue to support exposure to this important sector. Pre-Se ttlement limits and settlement limits for banks graded A to E in this sector will be allo wed 150% of the appropriate ceilings. Priority will be given to trade and the full suppor t of both the Country Head and Regional Head, FI will be required to breach 100% of ceilings. Notwithstanding this ceiling, at the sole discretion of GRA, A to E graded banks can be granted L/C limits which can be risk weighted at 50%, again at the sole discreti on of GRA. Applications will need to be supported by a strong business case and carry the recommendation of both the Country Head and Regional Head, FI. For business in excess of Credit Policy Ceilings and banks graded F-G all exposu res (except FX) must be covered by lien hard currency deposits as well as local curr ency. Track record of placing of 110 pct local currency as cash cover against L/C limi t was found satisfactory since the funds are properly liened with us. In cases where l iened currency is used, proper documentation is required. 124 5.1.14 Term limitations: Interbank (Local currency) - 90 days. Trade (Confirming/negotiation) validity upto 360 days. LER Forex Forward - 360 days. Extended tenor of 360 days for trade limit is solicited due to the fact that wit h 30 to 60 days of shipment period and 21 to 30 days for negotiation, door to door tenor fo r 180 days usance L/Cs can go upto 270 days. Besides, occasionally capital machinery r elated

L/Cs are established with suppliers credit of 180 to 360 days. There are moderate exposures to Rupali Bank (graded G) which is not an FI priori ty (treasury limits) and therefore continued or additional exposure will need to be strongly supported by business plans. .5.rivate Sector Banks Operating profits earned by the private sector banks increased by more than 160% from BDT 2.01 billion in 2000 to BDT 5.27 billion in 1999. Deposits increased by 17% from BDT 127 billion to BDT 149 billion. Profits from foreign banks increased by 0.67 % from BDT 1.78 billion in 2000 to BDT 1.79 billion in 1999. Deposits in foreign b anks increased appreciably by 28% from BDT 29 billion to BDT 37 billion during the sa me period. 0 5,000 10,000 15,000 20,000 25,000 Al-Aarafa Arab Bangladesh Dhaka Eastern Islami NCCBL Social Investment The City Bank Uttara Deposit and Advance of Private Commercial Banks Deposit Advance 125 Deregulation is leading to an awakening of the private sector banks and new lice nses are being granted. The private banks are rapidly expanding through new branches. In general, banks in this sector are more professionally managed than the State ban ks, but some pose a greater danger (due to insider lending and reluctance of sponsors to inject fresh funds) even though Bangladesh Bank has stated that support will be provide d in need. Recent BB circulars restricting lending to the sponsor directors will help the banks to get rid of further insider-lending pressure. However, Bangladesh Bank is sati sfied with the improvements made by the banks in this sector during the recent years a nd it has signed an MOU with weak banks for close monitoring. Bangladesh Bank is satis fied with the improvements of some of the weak banks. The World Bank is also in favor of a greater role by the private sector banks and they strongly advocate de-nationali zation and more private banks. 5.1.15 Policy Settlement and Pre-settlement risks for A-E graded banks in this sector can go u p to 120% ceilings. Priority will be given to trade and the full support of both the Country

and Regional Head, FI will be required to breach the 100% of ceilings. Additionally L/C limits can be risk weighted at 50%, again at the sole discretio n of GRA. Applications will need to be supported by a strong business case and carry the recommendation of Head of FI. For business in excess of these Credit Policy Ceilings and banks graded F and G, all exposure (except FX) must be covered by liened hard/local currency deposits unle ss and otherwise supported by Regional Head of FI MESA for exceptional cases. 126 5.1.16 Term limitations: Interbank (local currency) 90 days Trade (confirmation/negotiation) validity upto 360 days LER forward forex 180 days Trade limit for private banks have been proposed to be 360 days from existing 18 0 days for reasons which have been explained in previous section of State owned banks. 5.1.17 New Banks in the Private Sector The Government has recently allowed nine new banks in the private sector. All of them have already started their banking operation. Capital requirement for these new banks is higher i.e., sponsored capital BDT 200 million as against BDT 100 million. These banks have to go for IPO for BDT 200 million within 3 years of banking operation. In r ecent past FI has experienced gradual shift of quality business from NCBs to old PCBs and off late shift from old PCBs to new PCBs. Relationship with few new banks will be established selectively to maintain steady growth. Ownership, Management, Busine ss focus and our revenue potential will be the prime criteria for deciding the exte nt of relationship (pure agency arrangement based correspondent bank relationship, acc ount relationship or cash covered credit relationship) with new banks (refer the atta ched matrix). Initially, FI will focus on non-credit products only and consider exten ding credit limits on selective basis against full cash cover (either 100-pct hard currency or 110-pct local currency) in the normal course of business. Collateralized facilities will be supported by watertight documentation. 5.1.18 Cash Cover For excess exposure over the existing limit or for new limits, local banks will be allowed to place cash cover as collateral. Cash cover either in the form of 100 pct hard currency (to be kept outside Bangladesh) or 110 pct local currency will be taken as colla teral for limits/one off transactions. For hard currency covered transactions neither bank limit nor country limit will be earmarked. However, for local currency covered transaction s country limit will be earmarked. Our experiences with all cash covered transacti ons are very satisfactory. Besides, local currency covered transactions also act as an a

dditional, 127 and generally cheaper, source of fund and help treasury in managing liquidity of the bank. 5.1.19 Country Limit Short-term country limit for Bangladesh is $215m, out of which FI are allocated a total allocation of USD120m. Currently USD 30 million line is in place to cover very low risk government impo rts of essential commodities. Government trade in food grain, petrochemical, fertili zer and essential items of energy and telecom sector. The limit will be confined to confirming L/Cs issued by majority state-owned banks (Sonali, Agrani, Janata & Rupali, BASIC) and for selected exceptional transactions, on IFIC (40% governmen t owned), Eastern Bank (20% government owned and 60% owned by the 3 NCBs). BASIC is included since it is 100% owned by government. BASIC will qualify for ECL as long as their majority share is owned by GOB. Exposure booked under this limit will apply to L/Cs which are opened by I) Government agencies or ii) by pr ivate importers for ultimate supply of goods to Government agencies- only on the basis can evidence a written mandate from the government for handling the essential commodities. This stipulation was changed at last review due to an increasing tr end of procurement of goods by Government agencies through competitive bidding whereby many local trading houses are now awarded contracts. Government agencies establi sh local L/Cs favouring the contractor who in turn establishes back to back L/C favouring overseas manufacturer. FI has already handled such private-public transactions and gained encouraging experience. A cap should be placed on exposure to any one name under ECL. No more than $20m for oil on one name or $10m for other essential commodities will be extended to one name i.e. the facilities are mutually exclusive, you can have either one or the other. This will ensure that a maximum of $20m of the ECL to any one name. Confirmations under this limit will be booked under the "Essential Imports" limi t, not against the clean running limit of the individual bank concerned. 128 5.1.20 Policy With the Grindlays acquisition, SCB has become the market leader among foreign banks. It is SCBs objective to remain the premier correspondent bank in the Bangladesh market. To date, Financial Institutions (FI), Bangladesh has experienced few delays in payments with a zero record of losses. Any delays, however minor, have been swif tly resolved by the FI team in Bangladesh, either directly with the banks or through BB, with whom they enjoy a strong relationship at the highest levels. In February, 2002 FI, Bangladesh has signed an agreement with International Fina nce Corporation (IFC) and Netherlands Development Finance Company (FMO) for US$52m Trade Enhancement Facility for 6 Bangladeshi Banks. The transactions booked under this facility would be booked on 50/50 basis with SCBs exposure being booked under existing facilities and IFC & FMO guaranteeing the other 50%. IFC & FMO will guarantee upto US$25m bank risk and share 50% of

the confirming fee, whilst SCB will take full documentary risk and will also ret ain rest of revenue streams. The local banks are very small in international terms but to be competitive with other international banks we need to be able to provide meaningful limits. Whilst there are enhanced risks, as already described, there are also mitigants as follow: Most of the exposure is low risk trade exposure (true trade, not trade related lending); The banks are liquid, many having large retail bases, whilst all have access to refinancing in need at the central bank. 129 The state owned banks are all 100% state owned and there are no plans to privatize them in the near future. Many of the private banks retain some level o f government ownership. The Central Bank and Ministry of Finance have repeatedly stated that they will support any of their banks in need. There are sizeable balances held at SCB, New York Efforts have succeeded in mitigating some of the risk to the IFC and FMO and the attempt to obtain insurance cover is on. The newly set up Asset Sell down unit in Dubai has already established a secondary market for Bangladeshi Bank risk. Current appetite appears stronger for the government owned banks; recently Rupali and Janata Bank risk was sold in a market at a very attractive rate. For all L/Cs confirmed by SCB the control over payment is absolute through a direct customers nostro account debit authorization. FI exposure will be constrained by the country limit. It is highly unlikely that the Bangladeshi government would allow a government bank to fail because of politica l and systemic reasons, unless there was no other option. The credit policy is on the basis that we establish a number of risk triggers, as follows: Import cover falls to less than four weeks. These figures are published monthly; Sizeable aid flow reduction. An aid consortium meets on an annual basis to set a id levels; Default in crude oil payment; Default in debt repayment 130 In the event that any of these events materialize, facilities would immediately be reviewed and action taken to reduce the business being undertaken, particularly longer tenor items, and to sell down/ insure a proportion of the assets to mitigate ris k. Bank Risk Triggers: Current* Trigger Point NPLs/ Total Loans 34% 37% Provisions/ NPLs 21% 19% Liquid Assets/ Total Deposits 44% 48% Total Loans/ Customer Deposits 73% 80% Capital Adequacy 9% 8% * Bangladesh Bank Publications 5.1.21Operational Risk As local Bills or LC are freely negotiable financial instruments, there are some operational risk is involved also. Those are as follows: Authentication / Verification of the signatures of the Issuing Bank appearing on

the advice of acceptance and maturity date of the bill. In the event the signatures cannot be authenticated, the Accepting bank must confirm by authenticated SWIFT / tested telex that they have accepted for payment on maturity. Discounting of the local LC can only be extended after the payment due date advised by the Issuing bank. Interest to maturity date plus transit interest, based on local practice, should be deducted from the payment to the beneficiary 131 Where the local LC shows that interest for the usance period is payable by the applicant at maturity in addition to the LC value, only the principal amount is eligible for discounting. 132 5.1.22 Fraud There is a potentially higher risk of fraud with local L Cs. special care must b e taken to ensure that the transaction is bonafide, by calling for transportation proof such as FIATA receipt or bills of lading whenever possible. Detailed risk mitigants shou ld be set out in Country Product Templates. 5.1.23 Market Risk There may also be a basis risk due to movements between the reference rate for interest charges for the product and the banks actual cost of funds (e.g. Prime / Interbank spread etc.). The product should, wherever possible, be match funded t o remove this risk. Where the discounting is provided in local currency and the Bill drawn under the local LC is in foreign currency, foreign exchange risk will occur. 5.2 Financial and Management Accounting 5.2.1 Financial Accounting All financial accounting entries for net interest income, non-interest income, o nbalance sheet assets and contingents must be booked in accordance with Group Accounting Policies. Particular attention must be paid to the treatment of fee and commission income and the booking and risk weighting of the various assets and contingent assets. 5.2.2 Management Accounting All management accounting entries shall be booked in accordance with Group Management Accounting policies. Income, assets and contingents shall be reported in Pipeline and related financial reporting systems. 133 5.2.3 Accounting Approval The local or regional Head of Finance must be consulted and must approve the specific local accounting entries to ensure all accounting and risk weighting it ems are covered. 5.2.4 Transaction Processing All processing must be performed in accordance with the relevant operational manuals, which include but are not limited to, documentation, limit management, processing of transactions and exception reporting. 5.2.5 Legal, Regulatory and Compliance Legal must approve all standard and additional documentation. Country product template must confirm Bank has license / approval to provide the se

services in the country. 5.2.6 Cross Functional Support: In order to be successful with this product active support will be required from within the bank. Additional funding in the tune of BDT800m will be required from Treasu ry. With the change in FTP policy support will be needed from Treasury for the 90~12 0 days BDT TP rate for bill discounting. Customer referrals will be required from across the bank while Trade Services wi ll be required to set up a dedicated desk for giving the operational support for the p roduct. 5.2.7 Cross Selling Opportunities: One hurdle while marketing LBD to local entities would be solicitation of other types of credit lines/facilities. As they will try to politely tackle that situation, they will certainly get opportunities to cross sell other types of bank products such as L /C Advising, Consumer Loan, Credit Cards, Personal Account Services etc. One small percentage of these bills might be drawn and discounted in US$. Those bills have the potential of significant Exchange earning by Treasury in lieu of discount interest spread. 134 5.3 Findings and Recommendations LBD is a much-hyped about and yet difficult product. While it has solid revenue potential it involves close cooperation and coordination among several departmen ts within the bank and liaison with a large number of entities. The following aspect should be taken under consideration while discounting a Loc al letter of credit received from a local bank: 100% financing should only be given to customers with a forward foreign exchange deal contract. As with a foreign exchange contract, the customer captures the risk under LER limit with treasury through use of forward foreign exchange rate contract, it is easy to assess the receivable amount in local currency. Where no forward foreign exchange deal is contracted, the maximum margin of financing permitted will be limited to 90% of the draft value. The actual % allowed in each country must be set out in the Country Product Template, with appropriate market risk approval obtained if exceeding 90%. It is important to keep close personal and extra friendly relationship with management of NCB banks for obtaining first hand information, as early as possible. As it is found that most NCBs have high tendency of delaying in publishing statements and accounts. It usually requires about 18 months before audited financials are published. The reason for this is a three-stage audit process, which starts at the branch level. Prevailing legal procedures is very lengthy and complicated. It takes longer period to settle any kind of dispute. On the other hand, enforceability of intangible security is a long drawn process, i.e. generally takes 5 6 years. So, FI should be more careful in risk assessing, before confirming a discounting process. 135 A proper process must be in place to keep the Issuing Banks confirmation of acceptance advice, and the maturity date must be closely tracked for follow up. Deterioration or change in fiscal policy is quite common phenomenon in our country So, FI should hire a team of economists type people to compile statistics to indicate general improvement, stabilization or detoriation in fisc

al policy. 5.4Conclusion In retrospect of the marvelous growth of FI revenue over the last eight years an d contemplating the intensity of competition yet to come, it is crucial for SCB to rethink its strategies and marketing plan to sustain the growth of FI revenue. Correspon dent banking service providers domiciled in Bangladesh are expected to be fighting fo r a bigger pie, as the growth prospect of the countrys correspondent banking business is limited. One of the ways to achieve that objective is to maximize FI revenue generated from local clients and introduces more local products. Because, there are huge potentials for inbound revenue. However, export growth dropped below 6% while import soared by 8.5% in 2001/2002, putting pressure on trade deficit. Although special incentives were extended to the garment, jute, and leather sectors in the national budget, expor t income has been affected due to flood damage, which has disrupted transport and communications and lowered industrial output and distribution. Increase in impor t payments was due to drastic surge in imports of food grains and capital machiner y. Foreign exchange reserve position will remain stable. Import cover will average 2.2 months in 2001, compared with 2.8 months in 2000, and rise only marginally in 20 02, to 2.3 months. 136 The major part of the credit exposure on Bangladeshi banks will be in the trade finance sector. The export of ready-made garments from Bangladesh is initiated by buyers resident in the USA, Canada and Europe. The buyer opens a sight letter of credit with a long expiry favoring garment suppliers/manufacturers (export L/C) in Bangladesh who in turn use the same as collateral to open usance(60 to 180 days) L/C s favoring beneficiaries in local textile mills, spin mills, yearn suppliers, dyeing factor ies to supply fabric and accessories. Under the present system, garment manufacturers are allo wed to import upto 75% of the value of the Export L/C. The fabric and accessories once imported are cut, dyed, sewn and pressed into finished articles of wear as accor ding to specifications and exported to the buyer. Proceeds received under the export L/C are used first to settle import liabilities (the usance L/C), bank liabilities (if a ny) and local expenses. Bangladeshi Banks are permitted to retain requisite foreign currency f or settlement of the usance bills and release the remainder to the exporter. The proportion of inland L/Cs, however, is increasing in the garments industry. This is because of the tax benefits provided to firms going for backward linkages. The Government is also encouraging this move since it wants to develop the countrys industry. So, the L/Cs, which were traditionally used to import raw material, is now

being replaced by local L/Cs favoring indigenous manufacturers. As such local bi ll discounting (LBD) against acceptance from banks is also becoming a profitable wi ndow for increasing local revenue. 137