the basic bank limited

8/13/2019 The BASIC Bank Limited

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A WORKING REPORT ON FOREIGN EXCHANGE BANKING SERVICES: An Analysis

of

The BASIC Bank Limited

By

Ishrat Jabin

ID0730075

An Internship Report Presented in Partial Fulfillment

Of the Requirements for the Degree Bachelor of Business Administration (BBA)

INDEPENDENT UNIVERSITY, BANGLADESH

8th

December, 2011


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A WORKING REPORT ON FOREIGN EXCHANGE BANKING SERVICES: An Analysis

of

The BASIC Bank Limited

By

Ishrat Jabin

ID0730075

has been approved

December, 2011

Shawgat S.Kutubi

Lecturer,Finance

School of Business

Independent University, Bangladesh


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Letter of Transmittal

November-27, 2011

Shawgat S.Kutubi

Lecturer, Finance

Independent University-Bangladesh

Sub: Submission of Internship Report

Dear Sir,

This is a great pleasure for me to submit the internship report, which is a partial requirement for the

BBA program. I have prepared my internship report on Foreign Exchange Banking Service.I believe

that the experience I acquired from this study will be an invaluable asset in my life. I have confidence

that the internship program has increased both of my practical experience and theoretical knowledge to

a great extent

It has also to be mentioned that without your expert advice and cooperation it would not have been

possible to complete this report. If you have any further enquiry concerning any additional information I

would be very pleased to clarify that. So, I am fervently requesting and hope that you would be kind

enough to accept my report and oblige thereby

Sincerely Yours,

__________________

Ishrat Jabin

ID: 0730075

BBA

Major : Finance. Minor : HRM

Independent University- Bangladesh (IUB).


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Acknowledgement

At the very beginning I would like to express my deepest gratitude to the almighty Allahforgiving me the strength and the composure to finish the task within the scheduled time.Internship report is an essential part of BBA program as one can gather practical knowledgethrough this process.

This is high time to convey my special gratitude to my respected teacher and supervisor Ms. Shawgat S.

Kutubi, Faculty of Business Administration ,Independent University-Bangladesh

for her careful suggestions, guidance and support to complete this report.

Individual efforts alone can never contribute in totality to a successful completion of any venture. I

would be fail in my duty if I did not state my gratitude and appreciate to the following individuals who

have made valuable contribution toward this report.

I am very grateful to Mr. Golam Faruk Khan(GM & Branch Manager) Mr.Palash Das gupta(AGM) of BASIC

Bank Bangladesh Limited, Dilkusha Branch for kindly accepting me for practical orientation program in

his bank for which I get this opportunity to learn about foreign exchange and necessary things.

I would like to express my deep gratitude to Md. Muktear Foysal(Assistant Manager) and all of my

senior colleagues of BASIC Bank Bangladesh Limited at Dilkusha Branch for there helping hand at the

hour of my need. Their support gives me opportunities to use various documents during my internship

period and their valuable suggestions, advices and extended helping have contributed most.

I am also very grateful to Mr.Raschid-ul-Islam(Deputy Manager), Md. Nurul Alam(Deputy Manager),

Mrs.Sahana Akter(Deputy Manager), for their supporting role and all other employees of BASIC Bank

Bangladesh Limited, Dilkusha Branch for their sincere cooperation, careful supervision and unparallel

encouragement.


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Table of Content

Chapters Content Page No.

2.1.6 Vision of BASIC

5Chapter 1

1.1objective of the study 1

1.2 Scope of the report 1

1.3 Methodology of the report 1

1.4 Limitations of the study 2

Chapter 2

Organizational

Profile

2.1.2 BASIC Bank at a glance

2.1.1 Background of BASIC Bank ltd

2.1 An overview of BASIC Bank ltd

2.1.3 Corporate Strategy

2.1.5 Motto of BASIC Bank limited2.1.4Organizational goalsand objectives

3

45

55

3

2.1.6 Vision of BASIC Bank : 5

2.2.1 Customer Services

7

7

2.1.7 Mission of BASIC Bank 6

62.1.8 Technology of BASIC

2.1.9 Risk Management

6

2.2 Product and Services

2.3Financial performance 8-12


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Chapter 3

Foreign

Exchange

Banking

Services

3.1 Foreign Exchange Its meanings & Definition 13-14

3.2 Export section 15

15-16

16-17

18

23-24

19

23

3.2.1:Export Procedure:

3.2.2:Export Financing

3.2.3:Risk of Export Financing

3.3 Import section

3.4 Major Discrepancies

3.3.3 Risk of Import Financing

3.3.2 Import Financing

3.3.1 Import Procedures: 20-23

29

26-29

25-26

3.5 Foreign Remittance section

3.6Appraisal of export &import business of Basic

3.7Performance Of Foreign Exchange business 30-31

Chapter 4

4.1 Findings

4.2 Possible Recommendation

4.3 Conclusion

32

34

33


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Chapter :1

Introduction


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1.1 # OBJECTIVES OF THE STUDY:

(i) Main Objectives:

The main objective of the study is to highlight on the major documents usedby BASIC Bank Ltd. While dealings with foreign exchange banking to

understand how the services are rendered.

(ii) Specific Objectives:

To identify the documents used in foreign trade of BASIC Bank Ltd. To appraise export, import & remittance of the same bank.

To acquire knowledge and find the relationship between practical andtheoretical background.

To examine various factors and techniques used in foreign exchangeoperations.

1.2# SCOPE OF THE REPORT:

This report will cover Analysis of Foreign Exchange Banking Services of BASIC Bank Limited.

It will give a wide view of the different stages of operational procedure of BASIC Bank Limited,

starting from the Import, Export and Remittance with total Foreign Exchange Procedures.

1.3# METHODOLOGY OF THE STUDY:

a. Primary Data were collected by the following ways: Direct communication with bank officials & clients; Exposure on different desk of the bank; Observing various organizational procedures.

b. The Main Secondary Sources from Which Data were Accumulated are as follows: Annual Report of BASIC Bank Ltd; Different publications regarding foreign exchange operation; From Newspapers and Internet. Different Official Records of BASIC Bank Limited.


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1.4# LIMITATIONS OF THE STUDY:

Despite all out co-ordination from the bank officials, I faced some limitations. The main problem

I faced in preparing the paper was the inadequacy and lack of availability of required data. This

report is an overall view of Foreign Exchange Operations of The BASIC Bank Ltd. But there is

some limitation for preparing this report. These barriers, which hinder my work, are as follows:

Difficulty in accessing latest data of internal operations. Learning & gathering experience of all the banking functions was really tough. Another limitation of this report is Banks policy is not disclosing some data and

information for obvious reason, which could be very much useful.

Non-availability of some preceding and latest data in a systematic way..

I was placed to this department for only 3 months of time and working like a regularemployee hindered the opportunity to put the better effort for the study.

Since the bank personals were very busy, they could provide me very little time

With all of this limitation I tried my best to make this report as best as possible. So readers are

requested to consider these limitations while reading and justifying any part of my study.

.


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Chapter :2

Organizational profile


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2.1:# AN OVERVIEW OF BASIC BANK LTD:

2.1.1 Background

BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered

under the Companies Act 1913 on the 2ndof August, 1988, started its operations from the 21stof

January,1989. It is governed by the Banking Companies Act 1991. The Bank was established as

the policy makers of the country felt the urgency for a bank in the private sector for financing

small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the

BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the

remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of

the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4th

June 1992 and became 100 percent owner of the bank.

Adjudged as one of the soundest banks in the Bangladesh, BASIC Bank Limited is unique in its

objectives. It is a blend of development and commercial banking functions.

Steady growth in clientele base and their high retention rate since Bank's inception testify to the

immense confidence they repose on its services. Diversified products in both liability and assets

sides particularly a wide range of lending products related to development of small industries and

micro enterprises, and commercial and trading activities attract entrepreneurs from varied

economic fields. Along with promotion of products special importance is given to individual

clients through providing personalized services. Reality is individuals matter in this Bank. This

motto has been followed for development of clientele as well as human resources of the Bank.

Capital Position:

Authorized capital Tk. 2000.00 million

Paid up capital Tk. 1964.65 million

Total Reserve and Surplus up to 31.12.2010 Tk. 2509.78 million


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2.1.2 BASIC Bank at a Glance

Name BASIC Bank Limited

Date of incorporation August 2, 1988

Date of inauguration ofoperation

January 21, 1989

Registered office Bana Shilpa Bhaban

73, Motijeel Commercial Area

Dhaka-1000, Bangladesh.

Head Office Sena Kalyan Bhaban(6t

floor)

195, , Motijeel Commercial Area

Dhaka-1000, Bangladesh.

Logo

Name of the chairman of the

Board

Mr. Sheikh Abdul Hye Bacchu

Name of Managing Director Mr.AKM. Sajedur Rahman

Number of Branches 38

Services provided Deposit scheme, Credit facility and foreign exchange

servicesPaid up capital Taka 1964.65 million

Profit after tax and provision Taka 660.93 million

Ownership Government of Bangladesh

Banking software used CASTLE

Technology used Member of SWIFT

Earnings per share 33.64(2011)

E-Mail [email protected]

Website www.basicbanklimited.com

SWIFT BKSIBDDH

Number of Authorized Dealer 15

Table: 1 At a glance of BASIC Bank limited
mailto:[email protected]:[email protected]://www.basicbanklimited.com/http://www.basicbanklimited.com/http://www.basicbanklimited.com/mailto:[email protected]


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2.1.7 Mission of BASIC Bank:

To provide best development and commercial banking services to the common people of

Bangladesh and provide special support to the small scale business enterprises.

2.1.8 Technology of BASIC

BASIC bank has its own software developed in 1991. Local area network (LAN) has been

installed in Head office and 15 branches of the bank. Wide area network (WAN) has been set up

between Head office and branches using X.28 leased line of BTTB. As continuous up gradation

of technology its Gulshan branch, Dhaka, Zindabazar branch, Sylhet, Rangpur Branch, Rajshahi

branch has become online few days ago.

2.1.9 Risk Management

In banking business, no reward can be expected without risk. Management of BASIC Bank has

established a formal program for managing the business risk faced by the bank. BASIC bank is

very much cautious about its investment. Every loan proposal is placed under careful scrutiny

before approval. Board of Directors approval is necessary for the proposal of large amount of

loans. Internal audit team and recovery team exercise close monitoring on every loan transaction.

Management regularly reviews the banks overall assets and liabilities structure and makesnecessary changes in the mix asset/liabilities of balance sheet. The Bank also has a liquidity

policy to ensure financing flexibility to cope with unexpected future cash demand. The Bank

takes necessary action to avoid foreign exchange risk which is called as exposure.


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2.3# FINANCIAL PERFORMANCE:

Figure:1 Total Asset

2.3.1: Property and Assets:

At the end of the year 2010, total assets of the bank stood at Taka 61,569.39 million against Taka

45,308.31 million in previous year registering an increase by 35.89%. This increase of assets

caused by mobilization of additional deposits to meet the growing demand of investments to

clients with economically viable projects. As expected, loans and advances comprised the

largest share in the assets portfolio of the Bank constituting 75.27 percent. Investment and Cash

were the second and third largest constituents being 10.84 percent and 4.99 percent of the assets

portfolio respectively. Money at call and short notice were 0.41 percent of total assets

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

2006 2007 2008 2009 2010

Total Asset(Million Taka)

Total Asset(Million Taka)


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Year 2006 2007 2008 2009 2010

Income(million

taka)

2,870.32 3,549.51 5,060.29 5,162.30 6,120.53

Figure :2 Income

2.3.2: Income:

The Banks total income was Taka 6,120.53 million in 2010 compared to Taka 5,162.30 million

in 2009. Interest income from loans and advances increased to Taka 4,337.04 million in 2010

from Taka 3,877.17 million in 2009. Average yield on lending was 11.10%. Income on

investment increased to Taka 651.52 million in 2010 against Taka 761.82 million in 2009 while

other operating income and profit from sale of shares increased to Taka 476.67 million in 2010

against 68.09 million in 2009. Decrease of investment income registered due to lower yield onGovernment Treasury Bond. The amount of commission was Taka 655.30 million in 2010

compared to Taka 455.22 million of previous year.

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

2006 2007 2008 2009 2010

Income(Million Taka)

Income(Million Taka)


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Year 2006 2007 2008 2009 2010

Expenses(million

taka)

1,858.69 2,458.41 3,526.35 3,593.96 4,403.49

Figure: 3 Expense

2.3.3: Expenses:

The total expenditure was Taka 4,403.49 million in 2010 compared to Taka 3,593.95 million in

2009. Total expenditure increased due to increase of interest expenditure and new pay scale

allowed to the employees of the Bank. Higher Interest expenses were resulting from increased

interest expenses for fixed deposit, borrowings. Besides, rent, electricity and insurance,

stationary, printing and advertising contributed to such increase. Hiring of space for Savar

branch and Tungipara Branch etc also contributed to increase of rent expenditure

2.3.4: Cash in hand and balance with Bangladesh bank and its Agent:

The amount of cash in hand and balance with Bangladesh bank and its agent increased to Taka

3,057.37 million in 2010 from 2,424.89 million in 2009 registering an increase of 26.08%. The

increase was due to increased requirement for maintaining Cash Reserve Ratio (CRR) resulted

from increase of deposit in 2010 than that of 2009 and increased CRR requirement by

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

2006 2007 2008 2009 2010

Expenses(Million Taka)

Expenses(Million Taka)


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Bangladesh Bank from 5.00% to 5.50% in May 2010 and to 6.00% in December 2010. CRR was

maintained adequately.

2.3.5: Balance with Other Banks and Financial Institutions:

The balance with other banks and financial institutions decreased by 55.51% to Taka 2,627.44million from Taka 5,906.18 million in previous year. Such decrease is the resultant effect of

increase of Loans and Advances, which also directly contributed to the decrease of term

placement with other banks and financial institutions. Keeping banks deposit with other banks

without investment was discouraged by the regulatory authority. So the step was executed to

reduce balance with other banks and investing more fund in normal banking activity in

accordance with the observations and recommendations of the Central Bank.

2.3.6: Investment:

Investment at the end of 2010 was Taka 6,676.43 million, compared to Taka 6,338.73 million in

previous year; making a growth of 5.33 % over last year. The investment was increased due to

investment of more funds in Treasury bond to meet SLR requirement. Investment was

concentrated in long term approved securities such as Government Treasury bond. During the

year 2010 Treasury bond had the largest share (97.46%) in the investment portfolio. Debentures,

shares in listed and unlisted companies and prize bond altogether constituted 2.54 percent.

2.3.7: Fixed assets and other assets:

At the end of 2010 the fixed assets increased to Taka 283.12 million from Taka 232.66 million in

2009 with a growth of 21.66 percent increase and Other assets increased to Taka 2,315.51

million from Taka 964.33 million in the previous year. Fixed assets include vehicles, equipmentand computer, furniture and fixtures and leased assets. On the other hand, other assets included

interest receivable from term placement, advance against acquisition of premises under

construction for Head Office, Main Branch and proposed Banani Branch, advance income tax,

stock of stationery, security deposits, sundry debtors, deferred tax and suspense account.

2.3.8:Loans and Advances:

Loans and advances consist of industrial loans, commercial loans, micro credit, Small Enterprise

Financing, Loan for women entrepreneurs, Agro based industry financing, Agricultural loan and

bills etc. which increased by 58.37 percent to Taka 46341.51 million in 2010 compared to Taka

29,261.53 million in 2009. This increase resulted from expansion of our business in response to

the growth of national economy.


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2.3.9: Shareholders Equity:

Shareholders equity of the Bank would increase by Taka 550.48 million to Taka 4,474.45

million in 2010 from Taka 3,923.95 million in 2009 registering a sustainable growth rate of

14.03 percent.

.

2.3.10 Export/Import:

The Bank handled total import business of Taka 42,205.80 million and export business of Taka

23,998.47 million in 2010 compared to Tk. 33,976.60 million and Taka 19,887.70 million in

2009. Major items of exports were ready made knit & woven garments, sweater, jute & jute

products, leather and leather goods, handicrafts, potatos etc. Items of import included mainly

industrial raw materials, garments accessories, capital machinery, raw cotton, electronic

consumer goods, chemicals, tires and tubes, reconditioned vehicles, bicycle spare parts, food

items such as rice, wheat, maize, garlic, onion, sugar, chilly and other essential commodities.


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Chapter :3

Foreign Exchange

Banking services ofBASIC Bank ltd.


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Figure:5: Foreign Exchange Market Operations

Foreign Exchange

Export Import Remittance

1.Export L/C scrutiny.

2.BTB L/C opening

3.Acceptance of BTB L/C

4.Payment of BTB L/C

5.Export bill negotiation &

repatriation of exportproceed.

6.Statement,Returns

&correspondence related to

export.

1.L/C opening

2.Documents checking.

3.L/C payment

4.Statement,Returns &

related to import.

1.Inward & Outward

Remittance.

2. Statement, Returns

&correspondence related to

Remittance.

1. L/C advising & Transfer 1. Overall supervision of Local bill negotiation2. Purchase of Local Bill.

3. Ad ustment of Local Bill.

2. Cash Incentive


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3.2 # EXPORT SECTION :

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by

post any goods either directly or indirectly to any place outside Bangladesh, unless a

declaration is furnished by the exporter to the collector of customs or to such other person as

the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing thefull export value of the goods has been or will be disposed of in a manner and within a

period specified by BB. Export financing can play a vital role in the development process of

Bangladesh. With earning on export we can meet our import bills. The export trade is always

encouraged because the major portion of foreign exchange earning is derived from export.

Because of shortage of adequate capital exporters have to come in contact with commercial

bank and financial institution to get finance from them. BASIC bank Limited as a state-

owned scheduled bank provides certain facilities to the exporters to boost up export earnings.

The traditional & non-traditional sectors in which BASIC Bank Limited provides export-

financing facilities are as follows:

Ready Made Garments in all sorts. Jute manufactures Fish & Prawns. Hides, Skins & Leather. Tea Fertilizer etc.

3.2.1:Export Procedure:

Scrutiny and negotiation of export bill

Bank deals with documents not with goods. The bankers are to ascertain that the documents are

strictly as per terms of L/C. Before negotiation of the export Bill the bankers are to scrutinize and

examine each and every documents with care. Negligence on that part of the bankers may result

in non repatriation or delay in realization of export proceeds are incorrect documents may put the

importers abroad into unnecessary troubles.

The scrutiny of the Bill of Exchange (Draft) and other related documents should ensure

that.

The documents are presented for negotiation before the expiry of the relative credit. The amount does not exceed the amount available under the credit. All the documents stipulated in the L/C are submitted. The corrections and alteration are properly authenticated in all documents.


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Export documents checking:

i. General verification:

a) L/C restricted or not

b) Exporter submitted documents before expiry date of the credit.

c) Shortage of documents etc.

ii. Particular verification:

a) Each and every document should be verified with the L/C.

iii. Cross verification:

a) Verified one documents to another.

While checking the export documents following things must be taken in consideration.

L/C terms:

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

i. That the documents are not state.

ii.That the documents are negotiated within the L/C validity, it a credit expire on a recognizedbank holiday its life is automatically become valid up to the next works day.

iii.That the documents value does not exceeds the L/C value.

Draft/Bill of Exchange

Draft is too examined as under.

i.Draft must be dated.

ii.It must be made out in the name of the beneficiarys bank or to be endorsed to the bank.

iii.The negotiating bank must verity the signature of the drawer.

iv.Amount must be similar with the invoice amount.

v.It must be marked as drawn under L/C No. dated. issued by.Bank.

Presentation of export documents for negotiation:

After shipment, exporter submits the following documents to BASIC Bank for negotiation.


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a. Bill of Exchange or Draft;b. Bill of Ladingc. Invoiced. Insurance Policy/Certificatee. Certificate of originf.

Inspection Certificateg. Consular Invoice

h. Packing Listi. Quality Control Certificatej. G.S.P certificate

3.2.2:Export Financing

An export is who exports the goods to another customer whether in domestic country or in

abroad. In exporting the stipulated goods he may require financing. So export financing may be

required at two stages.

Pre shipment credit Post shipment credit

Pre shipment credit:

Pre shipment credit is the credit, which is given to finance the export activities of an exporter for

the actual shipment of goods. The purpose of each credit is to meet the working capital needs

from the procuring of raw materials to the transportation of goods for the export the foreign

country. Before sanctioning of that credit the Bank takes into consideration the credit worthiness,

export performance of the exporters together worthiness all other information required for

sanctioning the credit in accordance with the existing rules & regulations.

Post shipment credit

There is a time gap between export of the goods and realization of the proceeds. So exporter may

require finance in that period to continue his business. So Bank may finance against export

documents ensuring the following:

Export documents comply with the credit terms


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Partys past performance is satisfactory Any other security in case of exporting under contract

3.2.3:Risk of Export Financing

While there are many advantages to exporting it is not without risk. In deed there are often factors

present in international market, which make foreign exchange substantially more risky than

domestic ones, including the credit risk of non-payment or non-acceptance of the merchandise by the

buyer. For international sales, these risks are far more pronounced than they are domestically. For

these reasons BASIC Bank Ltd also accompanied with elements of uncertainty some which are as

follows:

3.2.3.1Commercial risk Insolvency of overseas buyer, which result in non-realization of export proceeds. Failure of the buyer to retire credit already accepted by him / her in case of askance bill

within stipulated period.

Willful negligence of the importer to accept of pay bill or to accept goods for no fault of theexporter.

3.2.3.2 Political risk

Imposition of restrictions on remittance on any government action in the buyer's countrywhich may block or delay payment.

Imposition of trade embargo or blockade against any country. New import restriction on the buyer or cancellation of the license. Additional handling transport or insurance charges due to interruption or

diversion of voyage, which cannot be recovered from buyer. Bankrupt or closure of a bank or stoppage of operation of a bank may hamper repatriation of

exports proceeds of letters of credit opened by such a bank.

Any other cause of loss occurring outside the exporter's country beyond the control ofimporter or exporter


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3.3 # IMPORT SECTION:

Imports are foreign goods and services purchased by consumers, firms & Governments in

Bangladesh. To import, a person should be competent to be a importer. According to Importand Export Control Act, 1950, the Office Of Chief Controller Of Import and Export provides the

registration (IRC) to the importer.

Import financing sectors of BASIC Bank Ltd.

BASIC Bank Limited is one of the financers of import business in our country. In extend credit,

grant and other facilities BASIC Bank Ltd finance to the following sectors:

Machinery & transport equipment. Petroleum & petroleum products Textile, yarn, fabrics, article & related products Chemicals Bicycle parts Iron & steels Cereal & cereal preparations Dairy products & eggs Other including loans & grants.

BASIC Bank checks the documents. The usual documents are,-

i. Invoice

ii. Bill of lading

iii. Certificate of origin

iv. Packing list

v. Weight list

vi. Shipping advice

vii. Non-negotiable copy of bill of lading


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viii. Bill of exchange

ix. Pre-shipment inspection report

x. Shipment certificate

3.3.1 Import Procedures:

1. Registration with CCI&Ea. For engaging in international trade, every trader must be first registered with the

Chief Controller of Import and Export.

b. By paying specified registration fees and submitting necessary papers to the CCI&E.the trader will get IRC (Import Registration Certificate).After obtaining IRC, the

person is eligible to import.

2. Purchase Contract between importers and exporter:a. Now the importer has to contact with the seller outside the country to obtain the

proforma invoice / indent which describes goods.

b. Indent is got through indenters a local agent of the sellers.c. After the importer accept the preformed invoice, he makes a purchase contract with

the exporter declaring the terms and conditions of the import.

d. Import procedure differs with different means of payment . In most cases importpayment is made by the documentary letter of credit (L/C) in our country.

3. Collection of LCA form:Then the importer collects a Letter of Credit Authorization (LCA) form BASIC Bank, Dilkusha

Branch.

4. Opening a Letter of Credit (L/C)

In international environment, buyers and sellers are often unknown to each other. So selleralways seek guarantee for the payment for his goods exported.Here is the role of bank. Bank

gives export guarantee that it will pay for the goods on behalf of the buyer.This guarantee is

called Letter of Credit.Thus the contract between importer and exporter is given a legal shape by

the banker by its Letter of Credit.


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Parties to Letter of Credit

1. Importer ( Buyer)/ Applicant2. The issuing Bank (Opening Bank)3. The Advising Bank ( Notifying Bank)4. Exporter /Seller ( Beneficiary)5. Confirming Bank6. Negotiating Bank7. The paying/Reimbursing? Accepting/Remitting Bank

Applicant:

The person/Body who requests the bank (opening bank) to issue the letter of credit. As per

instruction and on behalf of applicant, the bank opens L/C in line with the terms and condition of

the seller contract between the buyer and the seller.

Opening /Issuing Bank:

The Bank which open /issue letter of credit on behalf of the applicant/importer. Issuing bank

obligation is to make payment against presentation of documents drawn strictly as per terms of

the L/C.

Advising /Notifying Bank:

The Bank through which the L/C is advised / forward to the beneficiary (exporter). Theresponsibility of advising bank is to communicate the L/C to the beneficiary after checking the

authority of the credit. It acts as an agent of the issuing bank without having any engagement on

their part.

Beneficiary:

Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are

the seller or exporter.

Confirming Bank:

The Bank which under instruction the letter of credit adds confirmation of making payment in

addition to the issuing Bank. It is done at the request of the issuing having arrangement with


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them. This confirmation constitutes a definite undertaking on the part of confirming bank in

addition to that of issuing bank.

Negotiating Bank:

Negotiating Bank is the bank, which negotiates the bill and pays the amount of the beneficiary.

The advising bank and the negotiating bank may or may not be the same .Sometimes it can also

be confirming bank.

Reimbursing/Paying Bank:

The Bank nominated in the letter of credit by the issuing bank to make payment stipulated in the

document, complying with reimbursing bank.

Application For L/C limit:

Before opening L/C, importer applies for L/C limit.To have an import L/C limit, an importer

submits an application to the Department of BASIC Bank Limited furnishing the following

information, -

Full particulars of bank account maintained with BASIC Bank Shanti Nagar branch.

Nature of business

Required amount of limit Payment terms and conditions Goods to be imported Offered security Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and

forwards it to the Head Office Credit Committee (HOCC).The Committee, if satisfied, sanctions

the limit and returns back to the branch.Thus the importer is entitled for the limit.

The L/C Application:

After getting the importer applies to the bank to open a letter of credit on behalf of him with

required papers.

i. Documentary Credit Application Form:


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two countries had gone so much down that they were not acceptable or exchangeable in

international market. More over the importer or the exporter may not be able to comply with the

terms of credit for some reasons. Therefore, risk inherent in all credits. The bank has to consider

following risk in financing the import procedure:-

3.3.3.1 Commercial risk

Violation of the requirement of letter of credit authorization or letter of credit: Shipmenteffected before authentication of the letter of credit authorization from by the nominated

bank and registration with the Bangladesh bank, whenever necessary and before opening of

letter of credit or after expiry of the validity of the letter of credit authorization or letter of

credit shall be treated as import in contravention of this order. Letter of credit

authorization obtained in the basis of false or incorrect particulars or by adopting any

fraudulent means shall be treated as invalid and void.

Import against indent and Performa invoice: Letter of credit may be opened against andindent issued by a local registered indenter or against a Performa invoice issued by a foreign

manufacturer or seller or supplier.

3.3.3.2 Political risk

In addition to the credit and commercial risk we have outlined, international transaction such as

import financing take on the whole new dimensions of political risk. They are as follows:

Sudden outbreak of war, revolution, coups or civil disobedience in the seller's country. Imposition of restriction on remittance. Imposition of trade embargo.

3.3.3.3 Informational risk

There may be informational risk inherent in import financing on the importer because of shortage

of required information. So it is much harder to judge the financial strength, reputation and integrity

of a seller or buyer who is thousands of miles away and belongs to a different culture.


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3.4# Major Discrepancies:

GENERAL

1. Late shipment2. Late presentation3. L/C expired4. L/C over-drawn

BILL OF EXCHANGE (B/E)

1. Amount of B/E differ with invoice.2. Not drawn on L/C issuing Bank.3. Not signed4. Full set not submitted.

COMMERCIAL INVOICE (C/I)

1. Not issued by the Beneficiary.2. Not signed by the Beneficiary.3. Not made out in the name of the Applicant.4. Description, Price, quantity, seals terms of the goods not corresponds to the Credit.5. Not marked one fold as Original.6. Shipping Mark differs with B/L & Packing List.

PACKING LIST

1. Gross Wt., Net Wt. & Measurement, Number of Cartoons/ Packages differ with B/L.2. Not market one fold as Original.3. Not signed by the Beneficiary.4.

Shipping marks differ with B/L.

BILL OF LADING/ AIRWAY BILL ETC (TRANSPORT DOCUMENTS

1. Full set of B/L not submitted.2. B/L is not drawn or endorsed to the Order of BASIC BANK LTD.


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3. Shipped on Board, Freight Prepaid or Freight Collect etc. notations are not marked onthe B/L.

4. B/L not indicate the name and the capacity of the party i.e. carrier or master, on whosebehalf the agent is signing the B/L.

5. Shipped on Board Notation not showing name of Pre-carriage vessel/intended vessel.6. Shipped on Board Notation not showing port of loading and vessel name (In case B/L

indicates a place of receipt or taking in charge different from the port of loading.)

7. Short Form B/L

3.5# FOREIGN REMITTANCE SECTION:

The basic function of this department are outward and inward remittance of foreign exchangefrom one country to another country. In the process of providing this remittance service, it sells

and buys foreign currency. The conversion of one currency into another takes place at an agreed

rate of exchange, in where the banker quotes, one for buying and another for selling. In such

transactions the foreign currencies are like any other commodities offered for sales and purchase,

the cost (convention value) being paid by the buyer in home currency, the legal tender.

Workings of this department:

Overall supervision of Foreign Remit.Dept.

Foreign TT payment & Purchase of F. Drafts, preparations of F.B.P. (Foreign Bill

Purchased).

Issuance of outward TT & FDR

Issuance of proceed responding certificate (PRC).

Foreign Collection,Bangladesh Bank Clearing Check Collection,which comes from all

branch of BASIC Bank Limited.

Encashment of T.C. & Cash Dollar and Sterling Pound.

Deduction of Tax and VAT. On behalf of Bangladesh Bank.

Preparation of related statements including convertible Taka Accounts.

Preparation of IBCA & IBDA and Balancing of Collection and other special assignment

as desired by Department in charge.


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Balancing of Account Statements.

Statement of all related works submitted to Bangladesh Bank.

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T.,D.D,T.C.and

bills etc.sent from abroad favoring a beneficiary in Bangladesh.Purchase of foreign exchange is

to be reported to Exchange control Department of Bangladesh bank on Form-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts,

Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills

retired. Sale of foreign exchange is reported to Exchange control Department of Bangladesh

Bank on form T/M.

Foreign exchange means foreign currency and includes all deposits ,credits and balances payable

in foreign currency as well as foreign currency instruments such as Drafts, T.C.s, bill of

exchange, and Letters of Credit Payable in any Foreign Currency . All foreign exchange

transactions in Bangladesh are subject to exchange control regulation of Bangladesh Bank.


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Foreign Remittance Department deals with the following instruments:

Cash

Remittance

(Dollar /

Pound)

Sell

Bank sells Dollar/Pound for using in abroad by

the purchaser. The maximum amount of such sell

is mentioned in the Bangladesh Bank publication

of Convertibility of Taka for Currency

Transactions in Bangladesh.

Purchase

Bank can purchase dollar from resident and non

resident Bangladeshi and Foreigner. Most dollars

purchased comes from realization of Export Bill

of Exchange.

Telex

TransferOutward

TT

It remits fund by tested TT via its foreign

correspondence bank in which it is maintaining its

NOSTRO Account.

Incoming

TT

It also makes payment according to telegraphic

message of its foreign correspondence bank from

the corresponding VOSTRO Account.

Foreign

Demand

Draft

Bank issue Demand Draft in favor of purchaser or any other

according to instruction of purchaser. The payee can collect it for

the drawee bank in which the Issuing bank of Demand Draft

holds its NOSTRO Account. Bank also makes payment on DDdrawn on this bank by its foreign correspondence bank through

the VOSTRO Account. The procedure concerning issue of FDD

is same as issue of Travelers check except that the customer is not


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Foreign

Demand

Draft

required to submit his passport.

Following steps to be followed in payment of FDD:

At first the FDD is to be crossed.Serial number is given.

Forwarding letter to the bank with which the bank has

agreement.

Party is given the cash or his account is credited.

3.6# APPRAISAL OF EXPORT & IMPORT BUSINESS OF BASIC BANK

LTD:

BASIC Bank's expertise in International Banking has a record of in-house growth over more than

one decade. With limited network of branches at home and also a few correspondent banks

worldwide it is handling the export-import business including homebound remittances.

The following graph shows year-wise export-import business of BASIC Bank Limited. Though

both export and import are increasing day-by-day, imports exceed exports which ultimately

drastically hit the countrys negative Balance of Trade.


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Figure: 6:Export Import position

3.7 #PERFORMANCE OF FOREIGN EXCHANGE BUSINESS OF BASIC

BANK LTD:

The following table shows year-wise performance of foreign exchange operations consisting

item-wised income generating avenues. All the figures show positive growth which generally

signals foreign exchange business as a profitable business in Bangladesh. Within all the income

avenues, income from exchange gain shows highest figure in taka value. Growth rate here was

48.92%. Income from Letter of Credit and Letter of Guarantee were the second and the third

largest among the income avenues respectively.

0

10000

20000

30000

40000

50000

2010 2009 2008 2007 2006

Import(Million Taka)

Export(Million Taka)


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Income from foreign exchange business of BASIC Bank limited

Particulars 2007 2008 2009 2010

Foreign bill Purchased 628,965 1,118,585 1059225 1601656

Local bill Purchased 9041451 7791613 8574134 5540246

Remittance 8280081 8698956 7458290 6981465

Letter of Guarantee 39869621 3831037 24250749 31097957

Letter of Credit 106869561 146230971 132433042 165695180

Bills for Collection 10792897 15230622 13919101 7981691

Acceptance 10792897 14049618 10595355 48111472

Export bill 570415 1629488 2011099 4896568

Miscellaneous(includes

commission on sale of

PSP,TC

6491052 5422296 3360362 15774585

(A)Total 191,235,959 238482524 203661357 287080821(B)Exchange gain

(Profit on

exchange trading)

222845221 250704092 251562290 368223009

Total (A)+(B) 414081179 489186616 455223647 655303829

Table:2

Source: BASIC Bank limited, Dilkusha Branch.


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Chapter :4

Findings,

Recommendation

Conclusion.


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4.2#POSSIBLE RECOMMENDATION:

As an internee of BASIC Bank Ltd, I have some recommendations which are:

The branch need to set up well designed IT section by using more update technology andinformation

Adequate training is essential for the efficient foreign trade management. Letter of Credit (L/C) opening system for the exporter should be easier. The Branch should move to the fully automated banking system. For customer's convenience, Management of BASIC Bank Ltd. needs to focus on branch

expansion policy and should provide more personnel to deliver faster services to the

customers.

The Bank should develop an effective database needed for analyzing Foreign ExchangeBusiness


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4.3#Conclusions

The Banking arena in recent time is one of the most competitive business fields in Bangladesh.

As Bangladesh is a developing country, a strong banking sector can change the socio economicstructure of the country. So we can say, the whole economy of the country in linked up with its

banking system. BASIC Bank Ltd. is a state-owned scheduled Bank as well as a potential and

promising bank in the banking sector in Bangladesh.

All the brunches of BASIC Bank ltd are authorized dealer of Foreign Exchange Business. The

authorized dealer motivates the importer to import raw materials, fabrics, frozen fish, jute items,

electronics goods, accessories, chemicals, vegetable etc.

The import or export is motivated by the BASIC Bank ltd to the foreign exchange business

particularly to open the letter of credit .A letter of credit offer advantages both to the importer

and exporter.

BASIC Bank Ltd playing a vital role in financing import and exports of the country. Without

Banks co-operation it is not possible to run any business or production activity in this age.

Exports and import need finance in various stages of their activities. Export and Import financing

are letter of credit (L/C), Payment Against Documents(PAD),Loan Against Imported

Merchandise(LIM),etc .All these facilities are provided by BASIC Bank Ltd. For these purpose

Banks consider the borrowers business standing, integrity, liability with the banks term and

conditions of the L/C. There is lots of Risk involved in foreign business .So the BASIC Bank Ltd

has to clearly justify the customers from a neutral point and gather the current information about

the market.


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Appendix

Financial Performance:

Progress at a glance (2006-2010):

Year 2010 2009 2008 2007 2006

From the Balance Sheet (Million Taka)

Authorized Capital 2000.00 2000.00 2000.00 2000.00 2000.00

Paid-up Capital 1,964.65 1,455.30 1309.77 1247.40 945.00

Reserve and Surplus 2509.78 2468.65 1672.82 1349.17 1294.00

Shareholders' Equity 4474.43 3923.95 2982.59 2596.58 2239.00

Fixed Assets 283.12 232.65 228.36 196.11 154.52

Total Assets 61569.38 45308.31 46660.03 38773.91 29417.09

Deposits 49,259.60 34,501.69 38,368.23 31,947.98 24,084.65

Long- term Debt 2,718.46 2,875.16 1,708.40 1,385.81 830.06

Loans and Advances 46,341.51 29,261.53 27,269.13 22,263.35 19,000.00

Placement &

Investment

9,294.02 12,244.91 15,659.03 13,560.92 8,212.23

From the Income statement (Million Taka)

Gross Income 6,120.53 5,162.30 5,060.29 3,549.51 2,870.32

Gross Expenditure 4,403.49 3,593.96 3,526.35 2,458.41 1,858.69

Profit before Tax 1,717.05 1,568.34 1,533.94 1,091.10 1,011.62

Profit after Tax 660.93 648.85 549.86 282.96 554.14

Tax Paid(cumulative)

4,948.64 4,225.37 3,538.01 2,790.98 2,245.16

Others (Million Taka)

Import Business 4,2205.90 33,976.60 27,359.77 21,266.57 17,804.27Export Business 23,998.80 19,887.70 22,270.87 16,794.96 15,463.74

No of branches 34 32 31 30 28

No of employees 964 776 735 721 651

Table: 2 Financial performance


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Balance Sheet

(Million Taka)

2005 2006 2007 2008 2009 2010

Property and Assets

Cash 1,134.50 1,522.87 2,125.01 2,641.00 2,424.89 3,075.37

Balance with other banks and financial Institutions 4,126.27 4,191.36 6,937.53 8,485.18 5,906.17 2,627.44

Money at call and short notice 1,570.00 750.00 1,320.00 1,480.00 180.0 250.00

Investment

Government 4,486.54 3,241.86 5,271.30 5,598.82 6,239.23 6,506.73

Others 54.00 29.00 32.00 89.00 99.49 169.70

4,540.55 3,270.86 5,303.30 5,687.82 6,338.72 6,676.43

Loans and advances

Loans ,cash credit, overdrafts etc. 13,759.05

17,075.59

20,047.92

24,344.73

27,226.48

4,325.75

Bills discounted and Purchased 1,580.29 1,924.40 2,215.42 2,924.39 2,035.05 3,083.98

15,339.3

518,999.9

922,263.3

427,269.1

229,261.5

346,341.5

1

Fixed Assets 135.78 154.52 196.10 228.36 232.65 283.11

Other Assets 289.91 498.74 579.14 859.83 964.32 2,315.50

Grand Total27,136.3

729,388.3

438,724.5

146,651.5

345,308.3

161,569.3

8

Capital and Liabilities

Liabilities

Borrowings from other banking companies, agents etc. 937.51 830.06 1,385.81 1,708.40 2,875.15 2,718.46

Bills Payable 179.75 239.25 290.75 328.49 341.50 597.01

Deposit and other Accounts

Current Accounts and contingency accounts etc. 1,890.61 2,370.44 2,867.19 2,544.51 2,504.61 4,887.14

Saving Bank deposits 793.43 1,007.79 886.30 955.50 1,165.84 1,328.22

Fixed deposits19,461.7

820,467.1

627,903.7

234,539.7

230,489.7

342,447.2

1

22,325.5

823,845.3

931,657.2

138,039.7

334,160.1

849,259.6

0

Other Liabilities 2,147.13 2,263.37 2,843.53 3,592.29 4,007.50 5,116.88

Total Liabilities25,410.2

3

27,178.0

7

36,177.3

0

43,668.9

3

41,384.3

6

57,094.9

5

Capital/ Shareholders' equity

Paid up Capital 810.00 945.00 1,247.40 1,309.77 1,455.30 1,964.65

Statutory Reserve 681.13 883.45 1,045.08 1,295.26 1,559.65 1,824.69

Other Reserves 40.00 40.00 40.00 40.00 365.55 255.09


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Surplus in Profit and Loss Account 195.00 129.47 370.54 304.51 543.44 429.98

Total Shareholders' equity 1,726.13 1,052.92 2,596.58 2,982.59 3,923.95 4,474.43

Total capital and liabilities27,136.3

728,230.9

938,773.9

046,651.5

345,308.3

161,569.3

8

Source:

http://www.basicbanklimited.com/Balance_Sheet.php


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BASIC Bank Limited

Schedule of Charges Related to Foreign Exchange

February-2010

Item Amount/Rate

1 Letter of Credit

(a) L/C opening commission at sight i) 0.40% Per

Quarter

i) 0.40% Per Quarter

ii) Minimum Tk 500

(b) L/C opening Commission under

Aid/Loan/Grant/Barter/Credit other than Deferred


ii) Minimum Tk 1000

(c) Usance Back to Back L/C opening Commission i) 0.40% Per Quarter

ii) Minimum Tk 1000

(d) L/C opening Commission under Deferred

payment


ii) Minimum Tk 750

(e) L/C's at 100% Cash Margin i) 0.25% Per Quarter i) 0.25% Per Quarter

(f) Acceptance commission under deferred

payment

i) 0.40% Per Quarter and 0.20%

for local acceptance ii)

Minimum Tk 750

Mailing Charge

2 If L/Cs are transmitted by

(a) Registered mail At actual

(b)Courier Service At actual

SWIFT Charge

3 (a) If L/C is transmitted by full text

SWIFT

At actual


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Amendment of L/C

4 (a) If Amendment includes increase of

value or extension of time

Same as L/C opening Commission

(b) Other Amendments Tk 750

(c) Amendment of L/C by mail Tk 750 + Mail Cost At Actual

(d) Amendment of L/C by courier service Tk 750 + Courier Cost At Actual

(e) If Amendment of L/C transmitted by

SWIFT

Tk 750 + SWIFT Charge At Actual

Foreign Correspondence Charges

5 (i) On beneficiaries account No charge. In case of nonpayment of

charge by the beneficiary, actual charge

to be realized from the importer

(ii) Foreign correspondent charges for

negotiation and reimbursement

At actual

6 Charges for handling discrepant import

documents

$50 for foreign document, Tk 500 for local

document

7 Inquiry Fees relating to L/C s At actual

8 Collection of credit report on the

beneficiary of LCs

At actual plus +SWIFT Charge At Actual

9 Interest on PAD Interest rate applicable for commercial

lending/ as per sanction

Import Transactions

10 a) IMP Tk 100 per set

b) LCA Tk 150 per set


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c) L/C application form Tk 300 (Plus cost of adhesive , stamp in

addition to above charges)

Export Transactions

11 a) Negotiation/Collection commission forexport bills

0.15%

b) Advising L/Cs (both foreign & local)

to local beneficiary

Tk 750 (Negotiable by Head Office)

c) Advising amendment of L/Cs(local &

foreign)

Tk 750 (Negotiable by Head Office)

d)Transfer of export L/C (per

endorsement/transfer)

Tk 750

e) Adding of confirmation to L/Cs

advised by

BASIC

At Actual

f) Overdue interest on FBP or LBP Int to be recovered beyond 21 days

against sight bills

and beyond usance period against

usance bill @ commercial interest rate

as per schedule of interest/

Bangladesh Bank Directives/Sanction

Advice

g) Mailing on export document by post At Actual

h) Mailing of export document by courier At actual

i) SWIFT charges for sending payment

instruction

or reimbursement

At actual

Export Transaction

12 a) Issuance of "EXP" Form Tk 100 per set


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b) Issuance of PRC Tk 500 or negotiable by HO management

c) Issuance of any other certificate Tk 500

d) Cash incentive document processing

charge

0.20% on disbursed amount, Min Tk

500/Bangladesh Bank Directives

Foreign Bank Guarantee

13 a) Issuance of Foreign Guarantee 0.50% per Qtr + Commission and charges

of foreign correspondents + SWIFT charges

At Actual

b) Issuance of Counter Guarantee 0.50% per Qtr/Negotiable with Counterpart

+ SWIFT charge At Actual

c) Issuance of shipping guarantee inabsence of original import document

provided 100% margin in cash is built

Tk 1000

Foreign Remittances (Inward)

14 a) Collection of foreign currency plus

Draft/Cheque/TC drawn on Banks outside

postage/courier charges Bangladesh

At actual as per foreign Bank's charge

Foreign Remittances (Outward)

15 a) Issuance of TC Ruling TT/OD selling rate plus 1%

commission

b) Issuance of cash(FC) Ruling TT,OD Selling Rate

c) Issuance of FDD Ruling AT TT, OD Selling Rate

d) Cancellation of FDD/Cheque drawn on

Bangladesh Bank

Tk 300 per instrument plus SWIFT

charge/Postage

f) Issuance of TT abroad TT,OD Selling Rate + SWIFT Charge AtActual

Student (Studying Abroad)

16 a) File opening and handling charge For SAARC Country :Tk 1500


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For Other than SAARC Country :Tk 2500

Others

17 a) FC DD on Bangladesh Bank Tk 300 per instance

b) Issuance of counter FC draft in favor

of local bank

Minimum USD 50 and Maximum USD 100

c) Disposal of remitted fund on A/C of

home remittance

a) In local areas charges of PO &

postage

b) Other areas charges of DD/TT plus

postage/SWIFT

c) Same charges through IBCA also


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Experience of Internship

Now a days, education is not just limited to books and classrooms. In todays world, education is

the tool to understand the real world and apply knowledge for the betterment of the society as

well as business. From education the theoretical knowledge is obtained from courses of study,

which is only the half way of the subject matter. Practical knowledge has no alternative.

Internship Program brings a student closer to the real life situation and thereby helps to launch a

career with some prior experience. I have prepared this report on BASIC Bank Limited

(Dilkusha Branch) and their modern banking operation with foreign exchange procedure where I

have worked from 20th September, 2011. During my internship I have gathered lots of

experience.I was placed foreign exchange department for only 3 months of time and workinglike a regular employee.I have to say, I was surprised to learn about all the different areas thatthe Bank is involved in and how the Bank affects our daily lives.When I worked as an internee I

was treated by them as an paid employee of this bank and learned how to work as an employee,

time maintenance, behavior with other colleague, how to deal with customer. Moreover, I also

felt safe and secure, as the BASIC Bank had comfortable place for me.

I wish to thank the BASIC Bank Ltd for giving me this opportunity. I have learned an abundant

amount of information, and I have grown both personally and professionally.


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References:

Annual Report of BASIC Bank limited 2007,2008,2009,2010 International trade payment and finance,2007,Tanweer Mehdi, Dr shah Md.Ahsan Habib. Khan A R,Bank Management: A Fund Emphasis,Ruby, firstedition, 2008 www.basicbanklimited.com
http://www.basicbanklimited.com/http://www.basicbanklimited.com/http://www.basicbanklimited.com/