internship report on banking

Operational Trend of BCBL A people’s Bank with a mission

Chapter 1

Introduction

1.1 Introduction

This internship report entitled “Operational trend of Bangladesh Commerce Bank LTD.”

has been started at the beginning of the July 2011 under the instruction of our honorable

intern supervisor & instructor Dr.Md. Rafiqul Islam for the partial fulfillment of the re-

quirement of BBA Program.

As a financial intermediary commercial bank play an important role to match the Surplus

& deficit unit. They collect deposit from surplus unit & lend it to the deficit unit. This

mobilizations of deposit & allocation of credit to productive & consumer services leads

towards the economic development, but commercial bank in Bangladesh was not so

much careful in credit management&, which leds to the widespread loan default & ulti-

mately worse the entire financial cycle. Different commercial banks, specialized banks,

Islamic banks offer different types of loan to their Business & individual customer. Espe-

cially bank now focus on lending to consumer credit, because it has risk then individual

consumer loan, although consumer loan is mainly unsecured. Bank usually gives long-

term loan to business firm. However credit management is crucial issue .Bank perfor-

mance or profitability almost depend on proper credit management

Bangladesh Commerce Bank Ltd. Is a Commercial bank but it has some differences in its

formation compare to other private banks. Bangladesh Commerce Bank Ltd. was estab-

lished by recognizing the erstwhile BCI Ltd through passing act 12 of 1997 in the parlia-

ment of the People’s Republic of Bangladesh having paid up capital amounting to Tk. 92

crores consisting of Tk. 40 Crore cash money paid by the government and 3 state- owned

Banks and Tk. 52 crores of BCI depositors’ money. The commercial operation of the

Bank started since September 16, 1999 through opening of its principal branch and all

other 23 branches were opened by 31st December 1999.

pg. 1


1.2 Objectives of the study

The prime objective of this report is to analyze the overall banking activities including

general banking, credit and foreign exchange. Moreover the study will focus o the fol-

lowing specific objectives.

To explain the retail banking activities of BCBL

To provide an outlook of the credit division including the required formalities

necessary for granting loans.

Focusing the overall procedure of export and import also the necessary formali-

ties required to accomplish foreign exchange

To Find out the relatively weaker performances and provide recommendations

for those weakness

1.3 Methodology of the Study

Methods followed to perform a job or conducting activities to complete a task is called

methodology. In conducting this report the following methodology was adopted in data

& information, preparation of reports etc. Primary and secondary data are also used for

this purpose.

1.3.1 Research Types

It is both descriptive & graphical research by nature.

1.3.2 Source of Data

Data collection is very important is preparing a report. In order to make the report more

and meaningful I have used two types of sources. These are -

A) Primary Source

These are those, which are collected for this specific report and which are afresh in na-

ture, were not used before and need to be processed. Primary sources are –

Information from loan officer Selim Hasan, BCBL bangla bazar branch

Face to face conversation with the clients.

Practical work exposure achieved from different desks.

Knowledge gathered from practical workings

pg. 2


B) Secondary Sources:

I have collected for some other different purpose rather than this and which have

passed through the statistical process. Secondary sources are the following -

Annual Reports of BCBL.( 2006-2010)

Various publications of BCBL.

BCBL Web sites

1.4 Rationale of the Study

Bangladesh is one of the underdeveloped countries of the world. But the country has a

lot of opportunities for massive improvement. In an economy like this, banking sector

can play a vital role as an intermediary which can mobilize the excess fund of surplus

sectors to provide necessary finance to those sectors which need funds to grow. Thus

banks can establish a sound base for the development of the country.

Here I got the clue to work on. I had a quest to know how a private bank is linking its

motto with the ever increasing pressure of bettering operation for new challenges. I

wanted to investigate the pillars based on which the bank is standing and the key perfor-

mance indicators of the bank.

So, I had worked both in the general banking division and credit division of the bank and

prepared my report giving emphasize on the financial performance of the bank.

1.5 Scope and Limitation

In preparing this report, I have encountered some problems and limitation which are as

follows:

The main constraint of the study was insufficiency of current information, relevant to

the study. Consolidated data related to the study were not available in the mid of the

year.

All required information was not available in any specific branch of the Bank and

there was also limited opportunity to visit more than one branch.

Besides due to time limitation I can’t study some essential materials properly.

pg. 3


Chapter 2

Company Information

2.1 Company Information

Bangladesh Commerce Bank Ltd. Is a Commercial bank but it has some differences in its

formation compare to other private banks. Bangladesh Commerce Bank Ltd. was estab-

lished by recognizing the erstwhile BCI Ltd through passing act 12 of 1997 in the parlia-

ment of the People’s Republic of Bangladesh having paid up capital amounting to Tk. 92

crores consisting of Tk. 40 Crore cash money paid by the government and 3 state- owned

Banks and Tk. 52 crores of BCI depositors’ money. The commercial operation of the

Bank started since September 16, 1999 through opening of its principal branch and all

other 23 branches were opened by 31st December 1999. Having incurred losses in the

first two years the bank started earning profit since 001. The Bank started its operation

shouldering the legacy of BCI and has been progressing smoothly facing all hurdles and

problems. The progress is satisfactory and noticeable.

In the year 2002 & 2003 the bank earned a net profit Tk. 4.81 crores & Tk. 7.04

crores respectively. In the last year registered a growth of 124% over that of the previous

year despite the difficult situation in the economic scenario of the countries during 2003.

The Bank adequately covered capital adequacy ratio as fixwd by the Bangladesh Bank.

This accomplishment of the bank during the year had been possible because of the ser-

vice excellence of the management team with the support by way of policy directives

and guidelines from the board of Directors. Out of deposited money of BCI Ltd. Tk. 163

crore has already been paid out of 180 crores of BCI which is a success for the bank. The

said payment has been made through transferring Tk. 52 crores with investment BCI Ltd.

and paying cash Tk. 62 crores. For the sake of BCI depositors Tk. 30 crores over the re-

covery of BCI investment has been paid to the depositors. In the year 2003 the total de-

posit of the bank was Tk. 409.39 crores which is 46% more than that of previous year. At

the same time the bank disbursed a total loan of Tk. 291.10 crores which is 71.11% more

than that of previous year. The progress is continuing. In the year 2002 by opening a

branch in Commilla the total no. of branches have been increased to 25. We have

planned to open more new branches and that will be implemented in phases after getting

approval from Bangladesh Bank. In the year 2004 we earned profit Tk. 7.25 crores.

pg. 4


It is known that Bangladesh Commerce Bank Ltd. started its operation with a burden of

Tk. 179 crores of BCI stuck up loans. Most of the loans of BCI period are bad having no

documents and against which there is no security. With continuous and sincere efforts of

our Officers a cash recovery of Tk. 4.50 crore has been possible during the year which

led the cumulative recovery to Tk. 84.00 crores up to this time.

In the mid & last edge of 90’s that 3rd & 4th generation banks have commenced business.

Consequently, full competition is going on in the bank business. The board is fully aware

of that competition. For facing the competition, initiative had been taken to employ ser-

vice oriented skilled and trained up manpower. Interest rate has been reduced & accord-

ingly interest rate of advance has also been revised. The Bank management has success-

fully reduced the deposit & operational cost.

2.2 Corporate Information of BCBL

Name of the Organization & In legal Sta-

tus

Bangladesh Commerce Bank LTD Incor-

porated in Bangladesh as a public limited

company with limited liability as on the

01 june 1998 under companies act. 1994,

Bank Company act 1991 & act 12 of

1997) and commenced commercial opera-

tion on the 16th September 1999.

Inaugural date 16 September, 1999

Authorized Capital 200 Crore

Paid up capital 92 Crore

Total Deposit 393 crore

Total Loans & Advances 309 Crore

Total Officers & Staffs 432

Total Shareholders Nos. 1975

Registered Office Taranga Complex: 19 Rajuk Avenue,

Motijhil C/A, Dhaka-1000

FAX 88-02-9568218

Auditor Ata khan & Co., Chartered Accoun-

tants

Tax Adviser G. Kibria & Co.

pg. 5


2.3 Goals of Bangladesh Commerce Bank Ltd.

The basic goal is to organize funds in order to invest for profitable purposes

in various fields of small and medium scale of trading, large companies and

corporate sectors.

To undertake project promotion to identify profitable areas.

To scrutinizes the opportunities for investment and developing the new prod-

ucts.

2.4 Mission of Bangladesh Commerce Bank Ltd

Mission of Bangladesh Commerce Bank Ltd. is as follows:

a. High quality financial services with the assistance of latest technological de-

vice.

b. One Stop, Fast, and accurate customer services.

c. Balanced financial growth strategy.

d. High slandered business ethics

e. Smooth return on shareholder’s equity.

f. Innovation in banking service at a competitive price.

g. Committed to the growth of society and economic development.

h. Collecting & nourishing quality human resources with right compensation.

2.5 Vision of Bangladesh Commerce Bank Ltd

Bangladesh Commerce Bank Ltd has a vision to share its experience and excel to its cus-

tomers and people around it. At the juncture of global economic activities, Bangladesh

Commerce Bank Ltd has been driven by the strategic policy, as the prosperous

economies of the global village are option. Bangladesh Commerce Bank Ltd is a private

and schedule commercial bank, which is focused on establishing and emerging markets

of Bangladesh. It aims to be the leader in banking sector of the country. Achieving the

good reputation with efficiency in the specialized area of banking. The bank is commit-

ted to keep its working force to be modern and updated knowledge oriented. Committed

to maximize satisfaction of the customer and build the trustworthy relationship with

them.

pg. 6


2.6 Hierarchy of the organization

The Organization structure of the bank is like bellow:

2.7 Management Team

Due to hard competition in banking at Bangladesh, there should be efficient management

team to achieve the mission. Efficient management team is a must, because of the contin-

uous growth of similar service oriented banks. BCBL management team has been set by

the legislative body or Board of Directors those who are sound experienced. The Board

pg. 7


of Directors also sets objectives, policies and strategies and management team is the in-

strumental device, who implements those sets by the Board of Directors.

2.8 Special Schemes

Other than the normal Banking business the bank has the following special scheme:

a. Small and medium scale entrepreneur’s scheme.

b. Special loan scheme for service holder.

c. Special loan scheme for Women entrepreneur’s.

d. Consumer Credit Scheme.

e. Pension deposit scheme.

f. Monthly deposit and profit scheme.

g. Credit scheme against share.

h. Interest free deposit and loan scheme.

i. Micro-Credit scheme.

2.9 Product and services of BCBL

Products and services of Bangladesh Commerce Bank Ltd. are as follows:

Figure1: Product and Seevice of BCBL

pg. 8


Source: Annual Report of BCBL

2.10 Sources of Funds

There are various sources of funds of Bangladesh Commerce Bank ltd. Basically BCBL accumu-

late funds from following sources:

Figure 2: Source of Fund


pg. 9


2.11 Branches of BCBL

Figure 3 : Branches of BCBL

Source: Web site of BCBL

2.12 SWOT Analysis

SWOT Analysis is an important tool for evaluating the company’s Strengths, Weak-

nesses, Opportunities and Threats. It helps the organization to identify how to evaluate

its performance and scan the macro environment, which in turn would help the organiza-

tion to navigate in the turbulent ocean of competition.

The acronym for SWOT stands for…

2.12.1 Strength

pg. 10

Strength

Weakness

Opportunity

Threat


CEO The chief Executive Officer or the top management of the Bangladesh

Commerce Bank Ltd. has contributed for the growth and development of the

Bank is a key strength.

Providing quality services to each of the customer throughout the country by

strong network and skilled manpower of BCBL.

Skilled personals have developed professional relationships with their cus-

tomers and clients, which is an emotional tie in regular business.

Due to sophisticated and developed system that enables the bank to make it-

self easy to get the information without wasting paper works and time.

Bangladesh Commerce Bank is always trying to add new and modern equip-

ments and facilities also decision approved by the management to start online

service from December or January next.

Employees are sharing good atmosphere in BCBL so that it gave them reason

to work efficiently and to become dedicated in banking.

BCBL maintains corresponding relationship with many foreign banks so that

it is an effective measure for the smooth business.

2.12.2 Weakness

Market promotional activities are very much weak in this bank; because the

establishment and market promotion depart has less initiative and less encour-

aged persons, who do not have effective plane for aggressive marketing activ-

ities.

People are discouraged to save their money with BCBL due to less rate of in-

terest for deposit

Lack of highly quality personal in the top level of management discourages

the high personality businessmen and entrepreneur to make business in

BCBL.

High-level personnel are hired on contact basis instead of promoting the inter-

nal forces demoralized them is a weakness.

pg. 11


2.12.3 Opportunity

Bangladesh Govt. has rendered its full support to the banking sector to de-

velop the country’s economic position, at the same time creating employment

opportunity.

It is almost decided that online banking will be started by December 2005 in

BCBL and the wide area of network will facilitate the customer in BCBL

Banking.

Bank will be able to accommodate knowledgeable, skilled, experienced and

hard working persons by offering attractive remunerations and fringe benefits

with nice working environment.

By expanding the business portfolio, BCBL can start the investment business

with foreign exchange curriculum.

By expanding the financing policy with credit facility customers are very

much secured in business environment.

2.12.4 Threats

Defaulters are seriously affecting the smooth banking culture in Bangladesh.

BCBL is a new type of bank which has been started by passing the bills in na-

tional assembly with defaulting burdens of BCI -LTD.

Central bank is always supervising the local and foreign banks in Bangladesh

and sometimes it is hampering the normal operations of Private Banks.

Though the innovation workings are in continuous process, but the other rival

banks are copying it within the sort period.

The worldwide trends and acquisitions in financial institutions the concentra-

tion goes on competitor’s products and increasing the power in their respec-

tive areas.

It is expecting that very shortly more financial institutions are coming with

their new products and we should be prepared for hard competition in the fol-

lowing years.

pg. 12


2.13 Initiative taken to achieve objective and overcome threats

Emphasis on high cost deposits, i.e. increasing the ratio of time to transaction

deposits to achieve a higher cost of fund.

Stopped Deposit Pension Scheme to reduce cost of fund & excess liquidity.

A Debt Recovery Cell to be formed.

Closely monitor problem portfolio.

Survey customer opinions on services & compare with industry benchmark.

Unless for any strategic reason no business should be booked where, margin

is less than 3%.

Follow 80/20 (advance/reserve ratio) Shed unprofitable advances.

Rationalize communication cost. Use e-mail for eternal communication.

Eliminate unnecessary processes, registers. Recycle paper, re-use envelops.

Organize weekly/fortnightly group discussions with all staff on product sales

& services in branches for better performance.

Define Delivery Standards & monitor performance.

Chapter 3

Industry Overview

3.1 Evolution of the Word ‘Bank’

The word bank originated from Italian word “Banca” which means long bench. In an-

cient time Italian Jews merchant used to do business of lending money by sitting on the

bench. It is assumed that the word “bank” derived from the word Banca. To meet the ex -

pense of war of 1171 one type of credit certificate was launched in Italy at an interest

rate of 5%. It was called as Monte in Italian language and Banke in German language

when German language was widely used in Italy. As a result the word Banke gradually

changed to the word Banca from which the word Bank originated.

3.2 The Emergence of Modern Banking

pg. 13


The linguistics and etymology suggests an interesting story about banking origins. Both

the old French word “Banque” and the Italian word Banca were used centuries ago to

mean a bench or moneychangers table. This describes quite well what historians have

observed concerning the first bankers, who lived more than 2000 years ago. They were

money changers, sitting usually at table or in a small shop in the commercial district, aid-

ing travelers who came to town by exchanging foreign coins for local money or dis-

counting commercial notes for a fee in order to supply merchants with working capital.

The first bankers probably used their own capital to fund their activities, but it was not

long before the idea of attracting deposit and securing temporary loans from wealthy cus-

tomers became a source of bank funding. Loans were then made to merchant’s shippers

and landowners at rates of interests low as 6 percent per annum to as high as 48 percent a

month for the riskiest ventures! Most of the early bank was Greek in origin.

The banking industry gradually spread outward from the classical civilizations of Greece

and Rome into northern and western Europe. The early bank in Europe were places for

safe keeping of valuable items (such as gold and silver bullion) as people were fearing

loss of their asset due to war, theft, or expropriation by government. When colonies were

established in North and South America, old world banking practices were transferred to

the new world.

3.3 Banking in Bangladesh

Since early British rule, the history of banking in Bangladesh territory shows that the

traditional trade-networks developed before the banks invaded rural areas. And the bank-

ing services have slowly flourished in Bangladesh territory. Even today, in many places,

moneylenders provide credit services. Small shopkeepers and businessman use informal

credit at high interest rate, traditional Mahajan,s money lending business gradually de-

clined due to expansion of bank and the micro credit programs of NGOs, Cooperative

banks and government agencies.

3.3.1 Public Sector Banks

During the liberation war in 1971, the economic, political, and social systems including

the banking system were severally damaged. At that time, all big and medium financial

institutions except two small banks had their head office in the West Pakistan. The non-

pg. 14


Bengali owners and managers of the financial establishments that operated in East Pak-

istan had abandoned them. After independence in 1971, the new government had to take

over management and ownership of all such institutions. The bank Nationalization Order

1972 was issued to nationalize banks and financial institutions (except those incorporated

abroad) in order to control chaos in the field of ownership, party bureaucracy, the intelli-

gentsia, and pressure group. By several orders six nationalized commercial banks (NCB),

one industrial bank (BSB), one agricultural bank (BKB), and one industrial development

financial institution (BSRS) were created

The banks and financial institutions, which originated during the Pakistan period and

were merged, and renamed and functioning after independence of Bangladesh. In the

year 1983, the government allowed private sector to participate in the banking business.

The Pubali Bank and the Uttara Bank were denationalized in 1985, due to non-profitabil -

ity. This action reduced the number of NCB’S to four. Such restructuring of public sec-

tor banks was in order to play their role in industry, agriculture, exporting, self –employ-

ment etc.

3.3.2 Private commercial banks

Taking advantage of the liberalization policy of the government regarding participation

of private sector in the banking business, a number of private banks were established in –

and –after 1983. With the emergence of private banks in Bangladesh, a competitive situ-

ation in the sector has been created. Now there are 52 commercial banks in Bangladesh.

The emergence of private banks has added a new dimension to the banking system in

Bangladesh. The private commercial banks show a steady growth in terms of number of

branches deposits and advances.

3.3.3 Foreign banks

The state bank of India opened one branch July -September 1975. In 1975, the four for-

eign banks operating in Bangladesh were: American Express International Banking Cor-

pg. 15


poration, Grind Lays Bank, The Chartered Bank and the State Bank of India. Now there

are more than 15 foreign banks.

The historical process shows the influence of the various social groups in the governance

of the country and the banking systems. During the British regime banking was concen-

trated only in the areas of commercial and administrative importance. With the indepen-

dence of India and Pakistan, the banking sector had to be reshaped. The government of

Pakistan had to take major initiatives for the growth and extension of banking services to

the different sectors of the economy and also to different regions.

Independence of Bangladesh was yet another major change in the banking sector. Imme-

diately after independence of Bangladesh, banks started their operations under full gov-

ernment ownership. Later, some of the banks were denationalized and the government

allowed banks to be established in the private sector. Banking operations have been di-

versified and a number of specialized banks were established. Development finance in-

stitutions also exist to supplement the banking sector in an effort to boost the economy;

government has been following a pragmatic policy relating to the banking sector in

Bangladesh.

Despite many odds and problems now facing banking sector, it is expected that it would

be able to meet up the challenges ahead, particularly of the nest century.

Chapter 4

Operations of Bangladesh Commerce Bank Ltd.

Bangladesh Commerce bank is one of the growing banks in the country. Although the

service industry is competitive but after that the bank is providing service while facing

challenges with all other large banks. All banks have a pressing need for individuals

skilled in evaluating the businesses and governments issuing securities that the bank

might buy and in assessing financial market conditions. Such courses as economics,

money and banking, money and capital markets, and investment analysis are usually the

best fields of study for a person interested in becoming a bank security analyst or secu-

rity trader. The operation of Bangladesh Commerce bank consists of following sections.

pg. 16


4.1 General Banking division

4.2 Loans and Advance division

4.3 Foreign Exchange division etc

Among these three divisions General Banking is the core and leading division. General

Banking division is the most important point of all activities. It is the storage point for all

kinds of transactions of foreign exchange division, loans and advance division, and other

relevant events. Except General Banking functions a bank cannot sustain for long. With

the technological advancement this sector is growing tremendously. As a fast growing

bank BCBL actively realizing that development and trying to conform to the changing

environment.

4.1 General Banking Division of BCBL

General Banking Department performs the core functions of the bank. It deals day-to-

day transactions. It collects deposit from the various customers and meets the consumers’

and clients’ and borrowers’ demands for cash by honoring their checks. Broadly, it has

been following the core heads-

Accounting opening section.

FDR and Ancillary Service Section.

DD, Pay Order and TT (Transfer through Telephone) Section.

Collection and clearing Section.

Cash Section.

Account Section.

pg. 17


NI Act.

Bills Collections.

Laws and regulation regarding to General Banking

4.1.1 Accounts Opening Section

Banker-customer relationship begins with the opening of an account by the customer.

Opening of an account binds the same into a contractual relationship.

But the selection of customer is very important. In fact, opening of an account by the

customer(s) starts fraud and forgery of all kinds. So, the bank takes extra care in this sec-

tion. One of the basic functions of commercial banks is to accept deposits. For accepting

deposits both demand and time, BCBL offers the following types of accounts-

I. Demand deposits (Withdrawal on demand)

Savings Bank Account.

Current Account.

II. Time deposits ( payable at a fixed or offer a period of notice)

Fixed Deposit (FDR)

Short Term Deposit (STD)

Deposit Pension Scheme.

4.1.2 Types of Accounts with Terms and Conditions

This part covers only following types of accounts-

i. Savings Bank Account

ii. Current Account

iii. Short Term Deposit (STD) Account.

iv. Fixed Deposit (FDR)

v. Deposit Pension Scheme.

I. Savings Bank Account

This deposit is primarily for small- scale savers. Hence, there is a restriction on with-

drawals in a week with minimum deposit 500 taka and interest rate 7. Some types of sav-

ings accounts are,

pg. 18


Home savings account

School savings account

Works savings account

Deposit pension account

Cumulative savings account

Loan Deposit account

Foreign currency account etc.

II. Current Account

Current account is purely a demand deposit account. There is no restriction on withdraw-

ing money from the account. It is basically justified when funds are to be collected and

money is to be paid at frequent interval. It is most suitable for private individuals,

traders, traders, merchants, importers mill and factory owners, limited company, etc.

Some important point is as follows-

Minimum opening deposit of Tk. 500/= is required.

There is no withdrawal limit, but in case of large amount (e.g. 2 lac of more),

bank requires one-day notice before giving withdrawal.

No interest is given on the current accounts.

The primary objective of such account is to save big customers like business-

men, Joint Stock Company, public authorities, etc. From the risk of handling

lot of cash.

III. STD (Short Term Deposit) Account

Normally various big companies, organizations, Government Departments keep money

in STD Account. Frequently withdrawal is discouraged and requires prior notice. In

BCBL, customers usually give instruction that their current account will be debited

whenever its deposited amount crosses a certain limit and this amount will be transferred

to the STD account. The deposit should be kept for at least seven days to get interest.

The interest offered for STD is less than that of savings deposit. Interest is calculated

based on daily minimum product and two times in a year. Interest rate at present is 5%.

IV. Fixed Deposit Receipt

Fixed deposit account consists of long term deposit. Fixed deposit is normally high yield

to earn the maximum possible return. Any amount to be deposited for three months, six

pg. 19


months, and one year. BCBL currently offer the interest rate about 10.5%, 10.75%, and

11% respectively. The basic requirements to open a fixed account are almost same as

savings and current account

V. Deposit Pension Scheme

Pension Scheme can be opened in the name of individual who crossed the minimum age

level 18 years. Under this scheme joint account is not permissible. Account holder can

deposit from Tk.500-5000 per month for minimum five years to maximum ten years. At

the end of duration holder can withdrawal cumulated money with interest through

monthly installment or over 6 to 10 years.

4.1.3 FDR and Ancillary Service Section

In case of encashment of FDR [say for Tk.X] on maturity, following accounting treat-

ments are given-

Interest on FDR A/C………………………………Cr. [say Tk. P]

Exercise duty on FDR……………………………..Dr. [say Tk. Q]

10% income Tax on interest……………………….Dr. [say Tk. R]

FDR A/C…………………………………………..Dr. [Tk. (X+P-Q-R)]

Cash A/C…………………………………………..Cr. [Tk. X+P-Q-R)]

If the customer wants to draw the interest only, then following entries are given-

Interest on FDR A/C………………………………..Dr.

Cash A/C …………………………………………..Cr.

4.1.4 DD, Pay Order and TT Section

Demand Draft (DD):

Among different financial instruments Demand draft is most significant. Demand Draft

issued by a particular branch on behalf of the customers to another branch instructing to

pay a certain amount of money. According to the regulation if the amount is more than

Tk. 25000 a test code is require to give on IBCA. In terms of DD serial number is much

important in both receiving and payment of money. Working procedure for Demand

Draft is as follows:

Step 1: Applicant has an account with BCBL

Step 2: Fill up the relevant form with a credit Voucher for the banker.

pg. 20


Step 3: DD is handed over the customer where paying Bank is mentioned and payment

will be made from another Bank.

Step 4: Bank honors Demand Draft if everything is ok.

Step 5: An IBCA along with photocopy of DD is sent to the paying bank.

Pay Order (PO):

Pay order means order to pay a certain amount of money to specific parties mentioned on

the PO. It’s an instrument for bank and bank earns a percentage of money. Once PO was

issued only to effect local payment of banks own but situation has been changed now it

issued on behalf of customers. PO is not transferable and there is no chance to dishonor

like a check does. Basically, PO can be purchased by three different modes such as:

In order for pay order bank charge a certain amount of fees:

Figure 4: Charges for Pay Order


PO Issuing Process:

To issue a pay order need to maintain some formalities like below:

Fill up application form by the customers

Deposit specific amount of money either in cash or by check

Prepare the instrument and make necessary entries in the bills payable register

where payees name, date, PO no. etc.

Deliver the instrument to the customer after scrutinized and approved by autho-

rized by taking signature of the customer on the counter part.

PO Working Procedure:

Figure 5: Pay Oder working Procedure

pg. 21

Range Tk. Charge Tk.

Up to Tk.1000 10

Tk.1000 to 10000 25

Tk.10000 to 50000 50

Over Tk.50000 100


Source: Communication with Bank Personnel

Telegraphic Transfer:

Due to the technological advancement it’s possible to transfer money over telegraphic

modes. Sometimes customers need money immediately, in that circumstances they ask

for telegraphic transfer. There are some common modes for this type of transfer such as

Telegram, Telephone, Telex, and Fax. Though telegraphic transfer is expensive but it’s

fast and convenient. Customers have to pay for this service according to the rate deter-

mined by the central bank. Telegraphic transfer commission calculates as per Bangladesh

Bank rate min Tk.25 and telex charge to be taken as Tk.30 per minute.

4.1.5 Collection &Clearing

pg. 22

Purchasers have to have an account with BCBL

Fill up required form provided by the bank

Purchase the PO in favor of particular company or person.

Deposit the PO in customers account with BCBL or another bank by the beneficiary.

Collecting Bank sends IBAD

Collecting Banker Presents PO to Paying Bank through

clearing house

Payee’s account credited with collecting banker.

Payee’s account debited with paying Bank


Clearing is one of the mentionable tasks of a commercial bank. Clearing means accom-

plishments of cheque drown on each other through clearing house. In general clearing

house means “A place where representatives of local banks meet at an agreed time each

day to exchange cheque and other items drown on each other and to settle the resulting

balances. This is an initiative of central bank to accumulate the representatives of

schedule bank to clear their cheques. In order for clear the cheque BCBL developed a

unique section that is responsible for receive checks, drafts, and other instruments like

these from customers for the purpose of collection with a deposit slip over the counter

crediting their accounts. Only the schedule banks are allowed to participate in clearing

house. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which

are the member of clearing house known as schedule bank. Accordingly BCBL is a

schedule bank and actively participate in clearing function with clearing house on behalf

of the customers.

Types of Clearing: Basically two types of clearing available:

1. Outward Clearing: When the branches of a bank receive cheques from its cus-

tomers drawn on the other banks within the local clearing zone for collection

through clearing house.

2. Inward Clearing: When the bank receives cheque drawn on it from other banks

in order for clearing function.

4.1.6 Cash Section

Cash section is most vital and significant section of the bank. Lets the say cash is the

blood of the bank. The main task of this section is receive and payment of money. As we

know it has two major counters-

Cash receive counter

Cash payment counter

4.1.6.1 Cash Receive Counter

pg. 23


In receive counter two/three efficient persons are responsible for cash collection. In this

section cheque, pay order, drafts etc. are being received. These tasks accomplish through

a predetermined process-

I. At first customer need to fill up the deposit slip provided by the bank.

II. Deposit the slip to cashier.

III. Cashier receives money, confirm the amount and then enter into the cash receipt

register book and finally sign with seal and date in the deposit slip.

IV. Slip then passed to another officer who is responsible for taking details like serial

number, amount etc. and return deposit slip to customer.

4.1.6.2 Cash payment

Cash payment counter is responsible only for payment of cash on the basis of check, pay

order, drafts etc. In terms of cash payment bank initiate some extra care regarding fol-

lowing things- whether the cheque is crossed or not, endorsement, date, specimen signa-

ture, amount, and other relevant things. To pay money bank follow process:

I. At customer need to deposit the cheque to the cash section.

II. Authorized individual verify required things- whether it is properly crossed if it is

being cross cheque, endorsement, date, amount, signature, and also ensure current

balance in the account and then it send to cashier if everything is positive.

III. Cashier is then asked bearer to sign on the back side of the cheque and pay the

money.

IV. Then cashier enter payment details into register book.

4.1.7 Account Section

It’s regardless to analyze how much significant the account section are! Let’s the say ac-

count is the nerve centre of the bank. Everyday huge transaction occur in different sec-

tion, account section regularly keep record each and every transaction. In banking busi-

ness bank need to go for various transaction and these transactions are to be recorded

properly and systematically. If the bank fails to record this transaction in an appropriate

manner it might happen mismatch and misunderstanding between bank and customers

and it also mismatch in the debit and credit side. To avoid this violence bank developed

pg. 24


account section which is responsible record keeping of all transactions required informa-

tion, prepare different statement and other relevant things. Basically accounts supply in-

formation to other sections of the bank according their requirement. Generally account

section of BCBL responsible for following activities:

Record keeping of all transactions in the cash book.

Recording the transactions in general and subsidiary ledger.

Packing of the correct vouchers according to the debit voucher a credit voucher.

Constructing the daily position of the branch comparing of deposit and cash.

Make payment of all expenses of the branch.

Recording inters branch fund transfer and providing accounting treatment in this

regard.

Preparing monthly salary statements for the employees.

Preparing weekly position for the branch which is sent to the Head Office to

maintain cash reserve requirements.

Checking transaction list.

Recording of the vouchers in the voucher register.

Preparing the daily statement of affairs showing all the assets and liability of the

branch as per general ledger and subsidiary ledger separately.

4.1.8 Bill Section

The most important and mentionable task of general banking is to collect and payment of

different bills on behalf of clients and the government. As a representative of client

BCBL perform following basic tasks:

Bill collection

Clearing

Transfer and Delivery

Outward and inward bill Collection.

pg. 25


4.1.8.1 Bill collection

Under this section bank collect different types of bill on behalf of clients. Such as- Pur-

chase and sale share and securities, pay the tax and vat, collect and disburse house rent,

collect dividend, collect pension fund, invest the money etc. There are basically two dif-

ferent types of bill. Besides, bank receives check for collection from other bank on be-

half of clients. In this case following points should be carefully investigated:

Cheque should not carry more six months from the date of transfer of funds. In

that case check would be stale check.

The amount should be identical both in word and in pay-in slip.

The name mentioned should be same both in check and in pay- in-slip.

Check must be crossed.

4.2 Loan and Advance

Loans and advances is another vital function of commercial bank. Generally bank loan

means the credit granted by a banker to his customers either in cash or any other means,

is called bank credit or bank loan. Besides deposit collection BCBL lend money to its

customer as well. The loans and advances of the bank registered an impressive growth

during the year 2010. The total loans and advances amount to Tk.8266 million as on 31 st

December 2010, against Tk 6256 million in the previous year showing an increase of

32%. The advance portfolio of the bank is well diversified and covers funding to a wide

pg. 26


spectrum of business and industries. The classified loans of BCBL during the year under

report were 3.75% which may be termed as encouraging in the socio-economic environ-

ment prevailing in the country. The bank gives top most priority to acquire quality assets

and does appropriate lending risk analysis while approving commercial and trade loans

to clients. Bank provides different types of loan on the basis of customers demand.

Figure 6: Loan and Advances of BCBL

Source: Annual Report BCBL

4.2.1 Credit Scheme

BCBL offers following Schemes to its customer:

Financing of small and medium Industries

Financing of Trade

Financing if Import and Export

Micro-Credit and Micro Enterprise schemes

Credit Scheme for women entrepreneurs

pg. 27


Consumers credit Scheme

Special Credit Scheme for service holder

4.2.1.1 Financing of small and medium Industries

The main thrust of financing is given on small and medium enterprises. This is the prior-

ity sector of Bangladesh Commerce Bank.

4.2.1.2 Financing of Trade

Trade Finance includes CC (Cash Credit), SOD (Secured Overdraft) FO (Financial Obli-

gation), RE (Real Estate) working capital. This will help the local traders and business-

men to expand their trade and business unhindered.

4.2.1.3 Micro-Credit and Micro Enterprise Scheme

For poverty alleviation micro-credit is provided to poor people without security for their

self-sustenance and to rehabilitate them in the society.

4.2.1.4 Credit Scheme for Women entrepreneurs

This scheme in order for develops Women entrepreneurship in the country. This type of

credit is extended to unemployed and skilled women, through which they can transform

their micro-credit in to small enterprises.

4.2.1.5 Consumers Credit Scheme

Domestic useable items i.e. Computer, Photocopier, Furniture, Washing Machine, Air

Cooler, Refrigerator, Sewing Machine, Car; Pressure Cooker etc are financed for com-

fortable and modern living of the people of limited source of income.

4.2.1.6 Special Credit Scheme for Service-holder

Under this scheme service-holders of govt. bank or autonomous bodies are provided with

6 month's basic salary as loan realizable in 18 equal installments. Professionals are also

covered under this special credit.

4.2.2 Considerations of Bank in Granting Loans and Advances

pg. 28


Basically main task of the bank is to earn profit through borrowing and lending money.

That’s why bank need to proceed some significant principles to provide loans from its

fund. At the time of granting loan BCBL consciously investigates followings:

Character of the Clients

Financial solvency of borrower

Capacity to use the loan

Safety of loan

Liquidity of the bank

Whether sufficient profit is earning

. Sources of Re-payment loan

National Interest

Volume of loan

. Order of the Central Bank.

4.2.3 Classification of Advances

The Bangladesh Commerce Bank Ltd. classified its advances/ credit program in following forms:

4.2.3.1 Bank Advances on the basis of the objectives/ Uses

A. Commercial Credit

B. Non- Commercial Credit

A. Commercial Credit: Bank provides this type of credit for the purpose of national and inter-

national business. Commercial credit may be short term or long term.

B. Non- Commercial Credit: Bank provides this credit for non- commercial purpose. The bank

offers this credit to purchase house, Home materials, Social development, traveling, education,

etc.

4.2.3.2 Bank’s Advances on the basis of Duration

I. Short Term Credit: Bank offers this type of loan for very short time. The maximum du-

ration of this loan is one year and minimum one hour. Basically individual, firms and in -

dustries are the main customer of this loan.

II. Mid Term Loan: Bank also provides credit for mid term between short term and long

term. The maximum duration of this credit is less than five years and minimum one year.

pg. 29


Bank charge a certain percentage of interest against this credit and that is 11%-14%.

Customers of the Long term credit are-

General Businessman

Importer

Exporter.

III. Long Term Credit: Bank offers this credit for long term, generally bank grants this

credit for five years to twenty years duration. Bank charge high interest against long term

credit it is 15%-20%.

Normally bank grants long term credit under a certain project. However, bank provide long term

loan to purchase land and machineries, house building, construction of industry and machineries

purchase, etc. Bank also grants long term credit for small and cottage industries, fisheries, etc.

4.2.4 Loan

Among all the advances loan is most significant and comparatively high demandable to the cus-

tomers. Generally bank provides this loan through credit account, it does not provide in cash.

Customers draw by the cheque from his / her account. Normally, loan need to repay within a cer -

tain time period. However, customers are allowed to repay loans in installment. Necessarily bank

demand high interest on different types of loan and customers are instructed to pay interest with

principle amount of loan. BCBL grant loans for following different purposes:

Purchasing Transportation

Agricultural activities

Industrial construction

Working Capital

Small and Cottage Industries

House building etc.

Generally bank offers two different types of loan:

A. Secured Loan

B. Unsecured Loan

A. Secured Loan: Secured loan means any loan which is guaranteed by the borrower giving

valuable property as security. Generally bank grant this types of loan against some movable or

immovable assts or properties for the safe return of loans. If the customers fail to repay loan then

bank sale all his security assets and properties to compensate the loss.

B. Unsecured Loan: Unsecured loan means any loan which grant without any security money or

assets. Bank generally provide this loan to the persons with whom bank has long term relation-

ship, honest, socially well-known persons, and the clients who has goodwill in the society. This

pg. 30


type of loan contains high risk, if the borrowers get unable to repay the bank collect the loan by

the help of the court.

4.2.4.1 Rate of interest on Loans and Advances

BCBL Charges interest on loans and advances according to the following rate:

Figure 7: Deposit Interest Rate

Types of Deposit Rate of Interest

Commercial Sector 14.7%

Industrial Sector ( Term and Current) 14%

Export Sector 7%

Sources: Annual Report of BCBL

4.2.5 Cash Credit

Under the cash credit Banker specifies a limit, called the cash credit limit, for each cus-

tomer up to which the customer is permitted to borrow against the security of tangible as-

sets or guarantee. Bank generally offers this type of credit for businessman and industries

for a certain period of time ( 6- 12 months) to meet their instant financial need.

Bank offers two different types of cash credit:

A. Cash Credit Hypothecation

B. Cash Credit Pledge

A. Cash Credit Hypothecation: The mortgage of movable assets or property for secur-

ing credit is known as hypothecation. Hypothecation is a legal transaction whereby

goods are made available to the banker as security. Since the goods always remain in the

physical possession of the borrower, that’s why it contain high risk for banker.

B. Cash Credit Pledge: Cash credit pledge implies the credit allowed against pledge of

goods as security for credit. Bank retains an effective control over the pledged goods.

The goods might be stored in the storehouse of the borrower under the active supervision

of the bank.

4.2.5.1 Formalities for Cash Credit:

pg. 31


If a customer wishes to take cash credit ten they need to submit following docu-

ments:

I. Trade license

II. Up to date income tax clearing certificate.

III. Charge of documents

IV. Letter of continuity

V. Letter of arrangement

VI. Demand Promissory note

VII. Letter of Guarantee

After end of the analysis of above documents bank prepares a CC proposal form that

contains the following information’s:

a) Nature of Business

b) Banking with BCBL

c) Transaction with Current Deposit account by the client

d) Allied deposit with SB/STD account

e) Number of adjustment

f) Turnover in the account

Based on the above information the credit officer prepares recommendation about the

prospect of granting the CC loan.

4.2.6 Process of Giving Loan

In order to get the loan customers have to go through following process:

Figure 8: Process of Granting Loan

pg. 32

Collections of Application forms and fills up by the customers and submit required documents demanded by the bank with application.


Source: Daily Bank Statement

4.2.7 Overdraft

The overdraft is always allowed on a current account. The customers may be allowed to

a certain limit up to which he can overdraw within a stipulated period of time. In an

overdraft account withdrawal and deposit can be made any number of times within the

limit and prescribed period. Interest is calculated and charged only on the actual debit

balances on daily product basis. Generally bank grant three different types of overdraft

such as:

a) Temporary over Draft:

TOD is allowed to honor an important cheque of a valued client without any prior ar -

rangement. As this facility is allowed for a very short period, it is called temporary Over-

draft.

b) Clean overdraft:

Sometimes overdrafts are allowed with other security other than the personal security of

the borrower. These types of overdraft are known as clean overdraft.

c) Secured overdraft:

pg. 33

Bank verifies all the documents and information submitted by the customers in order to check the credit worthiness of the clients.

If everything is positive bank sanction the loan.

Bank prepare a loan proposal which contains terms and conditions of loan for ap-proval of manager. Besides take necessary paper and signature from borrower.

Loan account is successfully opened, where

Consumer A/C Dr.

Respective loan A/C Cr.


When overdrafts are allowed against securities they are called secured overdraft

4.3 Foreign Exchange Section

A person living in Dhaka city can make payment to another in Chittagong with money or

by Cheques on any bank of the country. Such payments do not present any problems. But

things are different when the debtor and the creditor live in different country. When a

trader from Dhaka city imports goods from New York, the payment involves certain

complication. The Dhaka man can pay in taka but taka is of no use to New York ex-

porter. There must be some means of changing taka into dollar. Obviously the interven-

tion of a third party is required. So there is a need for a foreign exchange mechanism.

Administration of Foreign Exchange in Bangladesh

The statute for administration of foreign currency in Bangladesh is the foreign exchange

regulation Act, 1947 as adapted in Bangladesh. Under this Act, the responsibility and au-

thority of administration of foreign exchange is vested by the government with the

Bangladesh bank.

While the Bangladesh bank has full authority to administer foreign exchange in

Bangladesh, it cannot do so by itself. This is not possible for Bangladesh bank to deal

with a large number of exporters and importers individually. Therefore, provision has

been made in the act, enabling the Bangladesh bank to delegate its powers of functions to

authorized dealers.

Authorized Dealers (AD)

In administering exchange control and foreign trade, Central Bank of the country

(Bangladesh Bank) authorizes few branches of commercial banks to deal in foreign ex-

change. These branches are known as “Authorized Dealers”. They act as an agent of the

Central Bank and work under the “Foreign Exchange Regulations Act-1947” and

pg. 34


“Guidelines for Foreign Exchange Transactions-Volume 1 & 2” prescribed by

Bangladesh Bank.

Handling of Foreign Exchange at BCBL

The BCBL deals with foreign exchange with goodwill for a long time. It is handling of

foreign exchange closer to twenty (20) years. Nowadays 16 branches of this bank are au-

thorized to deal foreign exchange by Bangladesh Bank.

BCBL offers two types of credit facilities to its customers. Such as-

a) Funded Credit and

b) Non Funded Credit

a) Funded Credit:

The credit facility in which the fund of the bank is directly invested is known as funded

credit. Such as-Cash Credit, Secured Overdraft act.

b) Non Funded Credit:

The credit facilities in which bank’s funds are not directly invested are known as non-

funded credit. Such as-Letter of Credit (L/C), Guarantee etc.

Documentary credit or Letter of credit (L/Cs):

Documentary Credit or letter of credit is nothing but an arrangement whereby a bank (is-

suing bank) acting at the request and on the instruction of a customer (the applicant) or

on its own behalf undertakes to make payment to or to the order of a third party (the ben-

eficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or au-

thorize another bank to negotiate against stipulated documents provided the terms and

conditions to the credit are complied.

Thus, Documentary Credits are akin to bank guarantees. In popular language, they are

known as Letters of credit (L/Cs). Bank guarantees are, however, issued to cover situa-

tion of non-performance whereas documentary credits are issued on behalf of the buyer

to cover situation of performance, i.e., the issuing bank agrees to make payment to the

beneficiary one he surrenders the requisite complying documents.

pg. 35

The Importer

(Buyer of Goods)

The Bank(ThirdParty)

The Exporter

(Seller of Goods)


Types of Letter of Credit

Documentary letter of credit, basically, can be classified into two segments:

a) Revocable letter of credit

b) Irrevocable letter of credit

a) Revocable Letter of Credit:

This type of letter of credit can be revoked or cancelled at any time without consent of,

or notice to the beneficiary. As per article 8 (a) of UCPDC-500 “A revocable credit may

be amended or cancelled by the issuing bank at any moment and without prior notice to

the beneficiary”.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be

amended or cancelled while the goods are in transit and before the documents are pre-

sented, or although presented before payments has been made. The seller would then

face the problem of obtaining payment on the other hand revocable credit gives the buyer

maximum flexibility, as it can be amended or cancelled without prior notice to the seller

up to the moment of payment buy the issuing bank at which the issuing bank has made

the credit available. In the modern banking the use of revocable credit is not widespread.

b) Irrevocable Letter of Credit:

An irrevocable credit is a documentary credit, which cannot be revoked, varied or

changed/amended or cancelled without the consent of all parties- buyer (Applicant),

seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed L/C). As

per Article 9(a) of UCPDC 500, an irrevocable credit constitutes a definite undertaking

of the Issuing Bank, provided that the stipulated documents are presented to the Nomi-

nated Bank or to the Issuing Bank and that the terms and conditions of the credit are

complied with. Irrevocable Credit gives the seller greater assurance of payments, but he/

she remains dependent on an undertaking of a foreign bank.

Bank as a party of documentary credit:

Parties to the documentary credit are-an issuing bank, an advising bank, a confirming

bank, a reimbursing bank or negotiating banks.

pg. 36


Issuing Bank: The Issuing Bank or the Opening Bank is one which issues the

credit, i.e., undertakes, independent of the undertaking of the applicant, to make

payment provided the terms and conditions of the credit have been complied

with. The payment may be at sight if the credit provides for sight payment, or at

maturity dates if the credit provides for deferred payment. Especially the issuing

bank should satisfy himself on the credit worthiness of the applicant. The credit

application must be in accordance with the Uniform Customs and practices for

Documentary Credit (UCPDC)- ICC publication no. 500 edition of 1993.

Advising Bank: The Advising Bank advises the credit to the beneficiary authen-

ticating the genuineness of the credit. The advising bank is generally situated in

the country/place of the beneficiary.

Figure 8: Import Procedure

Issuing Bank

(Bangladesh)

Advising Bank

(Singapore)

Source: Communication with Bank Personnel

Confirming Bank : A Confirming Bank is one which adds its guarantee to the

credit opened by another bank, thereby undertaking the responsibility of payment

/ negotiation / acceptance under the credit in addition to that of the issuing bank.

pg. 37

Negotiating Bank

(Singapore)

Reimbursing

Bank

(Japan)


A confirming bank normally does so if requested by the issuing bank. When the

creditworthiness of the issuing bank is in doubt, beneficiary’s bank may request

the issuing bank to give additional confirmation by another bank. It is said, ‘Add

Confirmation’ in practice.

Negotiating Bank: A Negotiating Bank is the bank nominated or authorized by

the issuing bank to pay, to incur a deferred payment liability, to accept drafts or

to negotiate the credit.

Reimbursing Bank: A Reimbursing Bank is the bank authorized to honor the re-

imbursement claims in settlement of negotiation / acceptance / payment lodged

with it by the negotiating bank or accepting bank. It is normally the bank with

which the issuing bank has account from which payment is to be made. Reim-

bursement claims in foreign exchange business is settled by the Uniform Rules

for Reimbursement (URR)-ICC publication no. 525.

The Foreign Exchange Department is mainly divided into three sections. Such as-

1. Import Section

2. Export Section &

3. Remittance Section

pg. 38


The import Section deals with L/C in the perspective of the importers and the Export

Section deals with L/C in the perspective of the exporters.

4.3.1 Import Section

Import is the flow of goods and services purchased from one country to another. Hence,

import of merchandise essentially involves two things: bringing of goods physically into

the country and remittance of foreign exchange towards the cost of the merchandise and

services connected with this to the importer. In case of import, the importers are asked by

their exporters to open letters of credit so that their payment against goods is ensured.

IV.3.1.1 Import Procedures

An importer is required to submit the following documents in order to get a license to

import through BCBL Federation Br.

A bank account with the branch

Import Registration Certificate (IRC)

Tax Payer’s Identification Number (TIN)

Performa Invoice / Indent

Membership certificate from a recognized Chamber of Commerce & Industry or

Town Association or registered Trade Association.

Letter of Credit Authorization (LAC) Form properly filled in quintuplicate signed

by the importer.

L/C Application duly signed by the importer.

One set of IMP Form.

Insurance Cover Note with money receipt.

VAT Registration Certificate (for Commercial Importers)

In case of public Sector, attested photocopy of allocation letter issued by the allo-

cation authority, Administrative Ministry or Division specifying the source,

amount, purpose, validity and other terms and conditions against the imports.

On receipt of the LCA Form and the other documents, the branch officials care-

fully scrutinize the documents and lodge the same in their respective registration

books and duly verify the signature of the importer put on the LCA Form.

pg. 39


To import, a person should be competent to be an ‘importer’. The office of the Chief

Controller of Imports & Exports (CCI&E) provides the registration (IRC) to the im-

porter. After obtaining the IRC, the person has to secure a “Letter of Credit Authoriza-

tion” (LCA) registration from the Registration Unit of Bangladesh Bank. After getting

the LCA registration, a person becomes a qualified importer. He is the person who re-

quests or instructs the opening bank to open an L/C. He is also called the “Opener” or

“Applicant” of the credit

IV.3.1.2 The L/C Application Form

L/C Application form is a sort of an agreement between customer and bank on the basis

of which the letter of credit is opened. BCBL Federation Branch provides a printed form

for opening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed

on the form in accordance with Stamp Act in force. While opening, the stamp is can-

celled. Usually the importer expresses his decision to open the L/C quoting the amount

of margin in percentage (Some L/C’s are opened for 100% margin).

IV.3.1.3 Requirements of L/C Opening

.Applicant must hold a current deposit (CD) account in the Bank.

He must have a trade license of import

Tax Identification number (TIN)

Vat certificate.

Membership certificate.

Import registration certificate (IRC) for industrial or commercial.

An importer must ensure the above requirements while he is going to issue a L/C with

any bank to import something from another country.

IV.3.1.4 The import form

The IMP Form contains the followings

Name and address of the Authorized Dealer.

Amount of remittance to be permitted (i.e., L/C amount).

LCA Form number, date, value in Tk.

Description of goods, quantity.

pg. 40


Invoice value in foreign currency (i.e., L/C amount)

Country of origin.

Port of shipment.

Indent or’s registration number with CCI&E and Bangladesh Bank.

Full name and address of the applicant.

Registration number of the applicant with CCI&E

4.3.1.5 Accounting Treatment in Case of L/C Opening

As soon as L/C is opened, the bank accepts a liability on behalf of the importer to make

payment against the credit. Provided that the shipment is made within the period and

other term, and conditions as per L/Care complied with, naturally, bank has to pass an

entry in L/C liability ledger and also in the general ledger to show its actual liability ac-

cepted on L/C. A liability voucher in passed as

4.3.1.6 Transmission Process of BCBL

The transmission process of L/C of BCBL are much more advance. They are sending all

foreign L/C to the advising bank through SWIFT.

SWIFT- Society for World Wide Inter Bank Tale Communication. This is a system of

interbank transaction. Every bank or other financial institutions must get the membership

of SWIFT to share the information. This is a system of communication where further

confirmation will not require

4.3.1.7 Adding confirmation

Sometimes beneficiary or supplier of the goods insists the importer for adding confirma-

tion to L/Cs or to issue L/Cs with add confirmation. In that case, at the request of the im-

porter, the Issuing Bank requests the Advising Bank or any third bank to add their confir-

mation to the L/C. Normally, add confirmation charge is borne by the beneficiary and the

confirmation charge differs from bank to bank.

pg. 41


4.3.1.8 Lodgment & retirement of shipping documents

On scrutiny, if it is found that the document drawn in conformity with the terms of the

credit, i.e., the documents are in order, this Branch lodges the documents in PAD (Pay-

ment Against Documents) and the following accounting treatments are given-

PAD A/C --------------------------------------------------- Dr.

BCBL General A/c (at HO prescribed rate) ------ Cr.

Exchange A/C ----------------------------------------- Cr.

The reversal entries are as follow –

Banker’s Liability -------------------------------------- Dr.

Customer’s Liability ------------------------------------ Cr.

(When lodgment is passed)

After passing the lodgment vouchers, the shipping documents are then stamped with

PAD Number and entered in the PAD Register. Intimation is given to the customer call-

ing on the bank’s counter requesting retirement of the shipping documents. The retire-

ment vouchers are as follows

L/C Margin A/C ------------------------------------------------ Dr.

Party’s A/C ----------------------------------------------------- Dr.

PAD A/C -------------------------------------------------------- Cr.

Interest / Commission A/C ----------------------------------- Cr.

P & T Charges A/C -------------------------------------------- Cr.

After passing the retirement vouchers, endorsement is made on the back of the Bill of

Exchange as “Received Payment” and the Bill of Lading endorsed to the effect “Please

deliver to the order of M/S -----”, under two authorized signatures of the bank’s officers

(P.A. Holder). Then the documents are delivered to the importer.

4.3.2 Export Section & Export Financing

In the Export Section, two (02) types of L/Cs are handled in this branch-

A) Back-to-Back L/C

B) Export L/C

A) Back-to-Back L/C

pg. 42


In case of a “Back-to-Back” letter of credit, a new L/C (an import L/C) is opened on the

basis of an original L/C (an export L/C). Under the “Back-to-Back” concept, the seller as

the beneficiary it as a ‘security’ to the Advising Bank. The beneficiary of the back-to-

back L/C may be located inside or outside the original beneficiary’s country. In case of a

back-to-back L/C, no cash security (no margin) is taken by the bank; bank liens the first

L/C (the master L/C). In case of a back-to-back L/C, the drawn bill is usage/time bill.

Papers/documents required for opening of back-to-back L/C are as follows

Master L/C

Valid Import Registration Certificate (IRC) and Export Registration Certificate

(ERC)

L/C Application and LCAF duly filled in and signed

Proforma Invoice or Indent

Insurance Cover Note with money receipt

IMP Form duly signed

In addition to the above documents, the following papers/documents are also re-

quired to export oriented garment industries while requesting for opening of

back-to-back letter of credit -

Textile Permission

Valid Bonded Warehouse License

Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor

of the applicant for quota items.

A permission from Bangladesh Garments Manufacturer’s & Exporter’s Associa-

tion (BGMEA).

B) Export L/C:

The other type of L/C facility offered by this Branch is Export L/C. Bangladesh exports a

large quantity of goods and services to other countries. Readymade garments (both knit-

ted and woven), jute, jute-made products, frozen shrimps, tea are the main goods that

Bangladeshi exporters export to foreign countries. Garments Sector is the largest sector

that exports the lion share of the country’s export. Bangladesh exports most of its ready-

pg. 43


made garments products of USA and European Community (EC) countries. Bangladesh

exports about 40% of its readymade garments products to USA. Most of the exporters

who export through this Branch are readymade garment exporters.

B.1 Formalities for export L/C

The export trade of the country is regulated by the Imports & Exports (Control) Act,

1950. There are a number of formalities that an exporter has to fulfill before and after

shipment of goods. These formalities or procedures are enumerated as follows –

Export Registration Certificate (ERC): The exports from Bangladesh are sub-

ject to export trade control exercised by the Ministry of Commerce through Chief

Controller of Imports & Exports (CCI&E). No exporter is allowed to export any

commodity permissible for export from Bangladesh unless he is registered with

CCI&E and holds valid ERC. The ERC is required to be renewed every year. The

ERC number is to be incorporated on EXP Forms and others documents con-

nected with exports.

The EXP Form: After having the registration, the exporter applies to this Branch

with the Trade License, ERC and the Certificate from the concerned Government

Organization to get the EXP Form. If the branch is satisfied, an EXP Form is is-

sued to the exporter.

Securing the Order: Upon registration, the exporter may proceed to secure the

export order. This can be done by contracting the buyers directly through corre-

spondence.

Signing of the Contract : While making a contract, the following points are to

be mentioned: (a) description of the goods, (b) quantity of the commodity, (e)

price of the commodity, (d) shipment, (e) insurance and marks, (f) inspection,

and (g) arbitration.

Procuring the Materials: After making the deal and on having the L/C opened

in this favor, the next step for the exporter is set about the task of procuring or

manufacturing the contracted merchandise.

Registration of Sale: This is needed when the proposed items to be exported are

raw jute and jute-made goods.

Shipment of Goods : The following documents are normally involved at the

stage of shipment: (a) EXP From, (b) photocopy of registration certificate, (c)

pg. 44


photocopy of contract, (d) photocopy of the L/C, (e) customs copy of ERF Form

for shipment of jute-made goods and EPC Form for raw jute, (f) freight certifi-

cate from the bank in case of payment of the freight if the port of lading is in-

volved, (g) railway receipt, berg receipt or truck receipt, (h) shipping instructions,

and (i) insurance policy.

B.2 Following points should be looked for –

The terms of the L/C are in conformity with those of the contract.

The L/C is an irrevocable one, preferably confirmed by the Advising Bank.

The L/C allows sufficient time for shipment and a reasonable time for registra-

tion.

If the exporter wants the L/C to be transferable, advisable, he should ensure those

stipulations are specially mentioned in the L/C.

At last, the exporter submits all these documents along with a Letter of Indemnity to this

branch for negotiation. An officer scrutinizes all the documents. If the documents are

clean one, the branch purchases the documents on the basis of banker-customer relation-

ship. This is known as “Foreign Documentary Bills for Purchase”.

B.3 Procedure for FDBP

After purchasing the documents the following entries are made –

FDBP A/C ------------------------------------------------------ Dr.

Liabilities A/C ------------------------------------------------- Cr.

Charges A/C --------------------------------------------------- Cr.

Exporter’s A/C ------------------------------------------------ Cr.

(Before realization of proceeds)

BCBL General A/C (ID, Head Office) ------------------- Dr.

pg. 45


FDBP A/C ----------------------------------------------------- Cr.

Charges A/C --------------------------------------------------- Cr.

Exporter’s A/C ----------------------------------------------- Cr.

(Adjustment after realization of proceeds)

The FDBP Register is maintained for recording all the particulars.

B.4 Settlement of local bill

The settlement of local bills is done in the following ways –

The customer submits the L/C to the branch along with the documents to negoti-

ate.

The branch officials scrutinize the documents to ensure the conformity with the

terms and conditions.

The documents are then forwarded to the L/C Opening Bank.

The L/C Issuing Bank gives the acceptance and forwards an acceptance letter.

Payment is given to the customer on either by collection basis or by purchasing

the document.

The following accounting treatments are made for the purchasing of local bill –

Local Bill Purchase ---------------------------------------------------- Dr.

Party’s A/C -------------------------------------------------------------- Cr.

Commission ------------------------------------------------------------- Cr.

Interest A/C ------------------------------------------------------------- Cr.

A local bill purchase register is maintained to record the acceptance of the Issuing Bank.

Until the acceptance is obtained, the record is dept in a Collection Register.

B.5 Modes of Payment for Export Bills under L/C

The most common methods of payment under a L/C are as follows-

B.5.1 At Sight Payment: In At Sight Payment, the bank pays the stipulated sum imme-

diately against the exporter’s presentation of the documents.

B.5.2 Deferred Payment: In deferred payment, the bank agrees to pay on a specified fu-

ture date or event, after presentation of the export documents. No bill of Exchange is in-

volved. In this branch, the payment is given to the party at the rate of 30,60,90,180,360

pg. 46


days rate as the case may be. But the Head Office is paid under T.T. Clean Rate. The dif-

ference between the two rates is the exchange margin for the branch

.

B.5.3 Negotiation Credit: In Negotiation Credit, the export has to present a bill of ex-

change payable to him in addition to other documents that the bank negotiates.

B.5.4 Acceptance Credit: In Acceptance Credit, the exporter presents a bill of exchange

payable to him and drawn at the agreed tenor (that is, on a specified future date or event)

on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to

the exporter. The exporter can then represent it for payment on maturity. Alternatively he

can discount it in order to obtain immediate payment.

B.6 Export financing

Export financing can be done in two ways. These are:

1) Pre-shipment Financing;

2) Post-shipment Financing.

Pre-shipment financing can be done by opening of back-to-back L/C and Packing Cash

Credit (PCC). In case of pre-shipment financing, about 90% is financed by the bank. Of

that portion, about 75% is for back-to-back L/C and 10% is for packing cash credit. Fi-

nancing in Back to Back L/C changes according to the products i.e. Normal fabric, Flan-

nel fabric, Woven fabric etc. Example of post-shipment financing by bank is Foreign

Documentary Bills for Purchase (FDBP).

4.3.3 Foreign Remittances Section

Foreign remittance means purchase and sale of foreign currencies. From March 1994

Bangladesh Taka becomes convertible for current account transactions and thus most of

the foreign remittances are allowed by authorized dealers as empowered by Bangladesh

Bank. There are two types of Foreign Remittance:

A. Foreign Outward Remittance

B. Foreign Inward Remittance

pg. 47


C. Foreign Currency Account

D. Wage Earner Development Bond (WEDB)

A) Foreign Outward Remittances

Outward Remittances means sale of foreign currencies which constitutes remittances

from Bangladesh by TT, FDD, TC etc. to a foreign country or local currency credited to

non-resident Taka account of foreign banks or convertible Taka account and also en-

dorsement (issue) of Foreign currency including TC on foreign travel purpose.

A.1) Approval of Bangladesh Bank

Most outward remittances are approved by the Authorized Dealers on behalf of the

Bangladesh Bank following declaration of Taka as convertible for current account pay-

ments from March 1994. No remittance can be transferred outside Bangladesh without

prior permission of Bangladesh Bank. Following documents are required for approval:

a. IMP Form

b. T/M (Travel & Miscellaneous) Form

A.2) Modes of outward Remittances

a. Issuance of Foreign Demand Draft (FDD)

b. Issuance of travelers cheques (TC)

c. Endorsement of USD in Passport

A.3) Purpose of Outward Remittances

The Foreign Remittance department of Bangladesh Commerce Bank Limited Principal

Branch is equipped with a number of foreign remittance facilities. Following are the

types of foreign remittance facilities offered by Bangladesh Commerce Bank Limited.

A.3.1) Remittances of Profit of Foreign firms / Companies

Foreign Firms /Companies /Banks/Institutions operating in Bangladesh are allowed to re-

mit their net profit on payment of taxes after fully complying with the requirements. The

application or remittances of profit is to be made on T/M Form supported by some main

documents like, Audited Balance Sheet and Profit & Loss A/C certified copies of Final

Income Tax Assessment Orders and Forms etc.

A.3.2) Remittances of Dividends

pg. 48


Remittances of dividends payable to Nonresident shareholders of the companies operat-

ing in Bangladesh are allowed by Authorized Dealer Branches without prior approval of

Bangladesh Bank on receipt of the application in the prescribed form in triplicate duly

signed by the company and certified by the auditors and supported by some documents

like, Certificate of Incorporation, Final Income Tax Assessment Order etc.

B) Foreign Inward Remittances

Authorized Dealers purchase foreign currencies including TT, FDD, TC etc. also raise

debits to non-resident Taka accounts of the respective bank branches. Inward remittance

of USD 2,000.00 and above should be reported on form “C”. The purpose of remittance

should be clearly written in form ‘C’ and declaration on this form is not required against

remittances sent by Bangladesh nationals working abroad.

C) Foreign Currency Account-

There are three types of Foreign Currency Account. This are-

Private Foreign Currency Account

Non-resident Foreign Currency Deposit Account

Residential Foreign Currency Deposit Account

To open a Foreign Currency account the person has to fill up the Foreign Currency Ac-

count form. In the form the person have to fill up-

Name of Account

S/O. / D/O. /W/O

Passport No.

Date of issue

Name of Nominee

Address of Nominee

Signature in the specimen card

C.1 Requirements for opening a Foreign Currency Account-

Duly filled in FC account opening form and signature card

Two copies of photograph of account holder (passport-size)

Two copies of photograph of nominee duly attested by the account holder

(passport-size),if any.

Photocopy of the valid passport of first seven pages including visa page.

pg. 49


Photocopy of the valid Passport of first seven pages if the applicant is Foreign

Immigrant.

Payment into the FC account may be effected through Foreign Telegraphic

Transfer (FTT)/ foreign draft/ pay order/cheque (if any).

D. Wage Earner Development Bond (WEDB)

Wage Earner Development Bond (WEDB) is a government bond approved by

Bangladesh Bank. People who are working abroad and earning foreign currency only

they can apply for this type of bond. One can purchase this type of bond only by the for-

eign earning that mean by the foreign currency. At the end of the day the bank need to

send a daily sales statement sales of Wage Earner Development Bond (WEDB) to the

Bangladesh Bank.

D.1) Types of WEDB-

There are three different values of Wage Earner Development Bond (WEDB). These are

the following-

Tk. 25,000/-

Tk. 50,000/-

Tk. 1, 00,000/-

Interest Rate-

The interest rate is 10%.

(a) On half-yearly basis at simple rate.

(b) On maturity of the bond at half-yearly compound rate.

Maturity Period-

The maturity period is 5 years.

Chapter 5

Findings Recommendation & Conclusion

5.1 Findings

pg. 50


Financing activities is related with progression of operations. Banking sector is very

competitive now. At present there are 48 scheduled commercial banks with more than

6,596 branches. The growth rate of deposit and advance was 17.72% and 20.52% respec-

tively in the year 2010.

BCBL is one of the first generation banks. At the end of 2010 the bank’s total deposit

was Tk.12, 188 million and advance was Tk.8266 million. BCBL is operating under cen-

tralized banking system. New and innovative products are introduced to meet the cus-

tomer’s demand. The import of the bank is higher than total amount of export

Under centralized banking system of BCBL, the branch is considered as retail sales and

service outlet. The growth in deposit has been calculated nearly 61% in the reporting

year. The total advance in 2010 was Tk.8266 million in 2010 and 6256 million in 2009

and the rate of growth was 32% current price. The study shows that bangle bazaar branch

operations are increasing very slowly. Each year deposits growth indicates branch’s

slightly better movement in the banking field. Sometimes the branch couldn’t meet the

business and profit target set by the head office. Sometimes the growth is lower than pre-

vious years in respect of deposit, credit, income, expense and profit. Clients are increas-

ing and ultimately profit is increasing but at a very slow rate. .

It is expected that the new innovative products and services will help the branch to per-

form better by expanding business under centralized banking of City Bank.

With the new strategy of BCBL, the branch can improve sole image in the market and

experience and skills as well, with which they are being able to satisfy the customers

with their wide range of products and services.

5.2 Recommendation

The recommendations given below are not decisions; rather they are only suggestions to im-prove the overall performances of BCBL so that customers give more preference to BCBL. The recommendations are given below:

pg. 51


5.2.1 For General Banking

BCBL should always monitor the performance of its competition in the field of Foreign Trade and General banking Service.

BCBL should conduct strong Marketing Innovation activities to increase busi-ness in & outside Bangladesh.

BCBL has also introduced online banking facility for staying in the competitive market and they also need to use high technology for online system.

Each branch of BCBL can arrange exclusive customer month for all its loyal and old customers. BCBL can generate views from those customers regarding the service and ask for suggestions. Also this week can also have a festival mood and can offer special rates for the existing customers.

Bank must monitor the exporter time to time either they are preparing goods ac-cording to the importer requirements. If it is found that goods are not making ac-cording to the importer demand bank should force the exporter to make the goods right manner

Human resources, in branch, are not equipped with adequate banking knowl-edge. Majority of the human resources is the lack of basic knowledge regarding money, banking finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized.

Technological Skills should be developed. BCBL should establish its own net-working system between its branches so that they can exchange their informa-tion faster and efficiently.

TV Ads and other advertisement on several services like Billboards, Brochures & booklets, broadcast ads etc BCBL should be increased. BCBL should sponsor seminar and symposium for the purpose increase awareness about the services of BCBL.

5.2.2 For Credit Department

Before accepting a project, management should implement sophisticated capital budgeting tools specially risk measurement tools like standard deviation, corre-lation and so on.

pg. 52


More skilled and self motivated people especially business graduates will skills of financial management and investment analysis should be recruited.

In terms of loan SOD (General) the security is also 100% as collateral. It also should be 80% as CC (Hypo) loan.

In case of SOD (FO) BCBL provide loan 80% of the deposited money. BCBL takes 100% security as collateral. So they can easily give 90% loan of the de-posited money.

In terms of Lease Finance, the disbursement charge of 2% interest rate should be omitted. Because the person is giving almost 13% interests in his desired loan. So it is not justify taking another 1% interest of the whole loan amount after he adjusted the whole lone.

Investment/credit policy of BCBL should be easy, and flexible.

5.2.3 For Foreign Exchange Department

For smoothly executing the foreign trade transaction no. of employees in foreign exchange department should be increase. Since the employees are limited they cannot pay much attention to all of its prospective clients. Especially the foreign department people should get training facilities regarding their assign jobs.

Every fifteen days or thirty days after every desk especially foreign desk must be monitor by specialist people for either their having any problem or not. Or their must be a discussion session for every department. There must be an interactive discussion period for every month.

Maintain an effective communication with the foreign importer banks so the matter of payment delay might not happen

The more the local bank communicates with the foreign bank the more reliable business; trustiness would grow up between the local and foreign banks. In that connection matter of payment will not delay.

To attract the foreign buyers we have to be very careful regarding the quality of the goods, we have to set an international standard and the bank can do that more fruitfully. Bank must assure the importer that goods must be international standard.

pg. 53


Need to take AD license for all the branches. Then the branches can do easily their entire processing for the L/C.

5.3 Conclusion

Banking is the backbone of national economy. Banking sector no more depends on only

on a traditional method of banking. Banking industry has been treated as a prospective fi-

nancial sector in Bangladesh.

So all the Financial Institutions must find their own method in order to sustain in the

changing world. Central focus in this regard would be to have a comprehensive Informa-

tion Technology system, sufficient expertise and above all very relaxed management to

adopt new idea. Now BCBL is continuing business operation successfully in Bangladesh

through developing an image and goodwill among its clientele by offering its excellent

services. The success has been resulted from the dedication, commitment and dynamic

leadership of its management. During the short span of time of its operation, BCBL has

successfully grabbed a position as a highly progressive and dynamic financial institution

in the country.

BIBLIOGRAPHY

pg. 54


1) Annual Report of Bangladesh Commerce Bank Ltd. (2009, 2010)

2) Bangladesh Bank web site: http://www.bangladesh-bank.org/

3) Bank Web Site: http://bcblbd.com/

4) Gitman, Lawrence J, (2004), Principles of Managerial Finance, 10th Edition, India,

Pearson Education Inc

5) Rose, Peter, (1996), Commercial Bank Management, 3rd Edition, New York, South-

Western Publication.

pg. 55

http://bcblbd.com/

http://www.bangladesh-bank.org/