internship report zia
TRANSCRIPT
1. Introduction
1.1 Origin of the Report:
This report has been prepared as a requirement of the internship program. The report was
based upon the organization Standard Chartered Bank. My organization supervisor was
Mr. Tawfiq Ali, Senior Relationship Manager Financial Institutions, and my institution
supervisor is Dr. Iftekhar Ghani Chowdhury, Professor and Director, Institute of Business
Administration, University of Dhaka. The topic, which was decided for doing the report,
was duly approved by my institute supervisor. The report will definitely increase the
knowledge of other students to know the banking industry of Bangladesh, and the various
services SCB is providing to sustain as leading foreign bank in Bangladesh.
1.2 Objective of the Report :
This literature is written on the foreign banking sector’s effectiveness in Bangladesh and
the role of banks for growth of international trade related businesses in Bangladesh. The
report is divided into two parts. In the first phase, it was all about organization part of
SCB. On the project part, it focused on the “Operational Process and Products of
Financial Institution that assists the local banks in international trade business." together
with the study on the “Opportunities of Local Bill Discounting for Non-Corporate
Entities". In addition, in my report, I tried to show the role of other banks in aiding
international trade. On the organization part, the objective was to find the financial aspect
and various activities of the bank. On the project part, the effectiveness of various
activities of Financial Institutions. And, lastly I discussed the feasibility and practical
market issues about new ventures like opportunities for local bill discounting for non-
corporate entities were studied. As policies and strategy formulated at the core level will
dictate and guide the activities of the acceptability of the new product, so critical analysis
in determining the success or failure of the product is very significant.
1.3 Scope of the Report:
The scope of the report was to find the financial aspect of the operation of the bank. In
addition, the report was done to find the effectiveness of the Financial Institutions
Department’s various services Further more, the report also focused on the feasibility
study and practical market issues about new ventures and operational procedures of
Financial Institutions. The scope of this report is limited to the overall descriptions of the
bank, its services, and its position in the industry, and its competitive advantage. The
scope of the study is limited to organizational setup, functions, and performances.
1.4 Methodology of the Report:
Sample Information
Samples are collected from the institutional clients of SCB’s Financial Institutions
Department. Here, the samples had been picked up on a judgmental basis. For the
organization part, much information had been collected from different published articles,
journals, brochures and web sites. All the information incorporated in this report has been
collected both from the primary sources and as well as from the secondary sources.
Primary Source of Data
Collecting data directly from the practical field is called primary source of data. The
method that was used to collect the primary data is as follows:
Observation Method:
Observation method may be defined as systematic viewing according to concise Oxford
Dictionary “accurate watching, nothing of phenomena as they occur in nature with regard
to cause and effect and mutual relationship”. I have observed many of the activities of
Financial Institutions Department.
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Other Primary Sources are:
Discussion with officials of SCB
Face to face conversation with the Institutional clients.
Discussions with customers over the telephone & responding to their
query.
Secondary Sources of Data
The secondary data has been collected from the MIS of Standard Chartered Bank. To clarify
different conceptual matters, internet and different articles published in the journals &
magazines have been used.
Secondary Sources are:
Annual Publication of Export Promotion Bureau
Annual Reports of SCB
Other published documents of Bangladesh Bank.
Data Collection:
Both secondary and primary data are used for preparing this report. But the research was
mainly based on the clients’ survey. Information was collected directly from the customers
who are directly dealing with the Standard Chartered Bank through Financial Institutions
Department.
1.5 Limitations:
Limitation, which I have faced while doing my internship report are discussed below:
* As, I had more dependence on the primary sources, so there might be some level of
inaccuracy with those collected informations. Though, adequate verification and cross-
checking was used, to minimize the error level.
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* Confidential information regarding past profit or product cost, financial information
was not accurately obtained. Alike all other banking institutions, SCB is also very
conservative and strict in providing those information. In those cases, I have relied upon
some assumptions, which in result have created certain level of inaccuracy. Still, I had
tried my best in obtaining those sensitive informations, as much as possible.
* Next, many of the analysis on the obtained data are based upon my sole interpretation.
This in result might bring some biases, as lack of knowledge and depth of understanding
might hinder me to produce an absolute authentic and meaningful report
* Time constraint was another limitation restricting this report from being more detailed
or analytical. The Relationship Mangers at the operation or strategic level of the
concerned department are awfully busy with meeting their targets. So, it was very
difficult for me to get them free and obtain some practical ideas regarding their
expectation and opportunities regarding my topic.
* Above all, this internship report was prepared just at the closing month of December.
So, it was very hard for me to accommodate time for preparing this report. Mostly, our
office timings at SCB are from early morning till 8 p.m. During office hours it's simply
hard to manage time for working with the report. And, working with the report after
regular office hours is quite hectic.
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Banking Sector
In
Bangladesh
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2. Overview of Banking
Whoever, being an individual firm, company or corporation generally deals in the
business of money and credit is called bank. In our country, any institution, which
accepts, for the purpose of lending or investment deposits of money from public,
repayable on demand or otherwise, and with transferable by checks draft order and
otherwise can be termed as a bank.
The purpose of banking is to ensure transfer of money from surplus unit to deficit units.
Bank in all countries work as the as the repository of money. The owners look for safety
and amount of interest for their deposits with Banks. Entrepreneurs try to obtain money
from the banks as working capital and for long-term investment. These entrepreneurs
welcome effective and forward-looking advice for investment. Banking sector thus owe a
great to the deposit holders on the hand and the entrepreneurs on the other. They are
expected to play the role of friend, philosopher, and guide for the deposit holders and the
entrepreneurs.
Since liberation, Bangladesh passed through fragile phases of development in the banking
sector. The nationalization of banks in the post liberation period was intended to safe the
institutions and the interest of the depositors. Those handling the banking sector have
borne the burden of putting banks on reliable footings. Despite all that was done, some
elements of irregularities appeared. With the assertion of the role of the Central bank, The
Bangladesh bank started adopting measures for putting banking institutions on right
track. Yet the performance of public sector management of banks left some negative
effects in the money market in particular and the economy in general. The agility among
the borrowers manipulates the banking sector as a whole. In effect, a default culture
appeared on the scene.
The opening of PRIVATE and FOREIGN participants to the banking sector was intended
to obtain desirable results from banking. The authorization of private banks was designed
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to create competition among the banks and competition in the form of efficiency with and
the productivity in enterprises funded by banks. Unfortunately, for the people, at large
banking sector is yet to obtain the credit for efficiency, credibility, and growth.
The clever, among the user of banking services, have influenced the management of
banks, for obtaining short-term and long-term loans. They sometimes showed inflated to
get money for investment in business and industry. Few diverted their loan money to
purposes different from the loan proposals, and invested in non-profitable units have
failed to repay their loans to the banks. For this reason new entrepreneurs are not getting
capital while defaulting entrepreneurs have started obtaining either relief in the form of
rescheduling of the repayment program or additional inevitable money for diversified
units.
2.1 The Banking Sector in Bangladesh:
Domestic banks can be divided into four main groups: Nationalized Commercial Banks
(NCBs); Private banks established in the early 1980s; and private banks established in
1999:
2.1.1 Nationalized Commercial Banks (NCBs) In general terms; NCBs are large,
operationally inefficient and technically insolvent. They are used as vehicles of
government directed lending. These banks enjoy an enormous and stable customer
deposit base, which provides a cheap source of funding. In addition, most large
government related business is routed through these banks;
2.1.2 Private Banks, 1980s- set up to service the sectors not being addressed by the
larger NCBs. Not subject to state directed lending but have generally suffered from
related lending to directors and their extended families;
2.1.3 Private banks, 1995 – six new licenses were granted. These are the better managed
banks with strong capital base and good asset quality and under a much improved
regulatory regime. All the banks clustered in this group have successfully raised capital
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from secondary market and all the shares are now traded in the stock exchange at
premium.
2.1.4 New private sector banks. Ten new banks have been granted licenses over the
year 1999. While some bankers complain that the country is over-banked, the more
commonly held view, including that of the World Bank, is that there is adequate scope
for these banks to survive given currently untapped gaps in the market, fat in existing
interest margins (currently circa 5%), and efficiency/ service level disparities. It is
estimated that up to 70% of the Bangladeshi economy remains un-banked. While this
appears to imply that the newer banks may move downstream in terms of asset quality
but in reality the last two sets of new banks are successfully competing with NCBs
(Nationalized Commercial Banks) and foreign banks on the top end market segment.
Generally asset quality is poor with the level of non-performing loans (NPLs) at
worryingly high levels. Across the whole banking sector, classified loans, as reported by
Bangladesh Bank (BB) in December 2002, the Central Bank, were 34.93%. As a
percentage of their own total loan portfolio, non-performing loans accounted for 38.55%
of the NCBs loan book, and 22.01% of private banks (both categories). In October 2002,
the provisioning requirements changed for past due loans from 180 to 90 days, now
requiring a 20% provision. Generally, provisioning levels are weak, impairing capital. It
is however necessary to understand why the banks carry such high levels of non-
performing loans. Firstly, the legal position of banks' recourse is weakened once a loan is
written-off; and secondly, BB imposes a six-year moratorium on write-offs. As the legal
system is slow and time consuming, this results in NPLs remaining on the books for
longer than would otherwise be the case in other countries. There is also a significant
proportion of NPLs, which is due to non-payment by Government or Government owned
agencies.
Lower credit growth in 2002, compared to deposits, has meant that the banks now have
excess liquidity. With investment rates in call, money market and government bonds
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remaining static at their lowest levels, some banks are now cutting back on their long-
term deposit rates and are refusing to accept large deposits.
Long-term interest rates have traditionally been lower than short-term rates. This inverted
yield curve is a fall out from the source of long term lending. Long term lending was
traditionally extended by the NCB's, usually for non-commercial loans, thus setting a low
benchmark for longer-term funds.
Clearly the banking industry is in a very poor state and it will take years to clean up. The
Government and BB have been working with the World Bank to introduce reforms,
including related party lending, restricting lending concentrations to 15% of the capital
base, capital adequacy and bankruptcy laws. The World Bank has indicated that there are
funds available to assist individual banks improve their capital bases, but this depends on
them first making full provision for NPLs. Some banks have also successfully raised
capital through IPOs (Initial Public Offerings). BB has reaffirmed its intention to
continue extension of support to banks through rediscounting. However care should be
exercised when taking comfort from BB's (Bangladesh Bank) assertion that it will not
allow any bank to fail. While this pledge has held true to date, in effect it means that BB
will allow a technically insolvent bank to continue in operation with BB guidance and
"technical" support but BB will not provide a capital injection or write-off government
related bad loans.
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Organization Part
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3.Organizational Overview
Standard Chartered Bank derives its name after two banks – Standard Bank of British
South Africa and the chartered Bank of India, Australia and China. The merger took
place in 1969. Standard Chartered Bank is regulated by the Bank of England and is a
clearing bank in the United Kingdom.
The new millennium brought with it two of the largest acquisition in the history of the
bank- the acquisition of the Grindlays Bank from the ANZ group for a consideration of
$1.34 billion and acquisition of the Chase Consumer Banking Corporation in the Hong
Kong for $ 1.32 billion. These acquisitions demonstrate Standard Chartered Bank’s firm
commitment to the emerging markets.
Standard Chartered employs 29,000 people in over 500 offices in more than 50 countries.
The group provides consumer-banking services to individuals and small to medium size
businesses, and offers Wholesale Banking capabilities to corporate and institutional
clients. With 150 years in the emerging markets the group has unmatched knowledge and
understanding of its customers in its markets. Standard Chartered recognizes its
responsibilities to its staff and to the communities in which it operates. Their 150 years of
history gives them a deep better understanding of their markets, their customers, and the
local communities in which they operate>It is a strong platform for future growth.
Standard Chartered is holding leading positions in dynamic markets. They are in some of
the world’s fastest growing markets including he United Arab Emirates, India, China, and
the markets of South Asia. They are present in many of their markets for several
generations and have become a trusted partner to businesses and individuals. In other
words, they are trusted and well respected provider of financial products and services.
They have built up an enviable knowledge of local markets in Asia, Africa, the
Americans and the Middle East. In many cases, they have had a presence for more than a
century. Their first two branches were in Calcutta and Shanghai and we have been
operating continuously in China for the last 144 years.
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3.1 Business Activities of the Global Standard Chartered Bank:
The bank provides a full range of products and services all around the world, some of
which are mentioned here:
3.1.1Global Consumer Finance:
There are seventy-six branches and finance centers under this division in about the
countries with a workforce of 1616 employees. Some of the services provided by this
divisions are unsecured personal loans, credit cards and retail store cards, vehicle related
leases, etc.
3.1.2 Personal Banking:
There are about 410 branches with a workforce of 12,000 employees working under this
division in 28 countries. Some of the services provided by this division are various kinds
of insurance and loans, account maintenance, travelers cheques and money exchange etc.
3.1.3 Global Corporate and Institutional Banking:
There are 350 branches under this division. This division provides services in 42
countries. The services provided by this division are International Trade Management,
Institutional banking, Treasury, Custody and Cash Management.
3.1.4 Global Custodial Service:
There are 17 offices under this division and about 900 staff members, operating in 14
countries and headquartered in Singapore. Standard Chartered Equator fulfils standard
Chartered Bank’s strategic commitment to provide custody and clearing services in the
Greater Asia. Standard Chartered Bank has one of Asia’s leading custodians over 40
years. Equator’s focus is on the followings:
Commitment to equity
Dedication to the customer needs
Sustained investment in people and systems.
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3.1.5 International Trade Management:
Principle services of this division are to the people are Import Letter of Credits(L/C),
Import Bills for Collection, Back to Back Letter of Credit, Direct Export Bills for
Collection, Bulk Letter of Credit Collection, Bonds and Guarantees.
3.1.6 Global Cash Management:
The division is operational in all countries where the group has Corporate & Institutional
Banking division. Standard Chartered Bank recognizes the importance of Cash
Management to corporate and institutional customers and offers a comprehensive range
of services and liquidity management. Services provided worldwide by this division with
stress on Asian delivery.
3.1.7 Global Institutional banking:
Throughout Standard Chartered Bank’s network of more than 600 offices in over 40
countries, it is very well positioned to provide a wide range of services to institutional
clients: commercial, merchant & central banks; brokers and dealers; insurance
companies; fund managers and others. Offices of emerging markets of Asia, Sub-
Saharan, the Middle East and Latin America are complemented by the branches in the
developed countries such as USA, UK and Japan and bank’s membership of the clearing
systems in those countries. The Institutional banking group has a network of offices in 25
countries throughout Asia, North America, Europe, Africa and The Middle East.
3.1.8 Global Electronic Banking:
Electronic Banking provides various types of support through a wide range of operating
systems, sweeping transaction accessories with the provision of reporting features or
other special functions.
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3.2 Standard Chartered Bank -- The History
Standard Chartered is the world’s leading emerging market’s bank headquartered in
London. Its businesses however, have always been overwhelmingly international. Here is
the summary of the main history of the Standard Chartered Bank.
3.2.1 The early years
Standard Chartered is named after two banks which merged in 1969. They were
originally known as the Standard Bank of British South Africa and the Chartered Bank of
India, Australia and China. Of the two banks, the Chartered Bank is the older having been
founded in 1853 following the grant of a Royal Charter from Queen Victoria. The
moving force behind the Chartered Bank was a Scot, James Wilson, who made his
fortune in London making hats. James Wilson went on to start The Economist, still one
of the world's pre-eminent publications. Nine years later, in 1862, the Standard Bank was
founded by a group of businessmen led by another Scot, John Paterson, who had
emigrated to the Cape Province in South Africa and had become a successful merchant.
Both banks were keen to capitalize on the huge expansion of trade between Europe, Asia
and Africa and to reap the handsome profits to be made from financing that trade. The
Chartered Bank opened its first branches in 1858 in Chennai and Mumbai. A branch
opened in Shanghai that summer beginning Standard Chartered's unbroken presence in
China. The following year the Chartered Bank opened a branch in Hong Kong and an
agency was opened in Singapore. In 1861 the Singapore agency was upgraded to a
branch which helped provide finance for the rapidly developing rubber and tin industries
in Malaysia. In 1862 the Chartered Bank was authorized to issue bank notes in Hong
Kong. Subsequently it was also authorized to issue bank notes in Singapore, a privilege it
continued to exercise up until the end of the 19th Century. Over the following decades
both the Standard Bank and the Chartered Bank printed bank notes in a variety of
countries including China, South Africa, Zimbabwe, Malaysia and even during the siege
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of Makeking in South Africa. Today Standard Chartered is still one of the three banks
that print Hong Kong's bank notes.
3.2.2 Expansion in Africa and Asia
The Standard Bank opened for business in Port Elizabeth, South Africa, in 1863. It
pursued a policy of expansion and soon amalgamated with several other banks including
the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British Kaffarian Bank
and the Fauresmith Bank. The Standard Bank was prominent in the financing and
development of the diamond fields of Kimberly in 1867 and later extended its network
further north to the new town of Johannesburg when gold was discovered there in 1885.
Over time, half the output of the second largest goldfield in the world passed through the
Standard Bank on its way to London. In 1892 the Standard Bank opened for business in
Zimbabwe, and expanded into Mozambique in 1894, Botswana in 1897, Malawi in 1901,
Zambia in 1906, Kenya, Zanzibar and the Democratic Republic of Congo (D.R.C.), in
1911 and Uganda in 1912. Of these new businesses, Botswana, Zanzibar and the D.R.C.
proved the most difficult and the branches soon closed. A branch in Botswana opened
again in 1934 but lasted for only a year and it was not until 1950 that the Bank re-opened
for business in Botswana. In Asia the Chartered Bank expanded opening offices
including Myanmar in 1862, Pakistan and Indonesia in 1863, the Philippines in 1872,
Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some 34 years after the Chartered
Bank appointed an agent in Sri Lanka it opened a branch in 1892 to take advantage of
business from the tea and rubber industries. During 1904 a branch opened in Vietnam.
Both the Chartered and the Standard Bank opened offices in New York and Hamburg in
the early 1900s. The Chartered Bank gaining the first branch license to be issued to a
foreign bank in New York.
3.2.3 The Impact of War
Even the First World War offered opportunities for expansion when the Standard Bank
set up a branch in Tanzania shortly after British troops occupied the formerly German
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administered Dar Es Salaam in September 1916. Both banks survived the inter-war years
but the world trade slump led to the closure of operations in the Canary Islands, Liberia,
the Netherlands, and Equatorial Guinea. Disaster struck the Chartered Bank's office in
Yokohama, Japan, when it was destroyed by an earthquake in 1923 killing a number of
staff. The Second World War particularly effected the Chartered Bank when Japan
occupied numerous Asian countries.
3.2.4 The Post War Years
After the Second World War many countries in Asia and Africa gained their
independence. This led to local incorporation in some countries, particularly in Africa.
Other operations such as those in Iraq, Angola, Myanmar and Libya were nationalized,
while in Indonesia the Jakarta office was destroyed in an attempted coup d'etat. In 1948
the Chartered Bank opened in Bangladesh and during 1957 it acquired the Eastern Bank.
The Eastern Bank gave the Chartered Bank a network of branches including Aden,
Bahrain, Beirut, Cyprus, Lebanon, Qatar and the United Arab Emirates. The Chartered
Bank also entered into a joint venture to form the Irano-British Bank which opened for
business in 1959. The bank grew rapidly and had 24 branches when it was nationalized in
1981. By the mid 1950s the Standard Bank had around 600 offices in Southern, Central
and Eastern Africa. Its network grew substantially in 1965 when it merged with the
former Bank of British West Africa which had some 60 branches in Nigeria, 40 branches
in Ghana and eleven branches in Sierra Leone in addition to operations in Cameroon and
Gambia. Despite these acquisitions and expansion into new countries such as Mexico,
South Korea and Oman (1968), both the Standard and Chartered Bank networks were
comparatively small. Both viewed the future with some trepidation as the need to protect
themselves from acquisition became ever more apparent. Standard Chartered PLC In
1969 the decision was made by the Standard Bank and the Chartered Bank to undergo a
friendly merger thus forming Standard Chartered PLC. It was one year later that the
descendants of the "Chartered Bank of India, Australia and China" were finally permitted
to open a representative office in Sydney, Australia. Standard Chartered subsequently
acquired the UK based Hodge Group, in which it already had a minority shareholding,
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and the Wallace Brothers Group. The Hodge Group brought to Standard Chartered an
extensive network of UK offices specializing in installment credit and industrial leasing,
and after a period of rationalization its name was changed to Chartered Trust Limited.
Standard Chartered's operations in Jersey emerged from the integration of other Hodge
Group businesses with those of Wallace Brothers Bank (Jersey), Limited.
Standard Chartered decided, after the merger, to expand the Group outside its traditional
markets. In Europe a number of offices were opened including Austria, Belgium,
Denmark, Ireland, Spain and Sweden as well as several major cities in the UK. Standard
Chartered also opened offices in Argentina, Canada, Colombia, the Falkland Islands,
Panama and Nepal. In the USA a number of offices were opened and three banks were
acquired. These included the Union Bank of California which gave Standard Chartered a
presence in Brazil and Venezuela. The opening of a branch in Istanbul in 1986 was
overshadowed by a far more dramatic event when Lloyds Bank of the UK made a hostile
take-over bid for Standard Chartered. Standard Chartered won its right to remain
independent but entered into a period of considerable change.
By the late 1980s Standard Chartered already had considerable exposure to third world
debt. To this were added provisions against loans to corporations and entrepreneurs who
could not meet their commitments. Standard Chartered reviewed its operations and
decided to focus on its core strengths of Consumer Banking, Corporate & Institutional
Banking and Treasury in its well established operations in Asia, Africa and the Middle
East. This led to a series of divestments notably in Europe, the United States and Africa.
During this time staff numbers were reduced; businesses not considered core were sold or
closed; associate holdings disposed of; unprofitable branches closed and back office
functions consolidated. In addition expensive buildings were sold with the proceeds
reinvested in the business, and the senior management team was radically changed and
strengthened.
3.2.5 Standard Chartered in the 1990s
Even within this period of apparent retrenchment Standard Chartered expanded its
network, re-opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993
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and Myanmar in 1995. With the opening of branches in Macau and Taiwan in 1983 and
1985 plus a representative office in Laos (1996), Standard Chartered now has an office in
every country in the Asia Pacific Region with the exception of North Korea. In 1998
Standard Chartered concluded the purchase of a controlling interest in Banco Exterior de
Los Andes (Extebandes), an Andean Region bank involved primarily in trade finance.
With this purchase Standard Chartered now offers full banking services in Colombia,
Peru and Venezuela. In 1999, Standard Chartered acquired the global trade finance
business of Union Bank of Switzerland. This acquisition makes Standard Chartered one
of the leading clearers of dollar payments in the USA. Standard Chartered also opened a
new subsidiary, Standard Chartered Nigeria Limited in Lagos, acquired 75 per cent of the
equity of Nakornthon Bank, Thailand; and agreed terms to acquire 89 per cent of the
share capital of Metropolitan Bank of the Lebanon.
3.2.6 Global presence of Standard Chartered Bank
Standard Chartered Bank has its prominence presence in total of 48 countries:
Africa Asia Pacific Latin America
Middle East & South Asia
UK & USA
BotswanaCameroonGambiaGhanaKenyaSierra LeonSouth AfricaTanzaniaUgandaZambiaZimbabwe
AustraliaBrunei DarussalamCambodiaChinaHong KongIndonesiaJapanLaosMacaoMalaysiaMyanmarPhilippinesSingaporeSouth KoreaTaiwanThailandVietnam
ArgentinaBrazilColombiaMexicoPeruVenezuela
BahrainBangladeshIndiaIranNepalOmanPakistanQatarSri LankaUAE
Falkland IslandsJerseyUKUSA
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3.3 Standard Chartered in Middle East & South Asia (MESA)
The MESA region performed well in year 2002. The region accounts for approximately
eleven percent of the group’s revenues.
The integration of Grindlays was successfully completed and the group is now one of the
leading international banks in each of its chosen markets in the region. The contribution
of the Group’s business in the United Arab Emirates reflects the businesses. Standard
Chartered now holds leadership positions in most of its key product segments in the
UAE. The average number of employees in the Middle East and other South Asia region
in 2002 was 2995.
3.3.1 Standard Chartered in Hong Kong
Hong Kong remains the Group’s largest market, generating one third of the Group’s
revenue. They have a network of 74 branches. Standard Chartered has been transacting
business in Hong Kong since 1858 and they issue bank notes there. In 2002, Standard
Chartered became the first FTSE 100 Company to launch a new dual primary listing in
Hong Kong. This will make the Group more accessible to Asian investors and will
enhance the Group’s regional profile. The average number of employees in Hong Kong
in 2002 was 4,677.
3.3.2 Standard Chartered in Singapore
Standard Chartered has been doing business in Singapore for 144 years and has 20
branches and offices, the largest branch network among foreign banks. The business in
Singapore accounts for approximately eleven percent of the Group’s revenues. Standard
Chartered has Qualifying Full Bank Status, which has enabled expansion of the
distribution network. In 2002, Asian banker magazine named Standard Chartered the
‘Best Retail Bank in Singapore’. The average number of employees in Singapore in 2002
was 2,451.
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3.3.3 Standard Chartered in Malaysia.
Standard Chartered is the oldest bank in Malaysia, where there is a network of 29
branches. Malaysia is another of the group’s core markets with broadly based business as
a result of long established franchises. The group continues to expand its Shared Service
Center that was opened in 2001 and carries out operations and processing activity. The
Centre in Kuala Lumpur has contributed significantly to improvements in the Group’s
processing and service efficiency. The average number of employees in Malaysia in 2002
was 1981.
3.3.4 Standard Chartered in other Asia Pacific
The group has more than 80 branches and 14 offices in 14 countries across the region. In
China, Standard Chartered has one of the largest branch networks of any foreign bank
and is well positioned for growth and opportunities. The group is developing its
Consumer Banking business and has opened branches in Shanghai and Shenzhen. In
Thailand, the integration of Nakornthon Bank was successfully completed in 2002.The
average number of employees in other Asia Pacific in 2002 is 4851.
3.3.5 Standard Chartered in India Region
Standard Chartered is the largest international bank in India and, following successful
completion of the integration of Grindlays, has a combined customer base of 2.4 million
in Consumer Banking and over 1200 corporate customers in Wholesale Banking. The
group launched its business in Mauritius in 2002 to provide Wholesale Banking services
to corporate clients .The shared service centre in Chennai continues to develop rapidly as
more services and processes are migrated from other countries. The average number of
employees in the India region in 2002 was 5251.
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3.3.6 Standard Chartered in Africa
Standard Chartered continues to be one of the leading banks in sub Saharan Africa. The
group offers consumer banking and wholesale banking services in 13 African countries
with a network of 149 branches and offices. Standard Chartered recently launched
operations in the Ivory Coast and re-entered Nigeria. Business in East Africa has
performed well. Despite difficulties in Zimbabwe, the group’s business in Africa has
delivered good results. The average number of employees in 2002 was 5009.
3.3.7 Standard Chartered in United Kingdom and the Americas
Businesses in the United Kingdom and the Americas provide services to leading
multinationals and major financial institutions, which trade or invest in Asia, Africa, the
Middle East and Latin America. In 2003, the businesses in the Americans were
extensively restructured to improve efficiency for future growth. The Group also operates
a growing off shore banking business based in Jersey. The average number of employee
in the United Kingdom and Americas in 2002 was 2098.
3.4 The Acquisition of ANZ Grindlays by Standard Chartered:
The main idea behind acquisition and merger is making an investment and usually
involves more than mere cash. When two separate legal entities merge every organization
aspect of both companies are expected to change be it internal or external. Such
management decision is taken for a variety of reasons but the ultimate aim is to add up to
shareholder's wealth. For banks operating in the consumer and wholesale banking sector,
earning depends largely on the interest margin as well as the service charges. For this
increasing customer base is a major concern, for banks operating in foreign countries,
increasing customer base is not easy since they have to compete with local banks which
in many cases are backed by government. This especially true in Southeast Asia where
governments have quite a strict control on the financial market and the institutions.
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The government and autonomous banks largely dominate our country's banking sector.
Thus, competing them in interest figure becomes for both foreign and local and foreign
banks. The only way to attract customer is through providing high quality service. Also
they have to be very innovative in financial products since they have to compete the
government again in highly profitable saving instrument sand low-interest loans.
Standard Chartered Bank, the largest and one of the oldest foreign banks in the country
has been successfully doing business in corporate and consumer banking sector for years.
It has introduced many new financial consumer and corporate products like money
builder in the market. Recently the bank attracted a great deal of attention through it's
acquisition of another foreign bank operating in Bangladesh "ANZ Grindlays" from
August 2001, the two competing banks will complete the merger process and operate
from the same platform. This is a concept for a country like Bangladesh where merger of
two large distinct organizations is still far-fetched. However with it's increasing customer
base the service quality seems to have declined.
22
23
3.5Operating and Financial Review: Summary of Global Performance in 2002
The results for the year ended 31 December 2002 reflects a strong performance with
profit before tax upto 16 percent from $1089 million to $1262 million. Revenue
momentum has been sustained despite tough market conditions, pressure on margins and
a low interest rate environment. Costs have been reduced by $28 million without cutting
investments in growth businesses and re-engineering the bank. Provisions for bad debts
and contingent liabilities were $19 million lower, mainly due to tight control on risk in
wholesale banking where new provisions were lower and recoveries were higher than in
2001.
The results were adversely impacted by increased Consumer banking bad debts from
bankruptcies in Hong Kong, the economic deterioration in Argentina in the first quarter
and the difficult economic environment in Zimbabwe, but benefited from a gain on the
unwinding of a swap relating to the preference shares purchased in December.
In February 2002 the Urgent Issues Task Force of the Accounting Standards Board
(UTIF) issued guidance on the application of accounting standards to capital instruments
that have characteristics of both liabilities and shareholder’s funds. The group has
complied with these requirements and as a result has reclassified its Trust Preferred
Securities and step up Callable Perpetual Trust Preferred Securities from “minority
interests- non equity” to “liabilities” and moved the cost of this capital from “minority
interests- non equity” to “interest payable”.
Revenue has grown up three percent to $4,539 million and reflects strong momentum in
Consumer banking outside of Hong Kong. Total Group revenue has felt the impact of
three significant factors in 2002.Firstly, the deliberate action taken to trade revenue to
improve the risk profile of the business. Secondly, the deteriorating conditions and hyper-
inflationary environment in Zimbabwe depressed revenue by $64 million. Thirdly, the
Group unwound certain interest rate swaps hedging the $ 659 million of preference
shares, which were repurchased in December with again of $57 million.
Net interest income increased by six percent driven largely by volume growth, lower
funding costs and better spreads in Consumer Banking and strong earnings on assets and
liability management in Wholesale Banking. The Group also benefited by $57 million
24
from the unwinding of interest rate swaps relating to the Group’s average interest earning
assets rose by $2.9 billion compared to 2001.
Net fees and commissions receivables have increased by one percent to $991 million
compared to $977 million in 2001.The focus on a more sophisticated product set within
Global Markets generated higher fees in the Americas and the United Kingdom. In other
Asia Pacific, India and MESA growth was largely in unsecured lending in Consumer
banking offsetting the impact of bankruptcy containment actions in Hong Kong.
Dealing profits have fallen by $ 50 million or eleven percent. Hong Kong, India and
MESA performed well, increasing revenue by $22 million through strong trading.
However, in addition to the hyper inflationary adjustment and translation losses relating
to Zimbabwe, lower spreads and reduced volumes in a number of countries led to a fall in
revenue.
Total operating revenues were reduced by $ 28 million to $2557 million compared to
$2585 in 2001.The benefits of the concentration and operational efficiency programs
continue and the integration of Grindlays has led to higher than targeted cost synergies.
This improvement is despite a $41 million charge in Latin America as a result of
refocusing the strategy, and has been achieved while continuing to invest for future
growth. The cost income ratio for 2002 was 53.6 per cent, compared to 55.8 per cent in
2001 on a normalized basis.
The net provisions for bad and doubtful debts and contingent liabilities were $19 million
lower than 2001 at $712 million. Wholesale banking improved its position year on year
by $ 292 million, despite a $75 million charge for Argentina. This was achieved through
a pro-active focus on risk management with a charge of $287 million in 2002 compared
to $121 million in 2001.
Post Tax return on equity (normalized) was 13.4 per cent, up from 12.0 percent in
2001.This has been achieved through growing high return businesses, cost efficiency and
active capital management.
25
SCB
in
Bangladesh
26
3.6 Standard Chartered in Bangladesh
The Chartered Bank opened in Chittagong in 1948, which was, at that time, the eastern
region of the newly created Pakistan. The branch was opened mainly to facilities the
post-war re-establishment and expansion of South and South East Asia. The Bank opened
its first branch in Dhaka in 1966 and shifted its headquarter from Chittagong to Dhaka
after the birth of the Republic of Bangladesh in 1971.
At present the Bank has ten branches in Dhaka, it also have one offshore banking unit
inside the Dhaka Export Processing Zone at Savar, one branch in Narayanganj, three
branches in Chittagong, one branch in Khulna, one branch in Sylhet, one branch in
Bogra. In the year 1999 Standard Chartered has acquired the operation of Grindlays Bank
in the Middle East and South East Asian countries. Former Grindlays Bank started its
journey in Bangladesh in 1905 under the name of Grindlays Bank (when it forbears the
National Bank of India opened in Chittagong). Standard Chartered Bank took-over the
operation of ANZ Grindlays Bank in Bangladesh as a part of acquisition of the South
East Asian and Middle East operation of the Australia and New Zealand Banking Group.
Standard Chartered Bank (SC) become the highest bidder quoting about AU$2.5 billion
(US$1.5 billion) after ANZ Banking group decided to sell its subsidiary, the ANZ
Grindlays Bank operating mostly in the Middle east and South East Asian countries. The
SC with its 18 branches and booths across Bangladesh has employed more than 600
people. The acquisition has enabled Standard Chartered Bank (SC) to access 500,000
new customer and 40 branches in India, and this made them one of the biggest bank in
this region.
27
After acquisition, Grindlays Bank is a part of Standard Chartered Group. The Bank
presently has 18 outlets in 5 cities serving over 1,25000 customers. The network of SCB
Bank in Bangladesh includes:
10 Branches in Dhaka city
1 Branch in Savar EPZ (recently started with full banking operations)
1 Branch in Narayanganj
3 Branches in Chittagong
1 Branch in Khulna
1 Branch in Sylhet.
1 Branch in Bogra
Recently the bank opened a new branch in Bogra to reach out the in northern part of the
country .The network of SCB engage itself for providing best quality banking service in
retail, commercial and corporate banking segments. The countries top Enterprises;
Multinational, Local Corporation and Financial institutions are served by SCB. With total
asset based of BDT 17.5 billion and annual turnover of BDT 1.78 billion, SCB in
Bangladesh is among the top performing multinational bank.
28
Products
&
Divisions
of
SCB
29
3.7 Product Division
There are different divisions for targeting different type of customers. Mainly consist of
two divisions, that is Consumer Banking Division (C B) and other is Corporate Banking
Division named Corporate and Institutional Banking (C & I).
Consumer banking division meets the needs of individual customers with various
products like Savings Account, Extra Value Savings Account, Access Account,
Call Deposit, FCY Deposit, NFCD Fixed Deposits, RFCD Account, Personal
Loans, Auto Loans, Flexi loans, Cash Line, Installment loans, etc. This
department also deals with other savings instruments like education savings
scheme, rainy day scheme, marriage day scheme, millionaire scheme (some
printed brochures are enclosed in the Appendix)
Corporate and institutional banking meets the needs of companies, banks and
other financial institutions. Standard Chartered provides a full range deposit and
loan products to it's corporate clients. Rapid decision-making is an important
feature of SCB’s services to international and domestic companies doing business
in Bangladesh. All accounts are assigned to a Relationship Manager to look after
client needs. Each relationship manager keeps close contact with the client
obtaining in-depth knowledge of the client's business and providing timely advice.
This division’s products include network banking and borrowing services like
working capital loan, long term loans, short term loans, margin account,
commercial large loans, real estate apartment loans, heavy transport buying loans,
real estate mortgage loans, construction loans, restaurant loans, and above all it
includes all international trade related services like L/C issuing, L/C amendment,
L/C Transfer, L/C Confirmation, Negotiation, Bank Guarantees, etc. These
products are only served to the corporate clients of the bank, and those are mostly
local corporate, large and local corporations, multinational national companies.
List of some of them are given in the appendix section.
30
The Relationship between Respective Customers to Different Departments of SCB
Companies Banks and
other
Financial
Institutions
This focus allows the business to develop an in-depth understanding of the banks
customer’s evolving requirements. This in turn enables SCB to develop the products and
services that help them to stand out from the competition. Treasury provides support to
the customers of both these business and develops customers (both individual and
organizational) of its own.
3.8 The Division of SCB Bangladesh
The bank is divided into several divisions and business units, which are also further sub-
divided. The divisions are mainly based on some service lines designed for and provided
to targeted customers, other divisions and units are there to support the business activities
of the major service based divisions. The following is the list of the divisions of SCB in
Bangladesh. Note that the divisions are little different compared to the major areas of the
Group.
31
IndividualOrganization
Consumer Banking Corporate & Institutional Banking
Treasury
3.9 Major Business Units
3.9.1 Corporate Banking Group
Standard Chartered Bank offers its local customers a wide variety of financial services.
All the accounts of corporate clients, which mainly comprise the top local and
multinational companies operating in Bangladesh, are assigned a Relationship Manager
(RM) who maintains regular and close contact to cater to their needs. The objective of
this department is to maintain a thorough knowledge of the client's business and to
develop positive relationships with them. This is maintained through interactions to offer
timely advice in an increasingly competitive business environment. The expertise of the
Financial Institution (former Institutional Banking) and Treasury groups is also available
whenever required. The unique Off-shore Banking Unit (OBU) in Savar offers a full
range of facilities to overseas investors, and recently that Savar Branch have expanded
many of its activities. The Corporate Banking Group in Bangladesh has displayed a spirit
of community involvement by working with NGOs to underwrite soft loans. Standard
Chartered Bank offers its corporate customers:
The wide varieties of lending needs are offered with skilled and responsive
attention.
Project finance and investment consultancy.
Syndicated loans.
Bonds and Guarantees.
Local and International Treasury products.
The trade finance of Standard Chartered Bank takes care of the commercial activity
related issues, particularly those related to import and export finance services. Some of
the services are:
Trade finance facilities including counseling, confirming export L/Cs and issuing of
import L/Cs, backed by its international branch and correspondent loan network Bond
32
and Guarantees Project finance opportunities for import substitution and export oriented
project
3.9.2 Treasury Division
The foreign exchange and money market operation of the Standard Chartered Bank in the
world is extensive. Exotic currencies happen to be one of its special areas of strength. A
24 hour-service is provided to customers in Bangladesh through the Bank's network of
dealing centers placed in the principal of the world. The Bank's treasury specializes in
offering solutions to those who wish to manage interest rate and currency exposures that
result from trade, investment and financing activities of other dynamic economies of the
region. Treasury operations are developed in line with changing market conditions to
provide the best services to its customers. According to BAFEDA (Bangladesh Foreign
Exchange Dealers Association), Standard Chartered Bank presently controls 42% of the
local foreign exchange market's traded volume.
3.9.3 Financial Institution Department (Former Institutional Business
Group)
Financial Institution Department (former Institutional Banking) is a specialized banking
unit of Standard Chartered, providing products and services to the specific needs of other
banks and financial institutions. It assists the local banks by taking care of their cross-
border business through the worldwide Standard Chartered Bank networking over 40
countries. It offers various services like L/C Confirmation, Negotiation, Inter and intra
Bank Guarantee, Local Bill Discounting, L/C Advising, L/C Transfer, L/C amendment
advising, Reimbursement Undertaking and Authorities, Fund Transfers, Export proceeds,
BDT Draft Drawing, International Payments (T T’s), Account Services (Vostro Account
Management)
3.9.4 Consumer Banking Division
Superior retail banking services comprising a wide range of deposit and loan products are
offered by the Standard Chartered Bank to its individual customers. The Consumer
33
Banking division constantly faces challenges and meets them by developing new
products and services to fulfill the specific requirements of local and foreign customers.
Bank offers a 24-hour service in Bangladesh through its Moneylink ATM network and
Phone-link Phone Banking services. The below mentioned type of accounts are served by
the Consumer Banking Division.
Personal Current Account
Personal Savings Account
Personal Access Account
Consumer Fixed Deposit Account
Personal Call Deposit Account
Non-resident Foreign Currency Deposit Account
Resident Foreign Currency Deposit Account
Convertible Taka Account
Foreign Currency Accounts for Foreign Nationals
Foreign Currency Accounts for Bangladeshi Nationals
Escrow Account
Private Non-Resident Taka Account
3.9.5 Card Division
Card is the latest area that has been identified for rapid development. The bank is the one
of the acquirers of three major cards in Bangladesh. Two of the credit cards are VISA and
MASTER CARD and the one is the charge card known as Japan Credit Bureau (JCB).
Standard Chartered Bank is the subsidiary or secondary agent of the credit cards and a
primary agent of JCB.
SCB started its cards operation in 1989 as a part of retail banking. Initially, SCB’s card
market was very small, with only 30 merchants. But seeing the economies and the
consumers’ attitude towards the credit card has given the opportunity to expand their
market base by acquiring high quality merchants in the chosen segment. The bank is the
34
first to introduce the TAKA CREDIT CARD. The card is issued basically to a person’s
name and the specific person can use the card in anywhere in Bangladesh.
3.9.6 Custodial and Clearing Service
Headquartered in Singapore, Standard Chartered Equitor fulfils the group's strategic
commitment to the provision of custodial service in Asia. Equitor's customers are
primarily foreign global custodians and broker/dealers requiring cross border information
as well as sub-custodian services. Standard Chartered Bank, Bangladesh is responsible
for the planning in Bangladesh, but the overall management of the custody business is
based on Equitor's international business strategy.
Supporting Departments
3.9.7 Information and Technology Department
This department is instrumental in the running of all the computerized operations of the
bank. They help in the implementation and generation of computerized reports. Another
major duty of the department is to maintain communication with the rest of the world.
3.9.8 Operation
Operation is part of the support division, which helps to run the businesses of the bank in
a smooth and controlled manner. Since it helps mainly in processing the works of the
business units, any mistakes made can be easily detected and on time.
Following are the main functions of the operations department:
Central operations deals with the closing and opening of accounts and other payment
and account related processing of the Personal Banking division
35
Treasury operations help to deal with the processing works of the treasury division.
Loan Administration Unit (LAU) deals with the processing of the Corporate Banking
division.
Operations also have a department that deals with internal projects that arises from
the need to deal with certain problems or to make certain changes.
3.9.9 Legal and Compliance
In the UK, Standard Chartered Bank is regulated by the Bank of England, while in
Bangladesh local banking laws regulate it and rules set by the Ministry of Finance and
Bangladesh Bank. It also encourages its staff to conform to an internal culture of ethical
behavior and sensitivities to the culture and religion of the country.
Some of the key areas that the Legal & Compliance department has to take care of are:
any kind of legal issues, to advise the CEO regarding all matters and the management on
legal and regulatory issues, correspond regulatory compliance issues to MESA Regional
Head of Compliance, and supervise internal control (e.g. internal audit).
3.9.10 External Affairs
This department deals with advertising, public relations, promotions, partial marketing
which involves disseminating new products and services to customers and above all
ensuring service quality.
36
Human
Resources &
Structure of
SCB
37
3.10 Human Resources Division
This department manages recruitment, training and career progression plan. Standard
Chartered Bank highlights the importance of developing its people to create a culture of
customer service, innovation, teamwork and professional excellence. SCB recruits people
by two ways. One is a “Management Trainee” that has a probation period of six months
and after the probation period the trainees will be counted as an officer and they will do
the different kinds of managerial works and another is “Non Management Trainee” which
does not have any fixed probation period. Time required for training is department on the
recruited person’s performance. In case of non-management trainee, two ways of
recruitment is taken place. They are (a) taken by signing a contract with some outside
organization for three months and after three months the contract may be renewed or not
depending upon the employee’s performance. These people coming through outside
contract are called “Out Source”. (b) Taken by signing a contract with the bank for the
three months and after three months the contract may be renewed or not depending on
his/her performance. These people coming through bank contract are called “In source”.
3.10.1 Controlling Structure at SCB
Alike all other big multi-national companies, management in SCB consists of planning
organizing, directing, controlling all of the resources of an organization. The goal of
Standard Chartered Bank is to be the "Bankers of First Choice." Towards that goal, the
overall planning in the Organization is done at the headquarters level in Dhaka by a
Management Committee (MANCO), headed by the CEO and consisting of the business
heads like Corporate Banking, Consumer Banking, Treasury, Global Markets, and from
the support divisions the heads of Human Resource, Operations and Finance
Departments. They meet once a month, or when special situations arise, to plan the
strategic decisions. The decision making, although apparently based on a top-down
approach, leaves room for participation down to the level of department heads, which are
responsible for carrying out the planning of their department within the broad guidelines
set by MANCOM.
38
Among the broad strategic objectives are:
Creating a congenial work environment
Modernization of the management information system to achieve full automation by
drastically cutting down the paper works in long term.
Focusing on service quality and consume needs
Recruiting and maintaining top grade, efficient employees
To invest in those technological systems which will upgrade and enhance financial services
Creating an excellent brand image of the bank.
3.10.2 Personnel Policies:
The number of officers exceeds the number of clerk, which is a straight contrast to local
banks specially the nationalized commercial banks. Standard Chartered Bank pays great
attention to recruiting high quality staff through proper evaluation and improving their
skills through structured training. Reward and punishment base on strict performance
evaluation and opportunities of promotion both in country and abroad are two important
features of the personnel policy of Standard Chartered Bank.
3.10.3 Recruiting, Training and Career Progression:
The recruitment process is based on references, advertisements and internships. Entry
point screening is done both by the written and oral test. The medical record of the
potential employee is very important and those suffering from potentially life threatening
and performance deterring diseases are not hired, even if they were otherwise qualified.
The placement of the staff is done in two ways. Either the employee undergoes a
management trainee program with a probation period of nine months and is categorized
as an officer leading to various managerial jobs, or is recruited at a non-management
level as banking assistance or support officer. There is a structured training framework
for all the employees, and a channel for moving people from national to international
positions. International graduate recruitment and personal skill development for entry-
level employees are a part of the human resources development efforts at Standard
Chartered Bank.
39
3.10.4 Planning, Organizing, Directing and Controlling
The top down planning approach is mostly followed at Standard Chartered Bank. The top
managers have the authority to decide how they will achieve their goal because SCB
group worldwide decides the goal. The Business Bank mainly does planning and Retail
Bank Division, IT Department provides all the assistance and information that is required
to create and execute long term and short term planning. Planning and IR Department
provides all the assistance and IT and other infrastructure in order to reduce the
paperwork IT has taken a plan to achieve the long tern plan. One branch manager in each
of it is managing SCB’s all branches. The performance of each branch is solely
dependent on the branch manager. Management is partly authoritative and participant at
the top level of SCB But every one has some assigned work to do for the day and they
cannot deny this. Sitting arrangement is created in such a way that co-workers can sit
close to each other and have sharing of their work and at the same time can have easy
contact with each department coordinator/ Head. The work environment is very friendly.
The room contains sufficient amount of light and is always cooled by high capacity air
conditioners.
40
3.10.5 Five Values of Standard Chartered Bank
Standard Chartered Bank has five values and these values are key to their success. These
value determine how the employees achieve their goals, the way they work together and
how it feels to be a part of Standard Chartered Bank. In brief these values are:
1. Courageous: Being courageous is about confidently doing what’s right. Often the
task may seem insurmountable but with courage and tenacity, the odds can be
overcome. A truly courageous act both inspires and builds character.
2. Responsive: How we response to our customer will influence their belief in our
commitment to them. A proactive response is often unexpected and more effective for
that. It clearly demonstrates our willingness to go beyond the unexpected.
3. International: As a member of global village we view the world from the widest
perspective. We are all global citizens and the world is full of new opportunities and
exciting possibilities. We also deliver world class products and services.
4. Creative: Creativity belongs to those of us who are excited by challenges and
engage them in fresh thinking and an open mind. Creative thinkers are not limited by
convention but allow their minds to soar beyond predictable solutions.
5. Trustworthy: Trust is the foundation of every successful relationship. We trust
because we believe in the sincerity of our promise. Building trust can take forever.
Losing takes only moments.
41
3.10.6 Chain of Command:
Standard Chartered Bank in Bangladesh follows a hierarchy pattern of command. The
chief Executive Officer (CEO) for the country reports to the Regional Manager, MESA
(Middle East South Asia) in Dubai. All other departmental Heads at the headquarters
report to the CEO. A manager or Senior Manager reports to the divisional heads. The
respective Branch Managers or Branch Sales and Service Managers (BSSM) are
responsible for the performance of their unit. Each branch is organized functionally along
line divisions with some support facilities and the manager assigns tasks to his / her
subordinate personnel and supervises their performance.
Organograms of different division of the bank is given in the next few pages separately.
42
Chain of Command
Chief Executive Officer(CEO)
Head of Consumer Banking
Head of Corporate &Institutional Banking
Chief Operating OfficerHead of Global Market
Head of Finance
&Administration
Head of Human
Resources
Head of Institutional
Banking
Head of GSAM
Senior Credit Officer Head of Legal and
Compliance
Head of Information
TechnologyHead of Corporate &External Affairs
43
Head of Consumer Banking
Product Secured, Unsecured, Liabilities Branches Direct Sales CreditDevelopment Product sales in all channels Phone banking Product development CollectionProduct Launch Product Marketing & ATMs Marchant Acquiring Marketing campaign for all channels Priority Banking Customer ServiceMarket Intelligence DSE Management Relationship Management Tele Sales Tele Sales Branches SQ Product/Fee Pricing
Head of Consumer Banking
Manager Service Quality(SQ) Manager Business Finance
Officer Compliance & ControlSupport Executive
Head of Product Development& Marketing Services
Head of Banking Products
Head of Distribution &Priority Bank
Head of Cards Head of Credit & Collection
Officer
44
Finance and Administration Division
Dispatch Operator
Head of Finance and Administration
Manager Finance Operation Manager Business Finance Head of Administration
Finance Officer Finance Officer – Business Support Senior Admin Officer
Officer
45
Human Resources Division
Head of Human Resources
Head of Human Resources Operation
Officer – HR Operation Officer – HR Admin
46
Legal and Compliance Division
CORPORATE AFFAIRS
Officer
Head of Legal & Compliance
Compliance Advisor Officer –Audit and Compliance Manager – Legal Support
Head of Corporate Affaires
47
Treasury Division
Corporate Dealer
Dealer – Money Market Foreign Exchange Dealer
Head of Global Market
Head of Money Market and ALM
Head of Foreign Exchange Trading
Head of Sales
48
Information Technology ( I T )Division
Product Specialist Technical Analyst System Security Administration Senior Technical Analyst Product Specialist System Controller
Shift Leader
Head of I.T
Manager IT Product Support Manager Manager Communication & Infrastructure Support
49
Corporate and Institutional Banking
Sr. Relationship Manager Sr. Relationship Manager Relationship Manager Sr. Relationship Manager Relationship Manager Relationship Manager Relationship ManagerSr. Credit Analyst Credit Risk Manager Credit Risk ManagerSr. Sales Supporting Credit Risk Officer Credit Risk Officer
Sr. Business Dev. Manager Sr. Relationship Manager Business Dev. Manager Relationship Manager(Trade, Projects, Cash, Trade, Manager --FI, Sales Support
Sales) Manager – FI, ChittagongProduct Manager Officer- FI Sales Support Manager Electronic Banking
Head of Corporate and Institutional Banking
Executive Assistant
Head of Local Corporate Head of Network Banking Head of Structured Finance Head of Chittagong Corporate
Head of Financial InstitutionsHead of Cash & Trade Head of Custody and Clearing Service
50
Service Delivery
Account Service Trade Risk Control & Recon ATM Cards Cash Foreign Exchange Item Processing Credit Money MarketAsset Operations and Docs Documentation Security Bonds Admin Chittagong Service Delivery
Officers Officers Officers
Chief Operating Officer
Head of Consumer Service Delivery Head of Corporate Service Delivery
ManagerManager
Head of Global Market Service Delivery
Manager
51
SWOT
Analysis
Of
SCB52
3.11 SWOT Analysis
The acronym for SWOT stands for
STRENGTH
WEAKNESS
OPPURTUNITY
THREAT
The SWOT analysis comprises of the organization’s internal strength and weaknesses
and external opportunities and threats. SWOT analysis gives an organization an
insight of what they can do in future and how they can compete with their existing
competitors. This tool is very important to identify the current position of the
organization relative to others, who are playing in the same field and also used in the
strategic analysis of the organization.
3.11.1 Strength
SCB’s Banking Experience for more than 55 years provides SCB the strength of
being the market leader in the foreign banking sector. This strength of SCB is
totally unmatched by any other multinational bank in Bangladesh, as the long term
success of a bank heavily depends on its reputation while dealing with every
sensitive commodity like money.
SCB is the first bank in Bangladesh to issue Money link (ATM) card. As the
market leader, they showed the most substantial corporate strength among the
foreign banks by grabbing the opportunity that exists in the market.
In Bangladesh SCB has wide range of customer base and is operating efficiently
in this country.
SCB has a bulk of qualified, experienced and dedicated human resources.
SCB has the reputation of being the provider of good quality services to its
potential customers
53
3.11.2 Weakness
SCB has fewer branches than their competitors. Such as SCB have only 18
branches whereas Uttara Bank Limited has 198 branches and 12 regional offices.
SCG has more and high fees and charges compared to its rivals. Such as minimum
balance fee, ledger fee etc. as a result SCB is loosing its customers.
SCB often has problem with market share as ATM machines. Customers often
complain that the ATMs are out of order.
SCB hasn’t that much good market share as other multinational bank. It’s as
because SCB’s marketing strategy is not aggressive they always follow defensive/
conservative strategy. This may be considered as weakness.
3.11.3 Opportunity
The population of Bangladesh is continuously increasing at a rate of 7.3% per
annum. The country’s growing population is gradually and increasingly learning
to adaptation of consumer finance. As the bulk of our population is middle class,
different types of products have very large and easily pregnable market.
The activity in the secondary financial market has direct impact on the primary
financial market. Investment is a national socio economic activity. And activity in
the national economy controls the bank.
Bangladesh have a huge consumer base for maintaining several accounts. So SCB
has the opportunity to keep these customers by reducing its current fees and
charges.
54
3.11.4 Threat
In today’s economy, substantial amount is remaining idle and currently the
investment in the secondary market by foreign is relatively low. These economic
situations of the country indicate political threats.
Increased competition by other foreign banks is also another threat to SCB. At
present HSBC and CITI Corp are posing significant threats to SCB regarding
retail and business banking respectively. Furthermore, the new comers in private
sector Prime Bank, Dutch Bangla Bank, EXIM Bank, BRAC Bank, Southeast
Bank, Mercantile Bank, Social Investment Bank, Islami Bank are also coming up
with very competitive force.
55
Opening Procedures
&
Charges
of
Various Products
56
3.12 Consumer Products of SCB
In the consumer market, SCB is well reputed for introducing innovative and lucrative
offers and products to its customers. SCB’s products have always been a master
blaster in the banking market.
3.12.1 Personal & Joint Account
For opening a personal or a joint account one needs to submit a valid passport or any
identification attached with photo, one passport size photograph and needs to be
introduced by any account holder of SCB whose account is minimum six months old.
To open the account the person needs to fill up a form mentioning his name, address,
telephone number, date of birth, occupation etc. as well as mode of operation and
specimen signature. Account holder must appoint a nominee with photograph and
signature who also must attest nominee’s signature and photo.
3.12.2 Current Account
To open a Current Account one has to deposit a minimum of Taka.50, 000. And
account holder of those account need to have average balance of Taka 50000 at all
time, otherwise a charge of Taka 500 will be debited. And the closing charge for those
accounts is Taka 250, and if it is closed before six months, the charge will be Taka
500.
Current Accounts (Local Currency & Foreign Currency): Minimum balance required Interest RateBDT 50,000 or equivalent No interest is paid
3.12.3 Savings Account
To open a Savings Account one has to deposit a minimum of Taka. 100,000 and Taka
300,000 for extra value savings account (EVSA). And account holder of those
account need to have average balance of Taka 100,000 at all times, otherwise a charge
of Taka 500 will be debited. And the closing charge for those accounts is Taka 200,
57
and Taka 300 for EVSA accounts. If the A/C is closed before six months, the charge
will be Taka 500 and Taka 1000 for EVSA.
Average Balance Interest RateAverage balance below BDT 100,000 00.00%Average balance BDT 100,000 to 500,000 04.50%
Average balance BDT 500,000 to 1,000,000 05.00%
Average balance BDT 1,000,000 05.50%`
3.12.4 Short Term Deposit (STD) Accounts:
Minimum balance for maintaining a STD (Short Term Deposit) or Call Deposit Account
is required BDT 250,000. Interest Rate on this type of account is 4.00% to 6.00% (Rate
varies on amount). The main reason for big clients to maintain this type of account is just
to earn interest on big amount on a daily basis.
3.12.5 Access Account
Access account is quite new feature of SCB that allows customers to have an account
with SCB without any charges that are present in other types of accounts. Access
account differs from its other account services in the way that it requires no minimum
deposit size and hence it doesn’t provide any interest. The advantage is that students /
people of medium income level trying to avoid high bank charges can use this account
to meet emergency cash requirements. The account holders do not get any facility of
cheque book and cannot withdraw more that Taka. 20, 000 in a day and also cannot
overdraw their account. The charges include Taka. 150 per year and Taka. 250 for
government excise duty. And the closing charge for those accounts is Taka 200.
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3.12.6 Resident Foreign Currency Deposit (RFCD)
Specially designed foreign currency account for resident Bangladeshis. Offers
wonderful opportunity to build a deposit base in foreign currency. Helps make for
overseas commitments and dues like credit card bills, traveling expense, recreation
tours, etc. This service is offered in currencies like USD, GBP and Yen. The interest
that SCB offers is very competitive, but the deposit can only be made in foreign
currency. The withdrawals can only be made in local currency. It offers fund
Remittance in LCY and FCY to any place in and out of the country.
3.12.7 Foreign currency current account
Applicable to Bangladeshis working abroad, it can be opened in USD, GBP and Yen
without restriction on transaction frequency. Can be operated through nominees, in
absence of the account holder. Fund remains in foreign currency and is freely
remittable. The deposit can be made in foreign currency only (Cash, TC or Drafts or
transfer from other FCY account). But cash withdrawals can only be made in local
currency only. Fund can be used to make investment in Wage Earners' Development
Bond
3.12.8 Non - Resident Foreign Currency Deposit (NFCD)
* A short-term foreign currency deposit account suitable for Bangladeshis living
abroad, offering most competitive interest rates available in both local and
international markets. The interest paid in this account is in foreign currency, it can be
opened for a term of 1 months, 3months, 6 months and 12 months. The interest rates
are tiered (based on amount and term), but payable on maturity, but automatically
renewable. It can be used as security against personal/commercial loan
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3.12.9 Account Statement Charges
The charge for holding statements is BDT 1000 per annum per account, and for
Additional/ Duplicate statement (Per cycle) is BDT 200 per statement. Photocopy of
statements is Taka 1000.
3.12.10 ATM Card Charges
The annual fees for ATM card is Taka 150 per card, and the charge in case of
damaged or lost card is Taka 300 per card. And phone banking is absolutely free.
3.12.11 Charges for Cash and Travelers Cheque Foreign Currency
For issuance of FCY cash, customers need to pay 1% of the transaction plus Taka
200/= per passport. And for issuance of Travelers cheque 1% of the transaction plus
Taka 200/=. The charge for encashment is absolutely free in case of travelers cheque
issued by SCB.And encashment for other bank’s issued T.C is 0.25% of the
transaction value or minimum BDT 500. SCB also provides encashment facility for
non-customers, is 0.25% of the transaction value or Taka 1,000.
3.12.12 Charges for maintaining Student file
For customers, opening student file for SAARC countries, they charge BDT 3500 per
student, per annum plus Taka 500 per remittance. This is a centralized system. No
matter where the customers conduct his/her banking, for opening and maintaining
student file, he/she is bound to come to SCB Kakrail Branch, which is at 109, Kakrail.
That branch exclusively deals with Student File. And, the charge for other countries is
Taka 5000 per student file plus Taka 500 per remittance. This opening of student file
is not available for non-customers.
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3.12.13 Fixed Deposit Account
For a fixed deposit account a person needs to deposit a minimum of BDT 100,000.
After the maturity of the fixed deposit the depositor will get the principal along with
the interest. The interest rate for this fixed deposit varies with the amount and period.
The rate increases as the amount and time period increases.
Fixed Deposit (effective from 1st February 2003):
Local currency for Consumer Customer
Tenor Minimum amount required
BDT 10M & Below
BDT Over 10M
3 Months BDT 100,000 7.00% 7.75%6 Months BDT 100,000 7.50% 8.25%12 Months BDT 100,000 7.75% 8.50%2 Years BDT 100,000 8.25% 8.75%3 Years and above BDT 100,000 8.50% 9.00%
But the above deposit rates may be increased by 1.00% for priority/Wholesale clients at
the discretion of the Management. In that case, the branch sales and services manger
needs to obtain approval from HOC&I and HOCB for C&I and CB deposit respectively
with regard to above discretionary interest rates.
3.12.14 Lending Rates For Consumer Banking:
a. Money Builder 12.00% to 14.00%
b. Cash Line (Loan) 11.00% to 13.00%
c. Cash Line (Overdraft) 12.00% to 14.00%
d. Instalment Loans:
i. Type A (100% Covered) 13.00% to 15.00%
ii. Type B (50% to 99% Covered) 15.00% to 17.00%
iii. Type C (30% to 49%) 17.00% to 19.00%
e. Personal Loan 18.00% to 20.00%
f. Supra National Organizations Personal 07.00% to 09.00%
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3.13 Company Account
3.13.1 Sole Proprietorship Account
Just like the personal and joint account, an account opening form and one passport
size photograph is required. The customer also needs to submit a copy of his trade
license, Sole proprietor Declaration From and signature. The account holder must
attested nominee’s signature photo.
3.13.2 Partnership account
Just like the sole proprietorship account, an account opening from and one passport
size photograph is needed. Account holder must appoint a Nominee’s signature and
photo. Moreover the customer is required to provide the following documents:
Required Certified copy of the Partnership Deed of the firm.
Certificate of Registration of the firm.
List of partners with their address.
Latest copy of Balance Sheet.
Extract of resolution of the partners of the firm for opening the account and
authorization for its operation duly certified by the firm’s Managing Partner.
List of names with appointments and specimen of the persons who are authorized
to operate the account duly certified by the Managing Partner of the firm.
3.13.3 Limited Company Account
To open a limited liability company account the customer is required to submit the
following documents:
Certified copy of the memorandum and articles of association of the company.
Certificate of incorporation of the company.
Certificate from the Joint Stock Registrar that the company is entitled to
commence business.
Latest copy of Balance Sheet.
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Extract of Resolution of the Board / General Meeting of the company for opening
the account and authorization for its operation duly certified by the Chairman or
Managing Director of the company.
List of names with appointments and Specimen signatures of the persons
authorized to operate the account and request the bank to open a letter of Credit /
Guarantee duly certified by the Chairperson or Managing Director of the
company.
Corporate Investment Deposits:
Tenor BDT 10M & Above1 Months 7.00%
Fixed Deposit Local currency For Corporate Customer:
Tenor Minimum amount required
BDT10M & Below
BDT Over 10M
3 Months BDT 100,000 7.25% 7.50%6 Months BDT 100,000 7.50% 8.00%12 Months BDT 100,000 7.75% 8.25%2 Years BDT 100,000 8.00% 8.50%3 Years and above BDT 100,000 8.50% 8.75%
Fixed Deposit foreign currency for Corporate Customer:
The rates are based on the international market rates, which are available at the
bank regularly.
3.13.4 Lending Rates For Corporate Banking:
1) Agriculture:
a. Overdraft 09.50% to 11.50%b. Short Term Loan 09.00% to 11.00%
2) Large & Medium Scale Industry (Term Loans):
One to Three Years:
a. Multinational Corporate Clients 10.00% to 12.00%b. Large Local Corporate Customers 11.00% to 13.00%c. Local Corporate Customers 12.00% to 14.00%d. Small Corporate Customers 13.00% to 15.00%
Four to Five Years:
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a. Multinational Corporate Clients 11.00% to 13.00%b. Large Local Corporate Customers 11.50% to 13.50%c. Local Corporate Customers 12.50% to 14.50%d. Small Corporate Customers 13.50% to 15.50%
3) Working Capital:
a. Multinational Corporate Clients:
Overdraft 09.75% to 11.75%Short Term Loan 09.00% to 11.00%Revolving Promissory Note 08.00% to 10.00%
b. Large Local Corporate Customers:
Overdraft 11.00% to 13.00%Short Term Loan 12.00% to 14.00%Revolving Promissory Note 08.00% to 10.00%
c. Local Corporate Customers:
Overdraft 12.00% to 14.00%Short Term Loan 12.00% to 14.00%Revolving Promissory Note 10.00% to 12.00%
d. Small Corporate Customers:
Overdraft 11.50% to 13.50%Short Term Loan 13.00% to 15.00%Revolving Promissory Note 11.00% to 13.00%
4) Export (Packing Credit) 07.00% to 09.00%
5) Other Commercial Lending:
a. Multinational Corporate Client 11.00% to 13.00%b. Large Local Corporate Customers 12.00% to 14.00%c. Local Corporate Customers 14.00% to 16.00%d. Small Corporate Customers 15.50% to 17.50%e. Fully Secured Customers:
Overdraft 10.00% to 12.00%Fully Secured Overdraft-Industrial Bond 09.25% to 11.25%Short Term Loan 09.00% to 11.00%
6) Small and Cottage Industry (Term Loans):
a. Local Corporate Customers 09.00% to 11.00%b. Marginal Credits 12.00% to 14.00%
7) House Building/Real Estate: 13.00% to 15.00%
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3.14 Tele Banking Services
Tele banking service allows the account holders to make inquiries and service
requests over the telephone. To get this Service all a customer needs to do is to fill up
a Tele-Banking form mentioning his name, account number, contact address, and
telephone number. After the application TIN (Telephone Identification Number) is
given to that customer. TIN is a personal security password, which a customer can
change at any tine. A person who requests service through Tele Banking is required to
take delivery of the service by nominated branches within two days of requests. If a
customer fails to receive this service within two days the request will be cancelled and
Taka. 200 will be charged from his personal account
3.14.1 Services Provided by Tele Banking Facility
Inquiries Relating to Requests for Advice of
Account Balance Balance Certificates Stop payment
Exchange Rates Account Statements Change of address
Interest Rates Access Card Activation Lost Cheque Books
Issue of Cheque Books
Fund Transfer
Pay Order
3.15 Speed Cheque Deposit
The Speed Cheque Deposit system saves a customer’s precious time by allowing him
to drop the Cheque in the Speed Cheque Deposit Box. All a customer needs to do is to
complete the Cheque deposit slip and keep the counterfoil. To complete the Cheque
deposit slip a person has to mention the account number of the Cheque, the name of
the bank with branch, cheque number and amount. After finishing writing the cheque
deposit slip the customer needs to staple the cheque with the slip and drop it inside the
box.
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3.16 Money Link (ATM) Card
SCB Launched Automated Teller Machine (ATM) in Bangladesh in the year of 1998.
A person can access his personal, current and savings account 24 hours a day by using
a Money Link Card or ATM card in this machine. This card can be used for cash
withdrawal, cash / cheque deposit, fund transfer between accounts, balance inquires,
statement requests etc. Apart from SCB Money Link cards (ATM) it also accepts both
local and International Master Card and VISA Credit Cards. Taka 150 is charged per
ATM card for a period of 1 year. For security reason a person cannot access his
account without his PIN (Personal Identification Number).
3.17 Credit Card
Types of credit cards
1. Gold Master Card
2. Silver Master Card
3. VISA Silver Card
Requirements
1. Completed credit card application form.
2. One copy of passport size photograph.
3. Minimum monthly income of Tk. 10,000 for Master and VISA
Card Silver.
4. Minimum monthly income of Tk. 55,000 for Master Card Gold.
5. Documents (e.g. Salary Certificates, Income Tax Certificates, 6months bank statement, Photocopy of passport or other
Documents).
6. For foreigners, work permit from the ministry is required.
3.17.1 Features of Credit Card
Wide Acceptance: SCB Credit Card is accepted at more than 3,000 outlets
around the country. One can use his/her card for everyday purchases as well as
for high value purchases. Its wide range of merchants include hotels,
restaurants, airlines & travel agents, departmental stores, hospital and
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diagnostic centers, jewelry shops, electronic and computer shops, leather
goods, mobiles and ISP’s and many more. This number is increasing everyday
to cater to customers growing needs.
Easy Credit: With SCB Credit Card customers have the convenience to pay
as little as 5% of their outstanding on the card account every month, thus
having the power and flexibility to plan their payments. Minimum monthly
payment is 5% of the cardholders closing balance or Tk. 500 whichever is
higher. If the closing balance is more than Tk. 500 it must be paid in full.
Instant Cash Advance: SCB Credit Card gives its customers to access to cash
up to 50% of the credit limit. Customer can withdraw cash advance from all
SCB and SCG ATM around the country, thus having access to cash 24 hours a
day. Besides, cash advance can also be taken from any of its branches across
the country.
Safe and Secure: Customer does not need to carry cash anymore if he/she is
carrying SCB Credit Card. If someone last his/her card can be protected from
the financial charges from the moment he/she reports to the bank.
Air Accident Insurance: SCB Credit Card gives the customer free air
accident insurance coverage up to Tk.100,000 (Silver Card) and Tk.500,000
(Gold Card). This coverage is also applicable for supplementary cardholders.
Supplementary Card: Customers can apply for supplementary card(s) for
their spouse, parents, sisters, brothers, friends of children over 18 years of age.
All charges on the supplementary card are reported on the monthly statement.
Besides, for customer’s peace of mind one can assign monthly spending limit
on each Supplementary Card. From March 2002 first supplementary card is
free for lifetime.
3.17.2 SCB Credit Card Features
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Details Gold Master Card Silver VISA/Master Card
Annual Fee for Primary Card Tk. 3,000 Tk. 5,000
Joining Fee Nil Nil
1st Supplementary Card Fee Free Free
Additional Supplementary Card Fee Tk. 2,000 Tk. 1,000
Over Limit Fee Tk. 500 Tk. 200
Replacement Fee Tk. 500 Tk. 200
Interest Rate on Outstanding 2.5% Per Month 2.5% Per Month
Returned Cheque Fee Tk. 500 Tk. 500
Duplicate Statement Fee Tk. 50 Tk. 50
Certificate Charge Tk. 100 Tk. 100
Outstanding Cheque Processing Fee Tk. 100 Tk. 100
Sales Slip Retrieval Fee Tk. 100 Tk. 100
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Ratio
Analysis
of
SCB
69
3.18 Ratio Analysis
Ratio analysis is an analytical tool that can be applied to a bank’s financial statements
so that management and the public can identify the most critical problems inside each
bank and develop ways to deal with those problems. Some selected ratios are
analyzed here to give an insight about Standard Chartered Bank. For limited
information some are analyzed very briefly.
3.18.1 Return on Equity:
ROE (in %) = Net income / Shareholders equity.
1999 2000 2001 2002
33.59 42.21 46.77 31.20
The figure shows that the growth rate was positive in 2000 and 2001 but declined in
2002. Since the growth rate of equity was much higher than that of net income,
overall ROE declined in 2002. The 105% growth in retain earnings was the notable
reason for the 62.52% growth of equity as compared to 8.42% growth of net income
in 2002. It can be inferred that Standard Chartered Bank retained this amount in order
to boost their investment which was in declining trend in 2000 and 2001. But they
took a conservative and a risk averse approach to boost investment and hence income
from it. They increased their investment only in Government securities which gave
them low return (but least risky) whereas their investment in stock market remained
stagnant, where they could earn more (but the risk was also high). The balance sheet
of 2002 supports this fact as investment grew by 140% but income from investment
grew by 62%. On the other hand their non-interest expenses rose by 144%, which also
pull their net income down.
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3.18.2 Return on Assets:
ROA (in %) = Net income / Total asset.
1999 2000 2001 2002
2.62 3.19 2.81 1.61
Declining trend in 2001 and 2002. Same reason as above – high growth in assets as
compared to low growth in net income. Low growth in net income can be justified by
Standard Chartered Bank’s high growth in non-interest expenses, which grew by
144% in 2002. The salaries & allowances account grew by 113%, advertisement cost
by 143%, repair & maintenance cost by 117%. One reason for increasing this cost was
high competition in banking sector. Standard Chartered Bank tried to win this
competition by recruiting & retaining their creative personnel through attractive salary
& compensation package, intensive promotional campaign, adopting new software
and computer systems etc. These activities substantially increased the cost and
lowered the net income.
3.18.3 Net Interest Margin:
Net Interest Margin (in %) = (Interest income – Interest expense) / Total assets.
1999 2000 2001 2002
4.72 5.04 4.97 4.50
Net interest margin was relatively stagnant over the years. The key reason was the
growth rate of the spread between interest income and interest expense was not
satisfactory as compared to the growth rate of total assets. One way to overcome this
stagnancy is to invest more in loans and advances which will yield more interest
income rather than investing in Government securities. From this Standard Chartered
Bank can maximize their spread between interest income and interest expense by
using the same assets and boost their net interest margin ratio.
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3.18.4 Net Non Interest Margin:
Net Non Interest Margin (%) = (Non-interest Income – Non-interest Expense) / Total
Assets.
1999 2000 2001 2002
0.84 1.34 1.07 0.27
Though a rise in 2000, 20% decrease in 2001 and 74% decrease in 2002. Major
reason was the spread between non-interest income and non-interest expense went
down. Standard Chartered Bank’s other income gone down sharply in 2002 (-
73.85%). Some reasons behind this may be sluggish recovery of bank charges, low
income from the credit cards and locker services, less capital gain from sale of shares,
low service charges on remittances but the real cause is “Competition”. For e.g. a
student can open a file in AB Bank with only Tk.1200 whereas the charge for the
same in Standard Chartered Bank is Tk.5750. If anyone wants to send remittances
through demand draft or telegraphic transfer from Standard Chartered Bank the
charge is Tk.1250 and Tk.1956 whereas the charge for the same in IFIC bank or AB
Bank is half of Standard Chartered Bank. The yearly charge for Standard Chartered
Master/Visa silver card is Tk.1500 and for Gold card Tk.3000. But for Prime Bank
Master Silver card the yearly charge is Tk.500 and for Gold card Tk.1000. So why a
customer should bank with Standard Chartered Bank where he is getting the same
service from others in a more valued and cost saving way? That’s why Standard
Chartered Bank’s other income is decreasing year by year.
On the other hand Standard Chartered Bank’s non-interest expenses is going up. To
improve quality the management spent heavily on training, seminar and workshop.
Expenses on business development and advertising also gone up. And the cumulative
effect of all those factors pulled the non-interest income down.
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3.18.5 Earning Spread:
Earning spread (%) = (Total interest income / Total earning assets) – (Total interest
expense / Total interest bearing liabilities).
1999 2000 2001 2002
5.82 6.19 5.87 5.62
The spread measures the effectiveness of the bank’s intermediation function in
borrowing and lending money and also the intensity of competition in the bank’s
market area. Greater competition tends to squeeze the differences between average
asset yield and average liability costs. If other factors are held constant, the bank’s
spread will decline as competition increases, forcing management to try to find other
ways to make up for an eroding earning spread.
Standard Chartered Bank’s earning spread decreased by 13% in 2001 and 10% in
2002. Their asset liability growth rate is harmonious but interest paid on deposits gone
up because of competition. While local banks were giving 8.5% - 10% interests on
fixed deposits, Standard Chartered Bank was giving only 7%. When they observed
customers are moving away from their banks, specially in 2002, they started giving
7.50% to highest 9.50% (for more than Tk.10,000,000) while the interest on loans are
kept more or less industry standard. And the overall effect is reflected in earning
spreads.
3.18.6 Asset Utilization Ratio:Asset Utilization Ratio (%) = (Interest income + Non interest income) / Total asset
1999 2000 2001 2002
13.16 12.60 10.98 10.68
This earning measure can be broken down into two components, the average interest
return on assets and the average non-interest return on assets. As competition for
loans and other income generating has grown and many loans turned sour, banks have
shifted their attention to increase their non-interest income.
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Standard Chartered Bank’s asset utilization ratio is decreasing – not in an alarming
manner but they should be aware of this. Especially on their investment functions.
The growth rate of non-interest income and income from loans is well enough to keep
pace with the growth of assets except the investment. As I mentioned above, their
investment is yielding very low income and therefore they need to rethink where to
put the money to maximize the value.
3.18.7 Earning Base in Assets:Earning Base in Assets (%) = Total earning assets / Total assets
1999 2000 2001 2002
82.59 81.64 84.04 82.34
The ratio shows how much of the total assets are contributing to the profits. For
Standard Chartered Bank the ratio shows a relatively stable situation. The reason is
earning assets (investment, loans, money at call and short notice, balance with other
banks) has not been increased as compared to total assets. Since all the earning assets
are mostly financed by interest bearing liabilities, the deposited/ borrowed amount is
significant for the bank. So it can be assumed that if deposit amount goes up, the
bank’s investment, loans & advances will also go up. But with the increase of
deposits, the bank also has to put more money at the vault of Bangladesh Bank and
Sonali Bank to fulfil the reserve requirement of Central bank. As a result it was very
tough for Standard Chartered Bank to increase earning assets from the deposits.
The other way to increase earning assets (from balance sheet perspective) was to
retain more from the net income. For that, net income has to be increased substantially
which Standard Chartered Bank failed to do so. The factors pulling down the net
income are mainly:
a. High tax
b. High expenses.
c. Low income from the investment.
Since I have mentioned earlier about investment and expenses (and more will be
discussed in recommendation part), I would like to say about taxes here. Net income
can be boosted in several ways (discussed in the recommendation part). One is
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controlling the tax. But the banks are entitled to pay highest taxes in the market (for
e.g. in the budget of 2002-2203, companies listed in stock exchange will have to pay
30%, non-listed 37.5% and banks 45%). As a result, though Standard Chartered Bank
was boosting their profit before taxes, high tax bracket (along with high expenses &
lower income from investment) pulled their profit after tax comparatively lower. And
the final outcome was the stagnancy in the growth rate of earning assets.
3.18.8 Net Bank Operating Margin:Net Bank Operating Margin (%) = (Operating income – Operating expenses) / Total
assets.
1999 2000 2001 2002
5.56 6.38 6.03 4.77
This ratio says how effectively management is running its operations by using assets
to generate income and expenses. This ratio is in decreasing mode in 2001 & 2002.
The vital reason is upward moving tendency of overhead expenditures. Standard
Chartered Bank’s printing, repair, maintenance, postage and telephone cost was
significant over these periods. Printing and stationary cost went up by 63% in 2001
and 143% in 2002, repair & maintenance cost went up by 250% in 2001 and 117% in
2002. Other operating income account also gone down by 73.85% in 2002 whereas
other operating expense went up by 144% in 2002. As a result the net non-interest
income in 2001 increased by only 8.88% and in 2002 it decreased by 52.96%. And the
final effect is decreasing net operating margin.
So to boost up this ratio, Standard Chartered Bank should adopt a stringent
policy to control overhead/ non-interest expenses and find out ways to earn more as
non interest income.
3.18.9 Net Profit Margin:Net Profit Margin (%) = Net income after taxes / Total operating revenue.
1999 2000 2001 2002
19.92 25.35 25.55 15.08
This ratio reflects effectiveness of expense management, cost control and service
pricing policies. We find it relatively stable in 2000 and 2001 but decreased by
15.08% in 2002. The effect of operating expenses and taxes is obvious for this lower
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trend. Provision for taxes increased by 107% in 2002 and interest paid on deposits
increased by 106% in 2002. As a result, though provision for loans decreased by 23%,
the net income increased only by 8.42%.
3.18.10 Equity multiplier:Equity multiplier (in x) = Total assets / Total equity.
1999 2000 2001 2002
12.81 13.22 16.67 19.37
This ratio reflects the leverage or financing policies; the sources chosen to
fund the assets. The percentage growth rate of assets, liabilities and equities are given
below:
%
Increase
of
FROM 99-
2000
FROM
2000-
2001
FROM
2001-2002
Assets 18.56 36.56 88.82
Liabilities 18.87 38.88 90.50
Equity 14.91 8.29 62.52
It is obvious from the table that equity accounts for less than 20% in financing
assets. This is a common issue for all the banks. Since banks lend the same fund what
they borrow from the savers, liability contributes most in financing assets. Since the
liability is higher risk is also higher. It gives the management high pressure to make
good loans. Because if they have to write off a loan, they have to write it off from the
equity portion. So there may be a chance to have a negative equity which may put the
bank under severe control and regulations adopted by the Central Bank.
3.18.11 Tax management efficiency:Tax management efficiency (%) = Net income after taxes / Net income before taxes.
1999 2000 2001 2002
54.91 52.12 51.23 35.47
This ratio indicates a company’s efficient use of tax management tools (such
as buying tax exempt Govt. bonds) and thus controlling the tax effect to boost net
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income. This ratio for Standard Chartered Bank was relatively stable 1999, 2000,
2001 but decreased in 2002. It can be inferred that since earning before taxes
increased by 56% in 2002, Standard Chartered Bank fell in the higher tax bracket and
thus paid higher taxes. As I have mentioned earlier, banks are entitled to pay the
second highest amount (tobacco companies pay the highest amount of taxes, for e.g.
BAT’s taxes account for 9% of the total tax collection by the Government) to the
national exchequer in the form of taxes. Since it is the Government who fixes the rate
of tax and monitors it, Standard Chartered Bank has least to do in managing taxes. In
foreign countries, to control the taxes companies usually purchase tax exempt
municipal bond. But in our country this type of bonds are not available.
3.18.12 Expense control efficiency:Expense control efficiency (%) = Net income before tax & security gains / Total
Operating revenue
1999 2000 2001 2002
36.29 48.63 49.87 42.52
It is a measure of operating efficiency and expense control. It indicates the amount of
revenue survive after operating expenses are removed. For Standard Chartered Bank
this ratio was stable in 2000 and 2001 but not so satisfactory in 1999 and 2002.
Particularly in 2002 the salaries and allowances increased by 113%, rent, taxes,
insurance cost increased by 50%, advertisement rose by 143%, other operating
expenses rose by 144%, repair, maintenance by 233%. Mainly for competition
Standard Chartered Bank increased these expenses.
They increased the salary structure to get the most energetic, visionary personnel from
the market. They increased advertisement to create awareness among the customers
and to let people know who they are, what value-yielding product they are offering,
their benefits etc. Moreover to retain customers, top management arranged family
day, customer weeks in which the premium clients were invited and awarded gifts.
These activities increased the overall expenses. But one thing is important to mention
here that these expenses might be seen as an investment by Standard Chartered Bank
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to increase the image and customer values. May be they were sacrificing their profits
by these activities but they were strengthening their customer base. So it will not be a
surprise if there is boost in the net income of 2003 / 2004.
3.18.13 Average asset yield:Average asset yield (%) = Total interest income / Total earning assets.
1999 2000 2001 2002
11.69 10.71 8.73 8.60
This indicates management efficiency on how they price their assets to generate
income. The trend is declining over the years. Three reasons can be worth
mentionable:
a. Standard Chartered Bank usually doesn’t give long-term loans. This is also true
for other foreign banks. Usually they grant loans for a maximum maturity period
of three years. Since the maturity period is short, risk is low and return is also low.
b. Lack of interest in investing in the stock market. Their stock market investment is
only 0.15% of Government security investment. So logically the earning from
investment is low.
c. Political turmoil, lack of good governance and macroeconomic unstability is the
third reason of such declining trend. Loan defaulters can get away from
punishment under political shelter. So Standard Chartered Bank doesn’t give long
term loans. And stock market of Bangladesh is an inefficient and unstable
organization which discourages the management to invest there.
3.18.14 Average Liability cost:Average liability cost (%) = Total interest expenses / Total interest-bearing liabilities.
1999 2000 2001 2002
5.87 4.51 2.86 2.98
This ratio indicates the cost of sources to finance the assets. The ratio for
Standard Chartered Bank shows a declining trend, which is good in the sense that they
are getting cheap sources to finance their assets. But it can be seen only as a short-
term gain and in the long run it is alarming also. Since every local bank is giving more
interests on deposits and investors also have found that depositing money in the bank
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is the safest investment, rationally they will move to banks which will offer them
maximum value on their deposits. In that case Standard Chartered Bank might lose
their individual customers and they may face lack of sources to finance their assets
instead of their “cheap sources”.
Liquidity Indicator:
3.18.15 Cash Position Indicator:
Cash Position Indicator (%) = Cash and deposit due from other banks / Total
assets.
1999 2000 2001 2002
0.01 6.95 3.66 0.04
A greater proportion implies that the bank is in a stronger position to handle
immediate cash needs. For Standard Chartered Bank this ratio represents severe ups
and downs. This ratio drastically falls below 1% in 1999 and 2002. The main reason
is that in these two years the bank’s balance sheet shows nil amount of “money at call
and short notice”. This indicates a serious liquidity crisis. If this liquidity crisis
remains in 2003, the bank may has to borrow money from other bank’s at a high call
money rate (for e.g. during Eid) which in turn will increase interest cost of the bank.
3.18.16 Capacity Ratio:
Capacity Ratio (%) = Net loans and advances / Total assets.
1999 2000 2001 2002
61.39 62.19 71.61 71.19
This is a negative liquidity indicator because loans and advances are most illiquid
assets of a bank. In 1999 and 2000 it was an average of 62.5% and in 2001 and 2002
it was an average of 71.5%. It means that their liquid asset is going down which might
be alarming in case of short-term necessity.
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Findings&
Recommendation
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3.19 Drawbacks found in SCB’s various customer services.
At SCB, customers often feel problem with the ATM card, when a credit card is
retained in the ATM due to technical failure, the customer is requested to take
delivery of the card on the next working day. It is not possible, for SCB to return the
card on the same day. This creates inconvenience for the customer, as this unable
them to withdraw their fund at that point in time. It is found that in most branches of
SCB, there is huge queue waiting for deposit or withdrawals. SCB have also arranged
isolated queue for the account holders only. But, even these have not helped much, as
still now huge queue is observed at the Branches. For opening an account different
forms have to be filled out with the same information like name, address, nationality,
date of birth, etc. Many customers complained found that SCB sometimes delay in
issuing cheque book, ATM, PIN, Telephone Identification Number (TIN) for their
customers, and this in result creates huge inconvenience for the account holders. More
significantly, account holders often complain that they do not receive the statement
for their account, as per the instruction.
Above all, most of the customers complain that SCB charges very high charge for
their services. This in result, have discouraged many prospective customers to start
relationship with SCB. On an average it is found that most of the account holders who
are closing their account, are due to the fact of high fee and charges. Everyday three
to four accounts are closed in every branch due to high charges.
3.19.1 Findings and Recommendation
SCB is a well-known international bank with a reputation to live up to. It is high time
to improve the performance of the SCB branches before more damage in the form of
customer dissatisfaction occurs. A set of recommendation is set forth below to
improve customer service.
Every local branch should be authorized to handle all problems in connection
with the retention of credit cards by ATM.
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More manpower is required to handle the manifold problems associated with
customer service.
The bank personnel should explain the speed cheque box purpose more clearly
because many customers are afraid to use it.
The bank should do away with the procedure of asking the same information
from the customers more than once in connection with opening a bank
account.
The bank should issue chequebooks, ATM, statement, PIN and TIN on time.
The bank should immediately revise its tariffs to retain its customers.
The branch officials should go through training and other motivational
programs more often that would liven up their spirit of work to a great extents
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Operational Process and
Products of F.I
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4. Financial Institution Department
Standard Chartered has an established presence in Asia for almost 150 years and have
an extensive network throughout the region, and have built up a wealth of experience
in the servicing and financing of trade for both local corporate customers and number
of correspondent banks.
Financial Institution Department (Former Institutional Banking Group) of SCB,
Dhaka Commenced business from 1995. FI markets Trade and Payment products
through its strong Global Network. Within a short span of time FI has tremendously
increased it’s market share in Bangladesh. At the end 2002 FI has expanded
relationship with 34 local banks and managed approximately 29% of market share.
Financial Institution’s credit exposure is largely on the trade finance sector of local
banks.
4.1 Nature of Business:
Leveraging on the world-wide network of SCB branches, FI provides trade related
services i.e. advising & confirming, negotiating and discounting of letters of credit,
reimbursement and fund transfer under letters of credit and account services i.e.
deposit of export proceeds, term and overnight investment of excess cash.
The bulk of the business relates to the Ready Made Garment Industry (RMG), oil and
other commodities and capital equipment. Almost entire business is true trade with
tenors less than 180 days. Over 50% of bank limits are used for the import of raw
materials from the Far East for the RMG industry, whereby garments are made up in
Bangladesh and then shipped out to Europe and the US against export L/Cs.
4.2 Establishment of new correspondent relationship
FI-Bangladesh is responsible for promoting correspondent banking tie-ups with local
banks and financial institutions with a view to maximizing the overall revenues
globally from each relationship. That’s why ‘Agency Arrangement” are generally
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initiated by Relationship Managers (RM’s) of FI-Bangladesh. Consideration is given
to account profitability, reputation of the customer and future growth prospect of the
relationship before establishing any agency arrangement.
Agency arrangement means establishment of correspondent relationship
between two separate banks situated in two different countries. Agency arrangement
is established in order to channelise foreign exchange transactions of the two banks
under the arrangement with ultimate goal to ease and promote the business of the
banks, in broader sense, of the two countries involved. Common business transactions
done through agency arrangement are-
Establishment of L/C
Collection Items
L/C Reimbursement
Add Confirmation of L/Cs
Credit Lines etc.
While approving the setting up of a new correspondent relationship with
another institution, it is the responsibility of the local FI RM to confirm the bona fide
existence and regulated status of the concerned institution. After receiving a formal
request from the customer, an assigned RM negotiates the terms & conditions with the
prospective customer. These agreed terms and conditions are then incorporated in the
agency agreement, which also outlines the modus operandi of the arrangement.
Following documents are also collected from the customer which are kept in safe
custody by FI-Bangladesh:
i. Copy of Bank’s License.
ii. Article and Memorandum of Association.
iii. Certificate of Incorporation.
iv. Copy of the Statute.
v. List of authorized signatories (Signature Booklet).
The signature booklets are also distributed to major SCB branches after consulting
with the customer. FI, RM may waive the need to obtain any one of the above
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documents if he is otherwise satisfied about the credentials of the new correspondent.
Telegraphic test Keys and SWIFT Authenticator Keys (BKE) are to be established
once agency arrangements are finalized. FI-Bangladesh will request Agency
Arrangement, London to issue Text keys or swift Authenticator Keys for mutual use
and to forward keys directly to the customer.Products of Financial Institution
Department:
4.3 The key products of Financial Institution Department are divided into two
categories.
4.3.1 Risk Products
L/C Confirmation
Negotiations
Inter and intra Bank Guarantee
Local Bill Discounting
4.3.2 Non-Risk Products
L/C Advising
L/C Transfer
L/C amendment advising
Reimbursement Undertaking and Authorities
Fund Transfers
Export proceeds
BDT Draft Drawing
International Payments (T T’s)
Account Services (Vostro Account Management)
4.4 Description of Products:
RISK PRODUCTS:
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4.4.1 L/C Confirmation
When the beneficiary or the seller receives the letter of credit from the issuing bank
he wants to be sure that he must get paid after delivering the goods. In this case the
seller wants the confirmation of payments from the advising bank. Standard Chartered
Bank, when acts as an advising bank gives the add confirmation to the seller that this
letter of credit is authenticate and the payments will be made after full filling all the
terms and conditions of the letter of credit, so Standard Chartered is prepared to add
its confirmation to the letter of credits advised through its network, subject to credit
and country limits being available.
4.4.2Negotiation
As the letter of credit is a freely negotiable financial instrument, any bank in the
seller’s country can be a negotiating bank. Negotiation of a letter of credit mean after
delivering the goods to the buyers and full filling all the terms and conditions of the
letter of credit, the seller presents the documents to a bank, like Standard Chartered.
Then, it will examine all the documents as per the letter of credit. If the documents are
correct and up to date the negotiating bank pays the seller or its like just purchases the
documents from the seller. Standard Chartered advising and negotiation fees for each
market are based on local practices and applicable regulatory guidelines. This is
subject to periodic review and revision.
4.4.3 Inter and Intra bank guarantee
By this risk product Standard Chartered gives facilities to both the local and
international corporate customers. This types of inter and intra bank guarantees gives
the buyers a certainty over receiving pre-agreed payments if a suppliers fails to meet
its contractual obligations. Standard Chartered’s Financial Institution Banking issues
guarantees and advance payments guarantees against counter guarantees received
from correspondent banks worldwide.
4.4.4 Local Bill Discounting
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Standard Chartered understands the working capital needs of a company and offers
Discounting of letter of credit at when a seller gets an usance or deferred letter of
credit from a buyer, the seller may wants to get the money for acquiring goods in
advance or production cost earlier than the credit expires.
Standard Chartered Bank’s Financial Institution banking offers discounting of bills of
exchange/drafts that have been accepted by the letter of credit issuing bank under
local letter of credit, master export letter of credit. By this type of service Standard
Chartered facilitates the manufactures or suppliers to manage their cash flow more
effectively and get access to bank easy finance.
NON-RISK PRODUCTS:
4.4.5 L/C Advising
When a corporate customer process a letter of credit from a local bank favoring the
buyers in the different country the letter of credit has to be advised to the sellers or
beneficiary. It means after the contract between the buyer and seller, the buyer issues
a letter of credit from his bank to the seller’s bank to notify that he wants to buy the
goods. But, in this case the seller’s bank does not know the buyer’s bank. When the
buyers and sellers are in the different countries, the risk of the non-payment is high
and the authenticity of the letter of credit also major issue.
In these situation international or global banks or any other nominated banks, like Standard
Chartered Banks takes the responsibility to advise the letter of credit to the sellers or seller’s
bank. The beneficiary receives the letter of credit promptly and the authenticity is checked
though the seller can start the process to deliver the goods right in time to the buyers.
Add instructions & send to SCB
Payments
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Exporter
Standard Chartered Bank
sing Beneficiary Advising
beneficiary
Processing documents Payments
Collecting payments
Processing
Documents
L/C application
Goods
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Issuing Bank
Importer
Negotiating Bank
4.4.6 L/C Amendment:
Parties involved in a L/C, particularly the seller and the buyer, can not always satisfy
the terms and conditions in full as expected due to some obvious and genuine reasons.
In such a situation, the credit should be amended.
In case of favorable credit, it can be amended or cancelled by the issuing bank at any
moment and without prior notice to the beneficiary. But in case of irrevocable credit,
it can neither be amended nor cancelled without the agreement of the issuing bank,
the confirming bank (if any) and the beneficiary. Amendment of a L/C is required for
the following reasons:
i) If the value of the L/C ha been increased or decreased.
ii) If the expiry date of the L/C has been extended
iii) If the name of reimbursing bank mentioned wrongly, etc.
4.4.7 Reimbursement Undertaking and Authorities
On the other side the buyer is also concern that when and how to pay the seller. Letter
of Credit Reimbursement helps the buyer simplify a complex trade finance problem;
how to settle payment when the issuing bank is not a correspondent of the beneficiary
bank. When the sellers opens a letter of credit, incorporate a reimbursement
instruction into the terms of the letter of credit allowing a beneficiary bank anywhere
in the world to claim payments from the Standard Chartered branches in the country
where the issuing bank has established its account relationship.
When the buyer uses a letter of credit along with that simply send a separate
reimbursement Authorization to Standard Chartered to effect reimbursement,
preferably in a written paper. Standard Chartered Bank offer the flexibility to stipulate
an exact or an approximate amount, as well as choosing whether the claim may or
may not be restricted. On the receipt of a claim from any bank from the beneficiary,
Standard Chartered will be processed on the day received or on the following day
depending on the agreement.
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4.4.8 Fund Transfers
Fund transfer is a non-risk product which helps the buyers and sellers to settle their
payments intensely according to the letter of credit directly to the beneficiary’s
account any where in the world. Standard Chartered continuous link service gives
customers to send their funds in any where in the world at any time.
4.4.9 Export proceeds
To an exporter it is very important to keep control over his goods until he is confident
enough that he is going to receive payments from the buyers or importers. Standard
Chartered Export proceeds collection service take charge of the process document
transfer adding greater whole transaction.
In this process Standard Chartered will collect all the documents from the exporter
and arrange for them to be held at the exporter disposal during the transaction period.
Once the process is complete Standard Chartered will liaise with the buyer’s bank on
behalf of the exporter, arrange the documents to be transfer to that bank and collect
the payment.
4.4.10 Discounting
Discounting of letter of credit at Standard Chartered Bank mean, when a buyer or
beneficiary get an usance letter of credit from a buyer, he may wants to get the money
for acquiring goods in advance or production cost earlier than the credit terms. By this
type of service Standard Chartered facilitates the manufactures or suppliers to manage
their cash more effectively.
4.4.11 Vostro Accounts
Financial Institution Department, Bangladesh maintains Vostro Accounts of banking
and financial institutions worldwide, customer maintaining such account can remit
funds throughout the country through the Standard Chartered Bank branch network as
well as through- Chartered Bank's local correspondent relationships.
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4.4.12 Nostro Accounts
In order to increase and promote the correspondent banking business worldwide, F.I
uses Nostro accounts to Bangladeshi banks and financial institutions in almost all
spanning the Standard Chartered Bank global network. Group branches and sides
provide full clearing and payment services in the UK, USA, Hong Kong, Malaysia,
Singapore and many African countries. Worldwide payments services are facilitated
by a network of branches supported by electronic cash management (available in
select locations), fund transfer system and membership of SWIFT.
4.4.13 Account Services
F.I offers the full range of services available under Trade Finance to its customers.
The Standard Chartered Bank network in China, the Far East, the Middle East, the
Indian sub-continent, Africa, UK and USA makes SCB the natural choice of
correspondents for advising, confirming, and negotiating their letters of credit in these
territories.
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4.5 Operational Process of Products
Issuing a Letter of Credit:
Before issuing a L/C, the buyer and seller located in different countries, concludes a
‘sales contract’ providing for payment by documentary credit. As per requirement of the
seller, the buyer then instructs the bank-the issuing bank-to issue a credit in favour of the
seller (beneficiary). Instruction/Application for issuing a credit should be made by the
buyer (importer) in the issuing bank’s standard form. The credit application which
contains the full details of the proposed credit, also serves as an agreement between the
bank and the buyer. After being convinced about the ‘necessary conditions’ contained in
the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a
credits the opening bank then proceeds for opening the credit to be addressed to the
beneficiary.
• Reimbursement Authorities:
Reimbursement authorisation means an instruction or authorisation, independent of
the credit, issued by an Issuing Bank to a Reimbursing Bank to reimburse a claiming
Banker if so requested by the issuing bank, to accept and pay a time draft drawn on
the reimbursing Bank. In fact, FI of Standard Chartered Bank Dhaka acts as a
corresponding bank of Reimbursing Bank i.e. Standard Chartered Bank, New York.
Performing as the corresponding bank of Reimbursing Bank (SCB, New York), the FI
of SCB, Dhaka, acts on the instruction and under the authority of the Issuing Bank.
In case of Reimbursement Authority, these should be a reimbursement claim from the
Claiming Bank to the Reimbursing Bank (SCB, New York). Except as provided by
the terms of its Reimbursement undertaking, a Reimbursing Bank (SCB, New York)
is not obligated to honor a Reimbursement Claim.
Local bank’s branches in Bangladesh send reimbursement authorizations (RAs) to FI
Unit at Dhaka. These RAs are either collected by nominated courier service or sent
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directly by the branch. On many occasions FI peon collects RAs from branches of
customer banks.
All RAs are to be signed by two authorized signatories of the concerned bank branch.
Signatures appearing in the RAs are to be verified by any Group Signatory using
Authorized Signature Booklet of the banks and/or List of Authorized Signatories
received from branches.
RAs should contain L/C number, L/C Expiry, Amount, Charges, the account to be
debited and in some occasion the name of the claiming bank. Prior to
process/forwarding, FI clerk checks these details and in case of any clarification,
contacts the concerned branch.
As it is a legal requirement that all Reimbursement Authorizations and
Reimbursement Amendments must be issued in the form of an authenticated tele-
transmission that’s why Swift/Telex usually sends Reimbursement Authorizations
(RAs) to respective network offices. RAs are sent through swift MT 799. RAs are
also sent by courier.
Processing of RA:
Where courier service is used for onward transmission of RAs:
Original copies are sent to receiving group office e.g. SCB NY, Attn. Trade
Reimbursement Dept. And copies are retained for future reference.
Where RAs are sent by SWIFT:
FI- ops clerk prepares the reimbursement authority in MT 1999 on behalf
of the local bank.
FI-Ops officer verifies the message.
Any of the Relationship Managers authenticates & sends the message.
The following morning FI receives the original/copies of the SWIFT
message.
Clerk sends a copy of the message to the concerned bank.
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Another copy of the transmitted message is filed along with the original
RA received from the local bank.
Where RAs are sent by Telex:
Having completed the above, clerk prepared an authority on behalf of the
local bank.
Clerk takes a print out of the message, checks and puts his initial on the
print-out. At the same time he also saves the file in a diskette for
communications room.
Manager/RM FI checks the print-out against instructions received and puts
his signature in full on the print out and sends the same to communications
room for dispatch.
Communication room authenticates and dispatches the RA message.
The following morning FI receives the original copy of the dispatched
message and ensures it agrees with the original instruction. Checking
clerk/officer initials the copy.
Clerk sends a copy of the message to the concerned bank.
The original transmitted copy is filed along with the original RA received
from the local bank.
• Fund Transfer:
Fund Transfer or payment Instruction means an instruction issued by an Issuing Bank
to a Reimbursement Bank to debit its respective account directly on the value date
mentioned in it. Payment services are facilitated by this product of FI. In case of fund
transfer there need not to be claimed. On the value date the instruction of the issuing
bank is executed.
Local banks branches in Bangladesh send Fund Transfer (FT) Instructions to FI Unit
at Dhaka. These FTs are either collected by our nominated courier service or sent
directly by the branch. On many occasions FI peon collects FTs from branches of
customer banks. All FTs are signed by two authorized signatories of the concerned
bank branch. Signatures appearing in the FTs are to be verified by any FI-Ops Staffs
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using Authorized Signature Booklet of the banks and / or List of Authorized
Signatories received from branches.
The FTs contain L/C number, Amount, Value date, Beneficiary details, Ordering
customer, Charges, the account to be debited etc. FI clerk checks the FTs for all these
details and in case of any incomplete information/clarification, he/she contacts the
concerned branch. Any subsequent amendments are made through an authorized
signatory of the concerned bank and this is further verified at our end. Having
completed the above clerk inputs the Fund Transfer-Connect paying particular
attention to the amount, currency, value date and other beneficiary details.
TRANSACTION FLOW
Fedwire
MT202 Book TRF
Chips
Processing of Fund Transfer:
Where FTs are sent by SWIFT
The FTs are inputted in SWIFT format MT 202
FI-Ops officer verifies the message
Any of the Relationship Managers authenticates the message and sends it.
The following morning FI receives the original/copies of the swift message.
Clerk sends a copy of the message to the concerned bank.
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Import Customer
L/C
Importer’s Bank
SCB New York
U.S. Correspondent
Bank
Standard Chartered
Bank
U.S. Correspondent
Bank
SCB Dhaka
L/C Beneficiary Bank’s Account
L/C Beneficiary Bank’s Account
L/C Beneficiary Bank’s Account
Another copy of the transmitted message is filled along with the original FT
Instruction received from the local bank.
Where FTs are processed by Telex:
After inputting details clerk takes a printout of the same, checks and puts initial on
the computer print-out.
At the same time he also saves the file in a diskette.
FI-Ops Officer checks the printout against instructions received and puts his
signature in full on the printout and sends the same to communications room.
Communications room authenticates and dispatches the FTs to the receiving bank
e.g. SCB NY, Attn. Fund Transfer Department.
Original FT Instructions received from customer banks are retained at FI Dhaka.
Transmitted copy of FTs are checked against the original copies, signed by FI-Ops
officer and retained at FI Dhaka.
A duplicate copy is sent to the concerned bank branch originating the FT.
• L/C Confirmation
A confirmation of a Letter of Credit is a conditional undertaking given by the
Confirming Bank to the Beneficiary (Exporter), to pay or negotiate/accept Bills of
Exchange (Drafts), if the stipulated documents are presented to the Confirming Bank
in Compliance with the terms and conditions of the L/C such confirmation, authorized
by the Issuing Bank, Constitutes a second, separate conditional guarantee of payment
from the confirming Bank to the Beneficiary. In this regard SCB only consider adding
its confirmation to irrevocable Documentary L/Cs. Here silent confirmation is not
considered by SCB, Dhaka.
As Beneficiary wants to be more secured that’s why it wants confirmation from SCB
centre. At this point Trade Approval System (TAS) raises. To get confirmation, the
Beneficiary at the counter of SCB Centre request them to add its confirmation so that
he/she could be more secured SCB centre then raises TAS and sends it to SCB,
Dhaka for approval. TAS is a formal electronic application for approval which
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contains all the details of a particular documentary credit SCB, Dhaka, at its counter
approve TAS by considering some quantitative & qualitative factors.
Transaction Process
On receipt of the instructions to confirm a letter of credit, the processing unit must
ensure that:
The letter of credit is authentic.
Sufficient Product limits are available in the name of the Issuing Bank and
Country-including any tolerance allowed with regards to amount.
The terms of the L/C are clear and unambiguous.
Clarification is sought immediately from the Issuing Bank where necessary.
The reimbursement instructions are clear and concise.
The beneficiary agrees to the payment of confirmation fees (when they are for his
account). This is particularly important in certain Asian markets.
When the forwarding the confirmed letter of credit to the beneficiary, it is critical that
the amount confirmed and the period of confirmation is clearly stated. In cases where
discrepancies are found in documents under a usance Confirmed L/C, which are
subsequently accepted by the Issuing Bank, SCB must:
Obtain approval from the original approving units to extend the confirmation
period if appropriate (e.g. the L/C has expired or the amount has exceeded);or
Consider whether it still wishes to extend the confirmation period. If not, the L/C
beneficiary must be advised that SCB’s confirmation has fallen away at the same
time as they are advised that the Issuing bank accepts the discrepancies.
Risk:
The main purpose of a Confirmation is to remove the Bank and Country Risk
associated with the transaction from the beneficiary, with the Confirming Bank
undertaking these risks. A Confirmation also gives the beneficiary the opportunity to
obtain non-recourse, post-shipment finance against compliant documents.
Accordingly, the exporter should request the establishment of an irrevocable,
Confirmed Documentary Letter of Credit.
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The main risks that (SCB) undertakes with this product are summarized as follows:
Risk Description
Country Issuing Bank’s
Credit Issuing Bank
Operational Documentary
The transactions should reflect the nature/size of the customer’s business and the
terms of trade for the industry.
The maximum tenor for this product is :
Validity period: 180 days
Usance Period: 180 days
Combined validity and usance period : 270 days
Any exceptions must be documented and require separate appropriate credit approval.
The main risks that SCB undertakes:
Risk
Country Risk Bank Risk Operational Risk
Country Risk:
This is the risk that SCB undertakes on the country of the L/C Issuing Bank once the
Credit has been issued and confirmed.
Formal approval of the associated Bank and Country risks must always be obtained
from the centre(s) responsible for providing such approvals prior to the customer
being advised that SCB has added its confirmation to the transaction.
Exposure should be booked as a contingent liability against the Issuing Bank and
Country in question. The ability to confirm our own branch paper has always been
presumed to be implicit, due to the fact that a branch issued the letter of credit in the
first instance, and consequently the Bank would stand behind the paper.
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Bank Risk:
This is the risk that SCB undertakes on the L/C Issuing Bank once the L/C has been
issued and confirmed.
Confirmation of a sight L/C is considered lower risk than confirming a usance L/C of
similar value, similar total duration and issued by the same Issuing Bank.
Sight L/C
Day1 Day 180
L/C confirmed Documents present on
L/C expiry date
In the above example, the Confirming Bank has a 180-day confirmation contingent
liability risk. If the L/C Issuing Bank (or its country of domicile) fails during the 180-
day period, the Confirming Bank may not suffer loss if documents subsequently
presented are found discrepant.
180 days Usance L/C
Day 1 Day 20 Day 180
L/C Confirmed Documents Documents presented on
Presented L/C expiry date.
In this example, assuming compliant documents are presented on day 20, the
confirming Bank must pay at maturity even it the L/C Issuing Bank (or its country of
domicile) fails between day 20 and day 200. This is due to the fact that from day 20
the Confirming Bank’s undertaking has become unconditional. In the event of an
Issuing Bank failing to reimburse the proceeds of a bill under compliant documents,
the FI Relationship Manger for this bank must be informed immediately for further
action to be taken.
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Operational Risk:
The key operational risks are:
Where SCB is the Confirming Bank it has a duty to check the documents and ensure
their conformity with the L/C; in other words, SCB is exposed to Documentary risks,
and any payment effected is “without recourse” to the beneficiary once SCB certifies
the documents as clean. Procedures for handling the checking of documents must be
in accordance with existing operational processes and internal guidelines.
There is a risk that a Confirmation could be issued without approval when approval is
required. all Service Delivery areas must ensure that approval to confirm L/Cs is
requested and obtained on case by case basis in accordance with laid down procedures
and relevant Group Instruction Circulars.
Other Risk:
SCB also faces inherent risk when it adds confirmation to a L/C where the
reimbursement clause states that the Issuing Bank only agrees to reimburse the
Confirming Bank to receipt of compliant documents at its own counters. SCB can
choose either not to confirm, or confirm the
L/C subject to conditions agreed with the beneficiary.
If the Confirming Bank fails to spot any adverse terms or ambiguous clauses in the
L/C, the Bank may not be able to obtain payment from the Issuing Bank. Therefore,
the Confirming Bank should ensure that the L/C is scrutinized for any ambiguities
before Confirmation is agreed.
Discounting of Drafts
SCB can offer Corporate Customers without recourse discounting of local currency
bills of exchange and drafts that have been accepted by the buyer’s bank (the
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Accepting Bank). Such drafts are hereinafter called “Accepted Drafts” and are
transferable to a third party.
Transaction Process:
A typical transaction would be:
a) Customer sells goods or services to its Buyer. The buyer issues a draft drawn on
its bank and asks its bank to “Accept” it. The date for payment of the Accepted
Draft will reflect the agreed payment terms between customer and the buyer.
b) The buyer sends to customer the Accepted Draft.
c) Customer requires SCB to discount the Accepted Draft on a without recourse
basis.
d) Upon request to discount the Accepted Draft, SCB telex request via SWIFT the
Acceptance Bank to confirm by authenticated telex/SWIFT that proceeds are to
be remitted to SCB on due date (specifying the due date).
e) At presentation on maturity, the Accepting Bank honors the Accepted Draft and
remits proceeds to SCB
Risk: The main risks here are:
Risk Without recourse
Customer Credit Risk No
Accepting Bank Risk and Country Risk Yes
Operational Risks (including fraud) Yes
Market Risk Movements in interest rates if not
match funded
The tenor of the Accepted Drafts should reflect the usual terms of trade for the
industry with a maximum tenor of 180 days.
Risk
Credit Risk Bank Risk & Country Risk Operational Risk Market Risk
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Credit Risk:
SCB’s obligor under this program is the accepting bank SCB normally has no
recourse to the corporate customer, except in the event of fraud alteration of bills etc.
Transactions should reflect the nature/size of the customers business and the terms of
trade. Local practice should be to introduce nominal credit ceilings for borrowing
customers but these should not be advised to customers. For non-borrowing corporate
customers, the value of “Accepted draft” per transaction must not to exceed
USD250, 000. Any exceptions must be approved by the SCO.
Bank and Country Risk:
This is the risk that SCB undertakes on the Accepted Bank (and associated country
risk where applicable) who has guaranteed the payment of the draft. In these
circumstances the primary recourse is to the Accepting Bank, and it is without
recourse to the corporate exporter. Discounting should only be undertaken where
appropriate bank and country risk approval has been obtained. In countries, where the
risk of late or non-payment depends on individual branches of the Accepting Bank,
the limit approval must be on a branch basis. This must be covered in the Country
product Template.
If the Accepting bank (or branch) fails to honor a valid presentation of an Accepted
Draft, the SCO and the FI Relationship Manager for this bank must be informed
immediately.
Operational Risk:
Normal operational risk in the handling of drafts apply (e.g. safekeeping, presentation,
checking for alteration, fraud etc.)
To mitigate the risk of fraud or accommodation paper, the Customer should provide
SCB with the original supporting commercial documents to support the Accepted
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Draft including but not limited to sales order, commercial/VAT invoice,
transport/shipping documents etc.
Market Risk:
There may also be a basis risk due to movements between the reference rate for
interest charges for the product and the bank’s actual cost of funds (eg Prime/Inter
bank spread etc.). The product should, wherever possible, be match funded to remove
this risk.
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OpportunitiesOn
Local Bill DiscountingFor
Non-Corporate Entities
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5. Local Bill Discounting for Non-Corporate Entities by Financial
Institution Department
5.1 Introduction:
Foreign Trade in Bangladesh is still dominated by imports resulting in adverse
balance of trade. Export has registered a significant volume growth over the past years
and the export import gap is reducing every year. In early seventies, the export of
Bangladesh was dominated by jute items only. In fact 90% of the export earning at
that time was from jute sector and the rest 10% from leather and tea sectors. The
situation, however, started changing with the introduction of non- traditional items
like shrimps, fish, readymade garments, finished leather, newsprint, handicrafts etc.
The over all export earnings also increased considerably over the years and reached a
level of 5.31 billion US dollars in 1998-99 and at the end of 2002, at was US$8.1
billion. The Total exports during 1997-2002 was:
Source: EPB
Year wise Export trend
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Considering the above information, it has been observed that Readymade Garments
and Knitwear are the two dominating sectors, which are contributing almost 70% of
the total export.
Source: EPB
Export composition for the year 2001-02
Local Bill Discounting (LBD) refers to discounting of BDT/US$
usance bills drawn under in-land Letters of Credit utilizing either the exposure on
corporate or the L/C issuing bank. The product is directly related to export of
readymade garments, as in Bangladesh, most of exporters require pre-export
financing, which is covered by discounting of export bills. Currently Corporate
Banking is offering this product to their regular client base using exposure on both
customer as well as L/C issuing banks.
Financial Institution Department is contemplating to offer standard “Local Bill
Discounting” product to a clientele base currently in the status of non-corporate or
non-borrowing corporate customer. FI intends to leverage on the strong relationship
with local banks and use a portion of trade limits currently extended to these banks for
this product.
5.1.1 The Environment
Banking Industry is passing through various phases of reforms. Overall, the Industry
has shown gradual improvement with significant reduction in NPL. Government and
Bangladesh Bank (Central Bank) have started the IMF financed Nationalized
Commercial Bank (NCB) reform initiative. Management of Agrani Bank has been
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awarded to Price Waterhouse Coopers (PWC), under this reform plan for a three year
term. As a pre-condition to this reform plan all the four state owned banks have
signed an MOU with Bangladesh Bank under which activities of the banks have been
severely restricted.
BB has adopted the risk weighted capital adequacy requirement a couple of years ago.
Current requirement, effective from June, 2003, is 9% while this was 8% earlier.
Minimum Capital requirement has been elevated to BDT1 billion (US$17.25 million).
Each bank must build up that capital base by March, 2005.
Cash Reserve Ratio (CRR) remains same as 4% while Statutory Liquidity
Ratio (SLR) requirement has recently been reduced to 12% from 16%. From the year
2002 it was decided by BB that FCY balance with Central Bank will not be
considered as part of CRR. Recently the bank rate has also been reduced to 5% from
earlier 6%. Government has also decided to align the interest rate of Saving
Certificates with that of interest of Treasury Bills. However, a separate move is on to
segregate the pensioners by offering them a higher yielding instrument. BB and
Government have expressed their intention to bring down the interest rate to single
digit.
The country’s banking sector is entering into a competitive era as newly
established private commercial banks have started operation. A total of 30 private
commercial banks are operating as of December31, 2002.
5.1.2 Product Description
SCB offers Corporate Customers with or without recourse discounting of bills of
exchange / drafts that have been accepted by the Issuing bank (the Accepting Bank)
under local L/Cs. In some countries these local L/Cs can also be issued in a form of
“Quasi Back to Back” L/Cs with Export L/Cs held as a security.
A typical transaction would be:
1. An exporter receives export L/Cs from its importer (the master L/C).
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2. Local usance L/Cs issued from the exporter’s bank in favor of its Domestic
Suppliers (SCB Customers) and advised through SCB. These L/Cs can be Quasi
Back to Back L/Cs if the master LC is held as security.
3. The Domestic Supplier (beneficiary of the local L/C) presents L/C documents to
SCB with a usance bill drawn on the Issuing Bank.
4. The Domestic Supplier’s Bank (SCB) will forward documents to Issuing Bank on
approval basis acceptance under UCP 500.
5. The issuing bank of the local LC (the importer’s bank) accepts the documents and
drafts and send the advice of acceptance mentioning the maturity date to the
Domestic Supplier’s bank (SCB) under the L/C.
6. The Domestic Supplier asks SCB to discount the Bill on the strength of the
Issuing Bank’s confirmation of acceptance and maturity date of the bill for
payment as per L/C terms.
5.1.3 Client Base:
The target customers will be the entities mostly involved with Ready-made Garment
Industries. Fabric Manufacturers (includes Spinning, Weaving, Dyeing & Finishing
Mills), Accessories Manufacturers (Zippers, buttons, thread, carton, interlining etc)
and other service providers such as Washing and Embroidery.
Another segment will be the leather manufacturers who supply finished leather to
Shoe; Bag and other leather based end product manufacturers. Any other entity
meeting their cash flow needs, through LBD, will also be amongst the target market.
Except for the Spinning Mills and big Tanneries these entities are small companies
and only a portion of their deals are done through local letters of credit while the rest
is on cash basis. These companies require
Very quick processing of their bills once accepted.
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Local banks often delays the process of discounting an L/C while establishing
authenticity of the L/C , completing other internal formalities within the bank. Within
the bank it should be able to improve turn around time by a close co-operation
between Trade Services and FI. A dedicated desk needs to be established at Trade
Services to provide this product for the target customer base.
Maximum percentage of Discounting.
Practice among local banks is to discount around 80% of bill value. Based on the level
of confidence and experience on the customer and on the L/C issuing bank, FI can
extend this upto 95%
Support in realizing payment in time from the L/C issuing banks
This is the area where FI is in a position to add significant value to this product.
Unfortunately, it has become a market practice, particularly in the NCB segment, to
delay the payment of these local bills from maturity date on various pretexts. With
deep-rooted branch level contacts FI should be able to expedite such payments within
reasonable time. For some selected banks / customers FI can even offer this product
as a non-recourse one. This will mitigate the risk of delayed payment for the customer
and bring in additional revenue for the bank.
5.1.4 Blanket Assumptions
L/C advising fee is set at flat USD 40. Although L/C advising fee varies from
US$100 in USA to US$20 in India the rationale for such assumption can be traced
back to the fact that majority L/Cs are routed through Far Eastern countries where
fee is around US$50.
5% of total number of L/Cs have been set aside from our calculation assuming
these get routed within country.
70-80% of confirmed L/Cs gets discounted.
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5.1.5 Bank Briefs
AGRANI BANK
DYNAMICS
Large ticket items including PDB, telecommunication and defense L/Cs
Fragmented business ( spread over a large number of branches)
Significant concentration of Ready-made Garments related b/b L/C business
Oil deals are in pipeline
ASSUMPTIONS
India bound L/Cs represents 8% of sight L/Cs
Confirmation is required for 60% of back to back L/Cs and 30% of sight L/Cs.
AL- ARAFAH ISLAMI BANK
DYNAMICS
Considerable amount of Ready-made Garments related b/b L/C business
Good payment record
Not much large ticket items
ASSUMPTIONS
India bound L/Cs are 20% of total sight import.
90% of sight L/Cs require confirmation.
Cent percent of back to back L/Cs require confirmation.
Total 6 RA s per 4 L/Cs.
Reimbursement Authorizations (RAs) used only for 10% of sight L/Cs and the
rest are effected through fund transfer.
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BASIC BANGLADESH
DYNAMICS
Booked some large ticket fertilizer L/Cs
Healthy financials and the only “B” graded SCB relationship
A blend of small, medium and large ticket items
ASSUMPTIONS
India bound L/Cs are 29% of total sight import.
50% of sight L/Cs require confirmation, while 80% of back to back L/Cs require
confirmation.
Total 6 RA s per 4 L/Cs.
DHAKA BANK LTD.
DYNAMICS
Healthy business growth over the years
Competent management team
ASSUMPTIONS
14% of sight import is from India, thus require no confirmation.
75% of sight L/Cs require confirmation while 95% of back to back L/Cs require
confirmation.
DUTCH BANGLA BANK LTD.
DYNAMICS
Increasing their focus on RMG
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Good payment record
Major business growth in 1999
ASSUMTIONS
18% India bound sight L/Cs.
Confirmation required for 80% of sight L/Cs and 90% of back to back L/Cs.
EASTERN BANK LIMITED
DYNAMICS
Considerable number of large ticket items
Good mixture of back to back and cash L/Cs
Overwhelming share of business enjoyed by SCB
Excellent payment track record
ASSUMPTIONS
Garments related import volume is about 70% of total garments export.
10% of sight import is from India.
50% of sight L/Cs will require confirmation, 80% of garment L/Cs will require
confirmation. No confirmation required for India bound L/Cs.
IFIC BANK
DYNAMICS
Mixture of back to back and cash L/Cs
No large ticket items
Good payment track record
ASSUMPTIONS
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50% India bound sight L/Cs.
10% of sight L/Cs require confirmation, 70% of back to back L/Cs require
confirmation.
ISLAMI BANK BANGLADESH LTD.
DYNAMICS
Very large concentration of Ready-made Garments related b/b L/C business
American Express Bank traditionally enjoys overwhelming share of Islami’s
business
ASSUMPTIONS
50% of sight L/Cs get confirmed.
80% of back to back L/Cs get confirmed.
Reimbursement Authorizations are used only for 10% of sight L/Cs.
50% of sight L/Cs payments are effected through fund transfer, the rest is effected
through direct debit.
JANATA BANK
DYNAMICS
Handles government food, oil, defense and project related deals
Large ticket but low volume of L/Cs
Large number of branch relationships though business in heavily concentrated
with their local office
ASSUMPTIONS
10% of sight L/Cs are India bound.
$ 150 million worth of oil L/Cs.
Average confirmation fee from the oil deals is around 0.25% per quarter.
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NATIONAL BANK LIMITED
DYNAMICS
Huge trade potential with considerable concentration in RMG related trade
Only 2 years old relationship
Large ticket items
The most profitable bank among the Private Commercial Banks
ASSUMPTIONS
India bound L/Cs represents 15% of total sight L/Cs.
Confirmation required for- 70% of back to back L/Cs, 35% of sight L/Cs.
NCC BANK
DYNAMICS
Business focus is on trade finance
Healthy trade growth over the last 4-5 years
Mixture of sight and back to back business’
ASSUMPTIONS
15% of sight L/Cs are India bound.
Confirmation required – sight 45%, back to back 80%.
PRIME BANK
DYNAMICS
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Large volume of back to back business
Huge volume of India bound business
Good management team
ASSUMPTIONS
20% India bound L/Cs.
SONALI BANK
DYNAMICS
Significant slump of business in last year
Combination of RMG, government oil, defense and large ticket items
ASSUMPTIONS
Out of USD 367 million sight L/Cs, USD 145 million represents defense L/Cs
where SCB has no role to play. Confirmation revenue from USD 170 million oil
L/Cs is calculated using 100 basis points par annum. Revenue potential from the
remaining USD 52 million L/Cs is calculated using standard pricing.
80% of garment L/Cs will require confirmation. No confirmation required for
India bound L/Cs.
No role is expected to play for Soanli’s India bound L/Cs since Sonali has its own
branch in India.
SOUTHEAST BANK LTD.
DYNAMICS
No back to back focus
Typically, large ticket low volume business
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Majority of business is India bound
ASSUMPTIONS
40% of sight L/Cs are India bound.
50% of sight L/Cs and 80% of back to back L/Cs get confirmed.
UTTARA BANK
DYANMICS
Remarkable trade growth in last few years
Good blend of back to back and cash L/Cs
SCB limit does not allow to accommodate large ticket items
Focus is on non-risk products
ASSUMPTIONS
10% India bound L/Cs
Confirmation is required for – 35% of sight L/Cs and 85% of back to back L/Cs.
5.1.6 Revenue & Volume Dynamics:
Assumptions
Transfer Pricing 7.5% pa (approximate rate taken)
Discount Interest rate 13.0% pa average
US$ Spot Rate 57.70
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Revenue streams from a typical 120 days usance, US$10,000 bill will be:
Interest Income BDT10, 578.00
Fee based Income BDT 1,500.00
To achieve yearly revenue target of BDT45m (NII and Fees combined) FI will need
about US$45m (BDT2,500m) worth of bills per annum with an average usance period
of 120 days. Peak outstanding target based on that volume is BDT800m. Volume will
gradually build up from the beginning of the year and remain fairly static once the
peak outstanding target is reached. A Chart of monthly volume target and average
peak outstanding is shown below.
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5.1.7 Risk & Mitigants:
Credit: This product carries credit risk on local banks. Bank will be exposed to risk
only if the L/C issuing bank defaults on payment due to bankruptcy. As most of the
deals will be on recourse basis, FI will be able to legally claim on the beneficiaries
even if bank defaults on its payment obligation.
Delay in payment: A more common risk to this product is the possibility of delay in
making payment by the L/C issuing banks. As already discussed above FI is in a
position to minimize this risk with its very good relationship with the local banks.
Documentary risk / fraud: All LBDs are on acceptance basis. Documents submitted
by the beneficiaries do not carry any risk, as these will be forwarded to issuing bank
for their acceptance. Issuance of the L/Cs and subsequent acceptances for each and
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every item will be carried out to avoid any chances of documentary / transactional
fraud. Precaution will also be taken while signing in customers for this product.
To mitigate the risks, the local LC must be freely negotiable in this type of transaction
so that SCB can be the Negotiation bank. To maximize the revenue SCB should be
the Advising bank wherever possible.
The main risks for this product are summarized as follows:
Risk With Recourse Without Recourse
Customer Credit Risk Secondary No
Accepting Bank and Country
Risk
Primary obligor Yes
Operational Risks (including
fraud)
Yes Yes
Market Risk Movement in interest rates and foreign exchange risks
Where the discounting is provided in local currency and the Bill drawn under the local
LC is in foreign currency, the foreign exchange risk must be hedged. Where no
forward FX deal is contracted, the maximum margin of financing permitted will be
limited to 90% of the draft value.
The transactions should reflect the nature / size of the customer’s business and the
terms of trade for the industry. The tenor of the Accepted Bills should reflect the
credit conversion cycle but should not in any case exceed 180 days.
Because the potential higher risk associated with local LCs, discounting without
recourse should only be undertaken when approval has been obtained from Country
Head of C&IB and SCO. The use of such bills for accommodation or related party
finance is specifically excluded from the program.
5.1.8 Product Risk Return
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The facilities must be priced such that risk-adjusted minimum hurdle rates are
achieved taking into account product mix, customer credit grades and security.
The product risk/return must provide a value-added contribution after costs on a
stand-alone basis. Value added means the product or customer relationship must be
profitable after including all business stream revenues and after deducting costs,
including risk costs and a charge for capital costs.
Minimum pricing should be set out in Country Product Template according to local
business plans and underwriting Standards.
5.1.9 Risk Management
This section should be read in conjunction with the standard ‘Product Risk
Management Framework’, which lists the definition, mitigation and control measures
of generic risks.
Where there is electronic transaction initiation or delivery of electronic information,
please refer to the specific risk mitigants and controls referred to in the framework.
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5.1.10 Customer Credit Risk
Customer selection criteria and maximum transaction limits must be set out in the
Country product templates.
For with recourse discounting, the primary obligor is the Issuing Bank and secondary
recourse is to the Corporate customer. A Cat1 facility limit should be established on
the Customer for the full amount of any with recourse discounting with an FSV based
on the prime obligor (the Issuing Bank).
For without recourse discounting, SCB’s obligor is the Issuing Bank. SCB normally
has no recourse to the corporate customer, except in the event of fraud, alteration of
the bills etc. However the customer should be known to SCB and the transactions
should reflect the nature/size of the customers business.
Discounting without recourse should only be undertaken when approval has been
obtained from Country Head of C&IB and SCO.
5.1.11 Bank and Country Risk
This is the risk that SCB undertakes on the Issuing Bank (and associated country
risk*) of the local LC who has accepted the bill.
The exposure is booked against Issuing Bank and Country risk for both with recourse
and without recourse discounting. Discounting should only be undertaken where
appropriate Bank and Country risk approval has been obtained.
In countries, where the risk of late or non-payment depends on individual branches of
the Accepting Bank, the limit approval must be on a branch basis. This must be
covered in the Country Product Template.
In the event that funding is in local currency with a local bank, with remittance at
maturity in local currency, this does not impact Country limit. This must be covered
in the Country Product Template.
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5.1.12 State Owned Banks
The nationalized banks combined earned a profit of BDT 2.46 billion in 1999, down
from BDT 3.69 billion in 2000. The deposit mobilization for the NCBs, however,
decreased by 14% from BDT 331 billion to BDT 283 billion during the same period.
The main state owned banks continue to dominate the domestic retail and corporate
market as well as undertaking most government business.
In 2002, the over all foreign exchange business is done by these three large
nationalized banks.
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5.1.13 Policy:
Credit Policy will continue to support exposure to this important sector. Pre-Settlement
limits and settlement limits for banks graded A to E in this sector will be allowed 150%
of the appropriate ceilings. Priority will be given to trade and the full support of both the
Country Head and Regional Head, FI will be required to breach 100% of ceilings.
Notwithstanding this ceiling, at the sole discretion of GRA, A to E graded banks can be
granted L/C limits which can be risk weighted at 50%, again at the sole discretion of
GRA. Applications will need to be supported by a strong business case and carry the
recommendation of both the Country Head and Regional Head, FI.
For business in excess of Credit Policy Ceilings and banks graded F-G all exposures
(except FX) must be covered by lien hard currency deposits as well as local currency.
Track record of placing of 110 pct local currency as cash cover against L/C limit was
found satisfactory since the funds are properly liened with us. In cases where liened
currency is used, proper documentation is required.
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5.1.14 Term limitations:
Interbank (Local currency) - 90 days.
Trade (Confirming/negotiation) validity upto – 360 days.
LER Forex Forward - 360 days.
Extended tenor of 360 days for trade limit is solicited due to the fact that with 30 to 60
days of shipment period and 21 to 30 days for negotiation, door to door tenor for 180
days usance L/Cs can go upto 270 days. Besides, occasionally capital machinery related
L/Cs are established with supplier’s credit of 180 to 360 days.
There are moderate exposures to Rupali Bank (graded G) which is not an FI priority
(treasury limits) and therefore continued or additional exposure will need to be
strongly supported by business plans.
.5.rivate Sector Banks
Operating profits earned by the private sector banks increased by more than 160% from
BDT 2.01 billion in 2000 to BDT 5.27 billion in 1999. Deposits increased by 17% from
BDT 127 billion to BDT 149 billion. Profits from foreign banks increased by 0.67%
from BDT 1.78 billion in 2000 to BDT 1.79 billion in 1999. Deposits in foreign banks
increased appreciably by 28% from BDT 29 billion to BDT 37 billion during the same
period.
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Deregulation is leading to an awakening of the private sector banks and new licenses are
being granted. The private banks are rapidly expanding through new branches. In
general, banks in this sector are more professionally managed than the State banks, but
some pose a greater danger (due to insider lending and reluctance of sponsors to inject
fresh funds) even though Bangladesh Bank has stated that support will be provided in
need. Recent BB circulars restricting lending to the sponsor directors will help the banks
to get rid of further insider-lending pressure. However, Bangladesh Bank is satisfied
with the improvements made by the banks in this sector during the recent years and it
has signed an MOU with weak banks for close monitoring. Bangladesh Bank is satisfied
with the improvements of some of the weak banks. The World Bank is also in favor of a
greater role by the private sector banks and they strongly advocate de-nationalization and
more private banks.
5.1.15 Policy
Settlement and Pre-settlement risks for A-E graded banks in this sector can go up to
120% ceilings. Priority will be given to trade and the full support of both the Country
and Regional Head, FI will be required to breach the 100% of ceilings.
Additionally L/C limits can be risk weighted at 50%, again at the sole discretion of
GRA.
Applications will need to be supported by a strong business case and carry the
recommendation of Head of FI.
For business in excess of these Credit Policy Ceilings and banks graded F and G, all
exposure (except FX) must be covered by liened hard/local currency deposits unless and
otherwise supported by Regional Head of FI MESA for exceptional cases.
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5.1.16 Term limitations:
Interbank (local currency) 90 days
Trade (confirmation/negotiation) validity upto 360 days
LER forward forex 180 days
Trade limit for private banks have been proposed to be 360 days from existing 180 days
for reasons which have been explained in previous section of State owned banks.
5.1.17 New Banks in the Private Sector
The Government has recently allowed nine new banks in the private sector. All of them
have already started their banking operation. Capital requirement for these new banks is
higher i.e., sponsored capital BDT 200 million as against BDT 100 million. These banks
have to go for IPO for BDT 200 million within 3 years of banking operation. In recent
past FI has experienced gradual shift of quality business from NCBs to old PCBs and off
late shift from old PCBs to new PCBs. Relationship with few new banks will be
established selectively to maintain steady growth. Ownership, Management, Business
focus and our revenue potential will be the prime criteria for deciding the extent of
relationship (pure agency arrangement based correspondent bank relationship, account
relationship or cash covered credit relationship) with new banks (refer the attached
matrix). Initially, FI will focus on non-credit products only and consider extending credit
limits on selective basis against full cash cover (either 100-pct hard currency or 110-pct
local currency) in the normal course of business. Collateralized facilities will be
supported by watertight documentation.
5.1.18 Cash Cover
For excess exposure over the existing limit or for new limits, local banks will be allowed
to place cash cover as collateral. Cash cover either in the form of 100 pct hard currency
(to be kept outside Bangladesh) or 110 pct local currency will be taken as collateral for
limits/one off transactions. For hard currency covered transactions neither bank limit nor
country limit will be earmarked. However, for local currency covered transactions
country limit will be earmarked. Our experiences with all cash covered transactions are
very satisfactory. Besides, local currency covered transactions also act as an additional,
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and generally cheaper, source of fund and help treasury in managing liquidity of the
bank.
5.1.19 Country Limit
Short-term country limit for Bangladesh is $215m, out of which FI are allocated a
total allocation of USD120m.
Currently USD 30 million line is in place to cover very low risk government imports
of essential commodities. Government trade in food grain, petrochemical, fertilizer
and essential items of energy and telecom sector. The limit will be confined to
confirming L/Cs issued by majority state-owned banks (Sonali, Agrani, Janata &
Rupali, BASIC) and for selected exceptional transactions, on IFIC (40% government
owned), Eastern Bank (20% government owned and 60% owned by the 3 NCBs).
BASIC is included since it is 100% owned by government. BASIC will qualify for
ECL as long as their majority share is owned by GOB. Exposure booked under this
limit will apply to L/Cs which are opened by I) Government agencies or ii) by private
importers for ultimate supply of goods to Government agencies- only on the basis can
evidence a written mandate from the government for handling the essential
commodities. This stipulation was changed at last review due to an increasing trend of
procurement of goods by Government agencies through competitive bidding whereby
many local trading houses are now awarded contracts. Government agencies establish
local L/Cs favouring the contractor who in turn establishes back to back L/C
favouring overseas manufacturer. FI has already handled such private-public
transactions and gained encouraging experience.
A cap should be placed on exposure to any one name under ECL. No more than $20m
for oil on one name or $10m for other essential commodities will be extended to one
name i.e. the facilities are mutually exclusive, you can have either one or the other.
This will ensure that a maximum of $20m of the ECL to any one name.
Confirmations under this limit will be booked under the "Essential Imports" limit, not
against the clean running limit of the individual bank concerned.
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5.1.20 Policy
With the Grindlays acquisition, SCB has become the market leader among foreign
banks. It is SCB’s objective to remain the premier correspondent bank in the
Bangladesh market.
To date, Financial Institutions (FI), Bangladesh has experienced few delays in
payments with a zero record of losses. Any delays, however minor, have been swiftly
resolved by the FI team in Bangladesh, either directly with the banks or through BB,
with whom they enjoy a strong relationship at the highest levels.
In February, 2002 FI, Bangladesh has signed an agreement with International Finance
Corporation (IFC) and Netherlands Development Finance Company (FMO) for
US$52m “Trade Enhancement Facility” for 6 Bangladeshi Banks.
The transactions booked under this facility would be booked on 50/50 basis with
SCB’s exposure being booked under existing facilities and IFC & FMO guaranteeing
the other 50%. IFC & FMO will guarantee upto US$25m bank risk and share 50% of
the confirming fee, whilst SCB will take full documentary risk and will also retain
rest of revenue streams.
The local banks are very small in international terms but to be competitive with other
international banks we need to be able to provide meaningful limits.
Whilst there are enhanced risks, as already described, there are also mitigants as
follow:
Most of the exposure is low risk trade exposure (true trade, not trade related
lending);
The banks are liquid, many having large retail bases, whilst all have access to
refinancing in need at the central bank.
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The state owned banks are all 100% state owned and there are no plans to
privatize them in the near future. Many of the private banks retain some level of
government ownership.
The Central Bank and Ministry of Finance have repeatedly stated that they will
support any of their banks in need.
There are sizeable balances held at SCB, New York
Efforts have succeeded in mitigating some of the risk to the IFC and FMO and the
attempt to obtain insurance cover is on.
The newly set up Asset Sell down unit in Dubai has already established a
secondary market for Bangladeshi Bank risk. Current appetite appears stronger
for the government owned banks; recently Rupali and Janata Bank risk was sold
in a market at a very attractive rate.
For all L/Cs confirmed by SCB the control over payment is absolute through a
direct customer’s nostro account debit authorization.
FI exposure will be constrained by the country limit. It is highly unlikely that the
Bangladeshi government would allow a government bank to fail because of political
and systemic reasons, unless there was no other option. The credit policy is on the
basis that we establish a number of risk triggers, as follows:
Import cover falls to less than four weeks. These figures are published monthly;
Sizeable aid flow reduction. An aid consortium meets on an annual basis to set aid
levels;
Default in crude oil payment;
Default in debt repayment
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In the event that any of these events materialize, facilities would immediately be
reviewed and action taken to reduce the business being undertaken, particularly longer
tenor items, and to sell down/ insure a proportion of the assets to mitigate risk.
Bank Risk Triggers: Current* Trigger Point
NPLs/ Total Loans 34% 37%
Provisions/ NPLs 21% 19%
Liquid Assets/ Total Deposits 44% 48%
Total Loans/ Customer Deposits 73% 80%
Capital Adequacy 9% 8%
* Bangladesh Bank Publications
5.1.21Operational Risk
As local Bills or LC are freely negotiable financial instruments, there are some
operational risk is involved also. Those are as follows:
Authentication / Verification of the signatures of the Issuing Bank appearing on
the advice of acceptance and maturity date of the bill.
In the event the signatures cannot be authenticated, the Accepting bank must
confirm by authenticated SWIFT / tested telex that they have accepted for
payment on maturity.
Discounting of the local LC can only be extended after the payment due date
advised by the Issuing bank.
Interest to maturity date plus transit interest, based on local practice, should be
deducted from the payment to the beneficiary
Where the local LC shows that interest for the usance period is payable by the
applicant at maturity in addition to the LC value, only the principal amount is eligible
for discounting.
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5.1.22 Fraud
There is a potentially higher risk of fraud with local L Cs. special care must be taken
to ensure that the transaction is bonafide, by calling for transportation proof such as
FIATA receipt or bills of lading whenever possible. Detailed risk mitigants should be
set out in Country Product Templates.
5.1.23 Market Risk
There may also be a basis risk due to movements between the reference rate for
interest charges for the product and the bank’s actual cost of funds (e.g. Prime /
Interbank spread etc.). The product should, wherever possible, be match funded to
remove this risk.
Where the discounting is provided in local currency and the Bill drawn under the local
LC is in foreign currency, foreign exchange risk will occur.
5.2 Financial and Management Accounting
5.2.1 Financial Accounting
All financial accounting entries for net interest income, non-interest income, on-
balance sheet assets and contingents must be booked in accordance with Group
Accounting Policies.
Particular attention must be paid to the treatment of fee and commission income and
the booking and risk weighting of the various assets and contingent assets.
5.2.2 Management Accounting
All management accounting entries shall be booked in accordance with Group
Management Accounting policies. Income, assets and contingents shall be reported in
Pipeline and related financial reporting systems.
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5.2.3 Accounting Approval
The local or regional Head of Finance must be consulted and must approve the
specific local accounting entries to ensure all accounting and risk weighting items are
covered.
5.2.4 Transaction Processing
All processing must be performed in accordance with the relevant operational
manuals, which include but are not limited to, documentation, limit management,
processing of transactions and exception reporting.
5.2.5 Legal, Regulatory and Compliance
Legal must approve all standard and additional documentation.
Country product template must confirm Bank has license / approval to provide these
services in the country.
5.2.6 Cross Functional Support:
In order to be successful with this product active support will be required from within
the bank. Additional funding in the tune of BDT800m will be required from Treasury.
With the change in FTP policy support will be needed from Treasury for the 90~120
days BDT TP rate for bill discounting.
Customer referrals will be required from across the bank while Trade Services will be
required to set up a dedicated desk for giving the operational support for the product.
5.2.7 Cross Selling Opportunities:
One hurdle while marketing LBD to local entities would be solicitation of other types
of credit lines/facilities. As they will try to politely tackle that situation, they will
certainly get opportunities to cross sell other types of bank products such as L/C
Advising, Consumer Loan, Credit Cards, Personal Account Services etc.
One small percentage of these bills might be drawn and discounted in US$. Those
bills have the potential of significant Exchange earning by Treasury in lieu of
discount interest spread.
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5.3 Findings and Recommendations
LBD is a much-hyped about and yet difficult product. While it has solid revenue
potential it involves close cooperation and coordination among several departments
within the bank and liaison with a large number of entities.
The following aspect should be taken under consideration while discounting a Local
letter of credit received from a local bank:
100% financing should only be given to customers with a forward foreign
exchange deal contract. As with a foreign exchange contract, the customer
captures the risk under LER limit with treasury through use of forward foreign
exchange rate contract, it is easy to assess the receivable amount in local
currency.
Where no forward foreign exchange deal is contracted, the maximum margin
of financing permitted will be limited to 90% of the draft value. The actual %
allowed in each country must be set out in the Country Product Template, with
appropriate market risk approval obtained if exceeding 90%.
It is important to keep close personal and extra friendly relationship with
management of NCB banks for obtaining first hand information, as early as
possible. As it is found that most NCBs have high tendency of delaying in
publishing statements and accounts. It usually requires about 18 months before
audited financials are published. The reason for this is a three-stage audit
process, which starts at the branch level.
Prevailing legal procedures is very lengthy and complicated. It takes longer
period to settle any kind of dispute. On the other hand, enforceability of
intangible security is a long drawn process, i.e. generally takes 5 – 6 years. So,
FI should be more careful in risk assessing, before confirming a discounting
process.
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A proper process must be in place to keep the Issuing Bank’s confirmation of
acceptance advice, and the maturity date must be closely tracked for follow
up.
Deterioration or change in fiscal policy is quite common phenomenon in our
country So, FI should hire a team of economists type people to compile
statistics to indicate general improvement, stabilization or detoriation in fiscal
policy.
5.4Conclusion
In retrospect of the marvelous growth of FI revenue over the last eight years and
contemplating the intensity of competition yet to come, it is crucial for SCB to rethink
its strategies and marketing plan to sustain the growth of FI revenue. Correspondent
banking service providers domiciled in Bangladesh are expected to be fighting for a
bigger pie, as the growth prospect of the country’s correspondent banking business is
limited. One of the ways to achieve that objective is to maximize FI revenue
generated from local clients and introduces more local products. Because, there are
huge potentials for inbound revenue.
However, export growth dropped below 6% while import soared by 8.5% in
2001/2002, putting pressure on trade deficit. Although special incentives were
extended to the garment, jute, and leather sectors in the national budget, export
income has been affected due to flood damage, which has disrupted transport and
communications and lowered industrial output and distribution. Increase in import
payments was due to drastic surge in imports of food grains and capital machinery.
Foreign exchange reserve position will remain stable. Import cover will average 2.2
months in 2001, compared with 2.8 months in 2000, and rise only marginally in 2002,
to 2.3 months.
The major part of the credit exposure on Bangladeshi banks will be in the trade finance
sector. The export of ready-made garments from Bangladesh is initiated by buyers
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resident in the USA, Canada and Europe. The buyer opens a sight letter of credit with a
long expiry favoring garment suppliers/manufacturers (export L/C) in Bangladesh who
in turn use the same as collateral to open usance(60 to 180 days) L/C's favoring
beneficiaries in local textile mills, spin mills, yearn suppliers, dyeing factories to supply
fabric and accessories. Under the present system, garment manufacturers are allowed to
import upto 75% of the value of the Export L/C. The fabric and accessories once
imported are cut, dyed, sewn and pressed into finished articles of wear as according to
specifications and exported to the buyer. Proceeds received under the export L/C are
used first to settle import liabilities (the usance L/C), bank liabilities (if any) and local
expenses. Bangladeshi Banks are permitted to retain requisite foreign currency for
settlement of the usance bills and release the remainder to the exporter.
The proportion of inland L/Cs, however, is increasing in the garments industry. This is
because of the tax benefits provided to firms going for backward linkages. The
Government is also encouraging this move since it wants to develop the country’s
industry. So, the L/Cs, which were traditionally used to import raw material, is now
being replaced by local L/Cs favoring indigenous manufacturers. As such local bill
discounting (LBD) against acceptance from banks is also becoming a profitable window
for increasing local revenue.
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