Report on

Foreign Exchange
Activities of
Mercantile Bank
Limited

Chapter 1

Introduction

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INTRODUCTION
1.1 .Origin of the Report
In todays world only academic education does not make a student perfect to become
competitive with the out side world. Internship is highly needed to gain idea, knowledge and
experience. Asian University of Bangladesh is the reputed private university in Bangladesh, has
designed the curriculum of the BBA course such a way that the international standard graduates
will be produced. After completing 132 credit hours, one student needs to go for further 3 credit
hours internship program in a commercial organization. From this internship program students
get the opportunity to learn facing the real business world.
Mercantile Bank Limited is a place where I could learn the business dealings. This organization
has created a positive image to the customers mind by providing better service. This bank has
introduced some modern banking scheme that has got high market demand. As it maintain the
place with the competitive business world, its activities, culture, philosophy and style leads an
intern student to be the best at any field of working life. As an intern student I have got the
opportunity to work with this organization for three months (from May 02, 2012 to July 31,
2012) and acquire idea about foreign division.

1.2. Background of the Report:

Mercantile Bank Ltd. (MBL) is a specialized financial institution that performs most of the
standard banking services and investment activities on the basis not only profit sharing but also
social partnership. This study attempts to analyze the nature of modern banking activities and
performance of MBL. All through the internship program, close observation was made on
different banking activities of MBL. Its performance was reviewed and analyzed through the
annual reports, and internal records of the bank.

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1.3. Significance of the Report

The prime reason of this study is to become familiar with the practical business world and to
attain practical knowledge about the Banking and Corporate world, which is so much essential
for each and every student to meet the extreme growing challenges in job market. It is also
known to all of us that there is no alternative of practical knowledge and the practical
knowledge is much more durable and useful than the theoretical knowledge. This study will
help us to get a true picture of the practical business world, particularly of banking business and
also to attain practical knowledge on the various spheres of banking business. So this study is of
paramount importance for each and every student regardless of his/her study area or discipline.

1.4. Scope of the Report

The scope of the report is limited to Mercantile Bank, Dhanmondi Branch. The whole report
covers the organizational structure; Background of the bank, objectives, functions, departments,
units and business performance, activities of MBL, the main part works on Foreign Exchange
Operation of Mercantile Bank Limited.
My three months internship in MBL I worked in Cash, GB, Clearing, and Foreign Exchange
Departments of Mercantile Bank and at last I am motivated to work with this topic.

An Overview on foreign exchange operations of MBL

Financial Performance of the Bank
Export and Import Performance.

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1.5. Objectives of the Report

The objectives of the study are as follows:
General Objectives:
The general objective of the report is the evaluation of foreign exchange operation of Mercantile
Bank and compare with its competitor.
Specific Objective:
To apply theoretical knowledge into practical area.
To be familiar with the banking management system.
To attain practical knowledge on the foreign exchange operations performed by MBL.
To evaluate the performance of General Banking division.
To know the banking operational guideline of a bank.
To get a brief idea about operational procedure.
To analyze the financing systems of the bank and find out whether the bank needs any
improvement to be done and make greater contribution towards the countrys economy.
To familiarize different rules and regulations of Banks formalities.
To familiarize the working hours, values and environment of the bank.
To adopt with the everyday banking activities.
To find out the contribution of private commercial banks for the economic development
of the country.
To attain practical knowledge on the foreign exchange operations performed by MBL.

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 To have better direction to identify and suggest the scope of enhancement in foreign
exchange operations to fulfill the requirement of the internship program.
L/C Opening.
To learn about the benefits and incentives provides to the export proceeds.
To know the collection process of export proceeds.
To detect the problems involved and to obtain solutions.

1.6. Methodology of the Report

I. Research Design
Exploratory research has been conducted for gathering better information that will give a better
understanding on different financial data. Both primary and secondary sources of data collection
procedure have been used in the report. Primary data has been collected mainly through the
writers observation of the approval process and monitoring techniques, informal interviews of
executives, officers and employees of Mercantile Bank Limited.
II.

Sources of Data Collection

To make the Report more meaningful and presentable, two sources of data and information have
been used widely.

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Source of
Informationrmation

Primary

Practical deskwork of Mercantile

Bank Limited, Dhanmondi branch,
considerable help of employees.

Secondary

Annual reports, website of MBL,

unpublished data etc.

Chapter 2

An Overview of Mercantile Bank Ltd

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2.1 BRIEF SYNOPSIS OF MERCANTILE

BANK LIMITED:
2.1.1. Introduction
Banking system occupies an important place in a nations economy. A banking institution is
indispensable in modern society. It plays a liberalization of economic policies in Bangladesh.
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
services with a view to improving the socio-economic development of the country.
Mercantile bank was established in June 2, 1999 as a private commercial bank and started its
operation. Prime minister Sheikh Hasina inaugurates the bank. The renowned 30 industrialists
establish this bank with everybodys consent Mr. Abdul Jalil elected as the chairman. Mercantile
Bank Limited is a private commercial bank with Head Office at 61, Dilkusha C/A, Dhaka,
Bangladesh started operation on 2nd June 1999. The Bank has 29 branches spread all over the
country and introducing some braches. With assets of TK. 13078.93 million and more than 663
employees, the bank has diversified activities in retail banking, corporate banking and
international trade.

2.1.2. World Economy

The year 2009 reminds us the worst financial meltdown since the 1930s. It is argued that the
meltdown of the financial system was made in America because it relaxes rules of providing
loans to the people with no income for buying houses, called sub-prime housing loans
amounting to about $2.1 trillion. Furthermore, US regulators did not monitor the way in which
the banks were providing loans during the housing-boom period. The regulatory bodies in the
US ignored warning signs of a financial storm since August 2007 and believed that the free
market system would take care of it. But free market could not prove its effectiveness in
avoiding the financial crisis. As a result, almost every country of the world faced the ongoing
world economic crisis.
World growth is expected to fall to 0.5% in 200, its lowest rate since World War 2. The US
economy, the worlds largest and the epicenter of the Financial Tsunami would shrink to 1.3% in

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2009. Output in the advanced economies is now expected to contract by 2% in 2009, first
contraction during the post war period. Growth in emerging and developing economies is
expected to slow sharply from 6.25% in 2008 to 3.25% in 2009. China, the fastest growing
economy in the world is expected to slow down to 7.5% in 2009 from a double-digit growth rate
over the past several years, while Indias deceleration would be less steep to 5.0% from 6.2%
and the economy of Japan would shrink to 1.2% in 2009.
Sluggish real activities and lower commodity prices resulted from tiny demand caused by the
current economic meltdown have dampened inflation pressures. In the advanced economies,
headline inflation is expected to decline from 3.5% in 2008 to a record low of 0.25% in 2009,
before edging up to 0.75% in 2010. In emerging and developing economies, inflation is also
expected to subside to 5.75% in 2009 and 5% in 2010, down from 9% in 2008.

2.1.3. Bangladesh Economy

Bangladesh Economy recorded satisfactory growth in FY2008 in spite of experiencing two
consecutive floods and devastating cyclone Sidre, price hike of oil and other commodities in the
world market. Governments growth generating and poverty reduction programs coupled with
the prudent monetary policy of Bangladesh Bank lead to achieve 6.2% growth in FY2008,
slightly lower than 6.4% of FY2007. Nearly all sectors contributed to the GDP growth,
particularly significant were the growth of export-oriented sectors, inflow of remittances and
some service sector like transport and communication.

2.1.4. Back Ground of MBL

Banking system occupies an important place in an economy. A banking institution is
indispensable in modern society. It plays a liberalization of economics policies in Bangladesh.
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
service with a view to improving the socio-economic development of the country.
Mercantile Bank Limited has been incorporated on May 20, 1999 in Dhaka, Bangladesh as a
Private limited company with the permission of the Bangladesh Bank; Mercantile Bank Limited

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commenced formal commercial banking operation from the June 2, 1999. The bank stood 45
branches all over the country up to December, 2008.
There are 28 sponsors involved in creating Mercantile Bank Limited. The sponsors of the bank
have a long heritage of trade; commerce and industry. They are highly regarded for their
entrepreneurial competence. The sponsors happen to be members of different professional
groups among whom are also renowned banking professionals having vast range of banking
knowledge. There are also members who are associated with other financial institutions like
insurance companies, leasing company etc.

I. Mission:
Will become most caring, focused for equitable growth based on diversified deployment
resources, and nevertheless would remain healthy and gainfully profitable Bank. Mercantile
Bank Limited aims to become one of the leading banks in Bangladesh by prudence, flair and
quality of operations in their banking sector. The bank has some mission to achieve the
organizational goals. Some of them are as follows as:

Mercantile Bank Limited provide high quality financial services to strengthen the well
being and success of individual, industries and business communities.

Its aim to ensure their competitive advantages by upgrading banking technology and
information system.

MBL intends to play more important role in economic development of Bangladesh and
its financial relations with the rest of the world by interlining both modernistic and
international operations.
MBL encourages investors to boost up share market.
The bank creates wealth for the shareholders.
The bank believes in strong capitalization.

It maintains high standard of corporate and business ethics.

Mercantile Bank Limited extend highest quality of services, which attracts the
customers to choose them first.

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 The bank creates wealth for the shareholders.

The bank maintains congenial atmosphere for which people are proud and eager to
word with Mercantile Bank Limited.

Mercantile Bank Limited intend to provide better benefits to their customers and good
returns to their shareholders.

The bank intends to meet the needs of their clients and enhance their profitability by
creating corporate culture.

II. Vision:
Would make finest corporate citizen. is the main vision of MBL. MBL dreams to become
the bank of choice of the general public that includes both the consumer and the corporate
clients. It has created a cadre of young professionals in banking profession which has helped
boosting productivity in the bank.

III. Core Values:

For Customers:
Providing with caring services by being innovative in the development of new banking
products and services.
For Shareholders:
Maximizing wealth of the bank.
For Employees:
Respecting worth and dignity of individual employees devoting their earnings for the
progress of the bank.
For The Community:

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 Strengthening the corporate values and taking environment and social risks and reward
into account.

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1(a) MBL Timeline

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1(b) Coverage of MBL

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2.2. Nature of business

Mercantile Bank Limited offer services for all banking needs of the customers, which include
deposits, making loans and advances, discounting bills, conducting money transfer and foreign
exchange transactions and performing other related services such as safe keeping, collections,
issuing guarantees, acceptances and letters of credit.

2.3. Features of MBL

There are so many reasons behind the better performance of Mercantile Bank Limited
than any other newly established banks:

Mercantile Bank Limited has established a core Research & Planning Division
comprising skilled person from the very inception of the bank.

Highly qualified and efficient professionals manage the bank.

The inner environments of the all branches of Mercantile Bank Limited are well
decorated.

Banking operations of the all branches of Mercantile Bank Limited have been
computerized to provide the promptly & frequently customers service.
The bank has established correspondent relationship with 102 of foreign banks.

The bank has launched some financial products, which is not available in any other
banks, like Ajebon Pension Scheme.

Mercantile Bank Limited provides attractive interest rate than the other financial
institutions.

The bank provides loan to the customers at lower interest with easy & flexible condition
than the other do.

The bank frequent arranges customers meeting to achieve their valuable suggestions.

Letter of Credit (L/C) commissions and other charges are very lower than the other
banks.

Profit earning is not the main aim of the MBL. The bank is responsible to maintain the
social duties.

The bank is committed to provide the cherub amount within 30 seconds of submission
the cherub.

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1(c) Milestones in the development of the organization

Table: General Information of MBL

SOURCE: www.mblbd.com

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2.4.Ownership Structure
The Board of Directors consists of eminent personalities from commerce and industry of the
country. Mr. Md. Abdul Jail, the founder Chairman of the Board of Directors, is a businessman
besides being an eminent personality of the country. The last Government had been pleased to
induct him as a Senior Cabinet Minister with the portfolio of Commerce. The Bank is manned
and managed by highly qualified and efficient professionals. The chief Executive officer of the
Bank is Mr. M. Taheruddin who has rich experience of managing both the nationalized and the
private sector banks as Managing Director. Mr. Lutfar Rahman Sarkar who born in 1935
initiated his banking carrier from Habib Bank Limited as a provisionary officer. Then he
served as Managing Director in Agrani Bank, Sonali Bank, Islami Bank Bangladesh Limited
and Prime Bank Limited. The Chief Adviser of the Bank is the former Governor of the Central
Bank of Bangladesh. He brings with him a wealth of experience of managing both the public
and private sector banks.

2.5. Board Committees of MBL

Board of Directors who also decides the composition of each committee determines the
responsibilities of each committee.

2.6. Executives Committees of MBL

All routine matters beyond delegated powers of management are decided by or routed through
the Executives Committee, subject to rectification by the Board of Directors.

2.7. Composition of the board

Board of Directors, the apex body of the Bank, formulates policy guidelines, provides strategic
planning and supervises business and performance of management while the
Board remains accountable to the company and its shareholders. The Board is assisted by the
Executive Committee and Audit Committee.

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2.8. Branch expansion

The Bank commenced its business on June 02, 1999. The First branch was opened at
Dilkhusha Commercial Area in Dhaka on the inauguration day of the Bank. The Second
Branch was opened at Dhanmondi Residential Area, Dhaka on August 04, 1999. The Third
Branch was opened at Kawran Bazar, Dhaka on September 06, 1999. The Fourth Branch
was opened at Agrabad, Chittagong on November 06, 1999. Now, the total number of
branches stood at 53 at the end of the year 2009.

2.9. Function of MBL

A bank has a lot of function in different ways. A Bank means an institution, which borrows
money from the surplus unit of the society and lends money to the deficit unit for earning profit.
The deposits are mainly accepted by the banker through current and saving account that is
withdrawal by cheques. A bank includes a body of persons weather incorporated or not who
carry on business of banking. Thus a bank is a profit intuition which deals in money and credit.
The functions of Commercial banks are now wide and varied. However, the functions of
Commercial Banks may broadly be classified under the following two categories:

Functions

Primary Functions

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Primary Function

Secondary Functions

Secondary Function

2.9.1. Primary Function:

The Primary functions of Commercial Bank/MBL are as follows Accepts Deposits:
The first primary functions of bank are to accept deposits of money from the public
or sever group. The total deposits held by the banker are broadly classified as Demand Deposit: Demand deposits are withdrawn able on demand and thus no prior
notice is needed. Deposits in Current Account and Saving Account fall in this category.
Time Deposit: Time deposits are repayable on the expiry of a fixed period of time only.
Fixes deposit Accounts, recurring Deposit Accounts and deposit payable at specified
notice fall in this category.

Lends Money:
Banking system essentially involves lending. Depending on the requirements of the borrower,
banks lend money in the forms following:
Loans: In case of loan, the entire amount is paid to the borrower in lump sump, either in
cash or way of transfer to his account. The borrower can withdraw the amount at any
time. Interest is calculated and charged on the debit balance usually with quarterly rests.
A loan once repaid in full or in part cannot be withdrawn further. Thus, no cheque book
is issued against the loan account.
Overdraft: Overdraft is usually a temporary arrangement where the customer is allowed
to withdraw money exceeding the credit balance of the current account up to an agreed
limit. Interest in charged only for the amount drawn.
Cash Credit: A cash credit is an arrangement where the customer is allowed to
withdraw money up to the sanctioned limit.

Unlike overdraft this is a permanent

arrangement and usually used to meet the working capital needs of business housed,
industries etc. in cash credit account withdrawals and deposits may be effected
frequently. Interest is charged on the daily balanced. Cash credit arrangement is usually
made against pledge or goods but this could also be extended against personal security.

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Bill Discounted and Purchase: Another mode of advancing money is discounting of the
issuance bill of exchange. The banks buy the bill before its maturity at a price less than the face
value. The amount, which the bank deducts from the face value of the instrument, is actually the
interest calculated up to the date of maturity of the bills.
Creates Credit: The creation of credit is one of the important functions of Commercial
Bank. The bank accepts deposits from the public and lends money to its customers.
When a bank extends loan, it does not pay the amount in the bank account of the
borrower and allow withdrawing the required amount by cheques. In this way the bank
creates credit or deposit which is regarded as money and can be used for the purchase
goods and services and also for the payment of debt just like currency notes.
Creates medium of Exchange: Commercial bank usually issues cheque which
circulates like money in the society and creates the medium of exchange
2.9.2. Secondary Function:
Modern commercial bank like MBL, besides performing the primary functions, cover a wide
range of financial and non-financial services to meet the growing needs of the time. Some of the
services are available only to the customer while others are available to the public in general.
The subsidiary services provided by a modern banker may be classified into the following two
groups:
Agency Services:
In many cases the Commercial Banks acts the agent of the customers. As agents the
banks provide the following services:
Collection of cheque, draft, bill of exchange, promissory note, dividends,
salaries, pension, rent etc. on behalf of the customer.
Acting as correspondent and representative of its customers, other banks, and
financial institutions.
Conducting stock exchange transaction i.e. purchase and sale of share and
securities for the customers.
Functioning as trustee, executor or administrator of estate of a customer.

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 General Utility Services: Commercial banks provide a variety of general utility

services to the customers. They are given below:
Issue letter of credit (L/C)
Accepts valuables for safe custody
Conducts in foreign exchange business
Lease financing
Provides Internet banking services
Provides specialized advisory services
Issues debit and credit cards
Underwrites of share and securities
Merchant Banking
Serving as a referee as to the financial standing business reputation and
respectability of their customers

Foreign Exchange business:

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A commercial Bank/MBL is involved in financing foreign trade apart from financing internal
credit requirement in the economy. This involves handling of import business through opening
L/C and handling of export business. As banking has become very keenly competitive, banks
find it convenient to involve in foreign exchange business as a lucrative source of earning
income and profit.
Apart from financing foreign trade, Commercial Banks also provide guarantees of various types
to their clients. While these facilities clients to undertake jobs assigned to them by various
corporations and organization, this enables the bank to earn commission.
A commercial Bank also provides the facilities of remittance to its clients for transfer of funds
to various traded centers within the country and also outside the country in keeping with the
foreign restrictions of the Central Bank.

2.10. Future outlook of MBL

World economic crisis and stiff domestic competition in the banking industry would make the
year 2009 very challenging for MBL. MBL believes that continuation of their superior services,
adoption of new products and technologies, harmonious banker-customer relationship,
embellishment of human resources with various trainings, prudent business policies, better risk
management and corporate governance system will help MBL to handle this challenge more
efficiently. Sound asset quality of the bank will also maximize value addition to the
shareholders, employees, customers as well as society in the days to come.
with a view to reaching MBL services to the doorsteps of all types of people, MBL intend to
establish some new branches and SME service centre in 2009 across the country.MBL aims to
reach its desired goal by maintaining all the rules and regulations of all regulatory authorities,
taking care of the welfare of the customers and society and its employees providing quality
services to its customers.

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2.11. MBL Management Organ gram

Chairman

Board of Director
Managing Director
Deputy Managing Director
Executive Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
Assistant Vice President
First Assistant Vice President
Staff Officer
Senior Executive Officer
Executive Officer
Probationary Officer
Assistant Officer

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2.12. Departments of Dhanmondi Branch

o General Banking & Deposit Management
o Credit Department
o Foreign Exchange Department

2.13. Divisions of MBL

o General Banking Division
o Credit Division
o Foreign Exchange Division

2.14. General Banking & Deposit Management

o Account opening and KYC procedures.
o Issuance of DD/TT/PO/FDR.
o Interbank Transaction, OBC/IBC.
o Account section.
o Clearing Section.
o IT Section.

2.15. Credit Department

o Credit Proposals Processing Procedures.
o Documentation and Loan Disbursement Procedures.
o Overview on all returns.

2.16. Foreign Exchange Department

I .Cash L/C

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o Opening of L/C.
o Lodgment of Import Bill.
o Payment against Import Bill.
o B/E Matching.
o IMP Reporting.
II. BTB L/C
o Export L/C Checking.
o Opening of BTB L/C (Local/ Foreign/ EDF/ EPZ).
o Lodgment and confirmation of maturity date.
o Allowing of PC.
o Payment against realization of Export Proceeds/ Forced Loan.
o B/E Matching.
o Reporting.
III. Export
o Scrutinizing/ Negotiation/ Send on Collection.
o Follow-up.
o Realization.
o Reporting.
IV. Foreign Remittance
Inward

o FDD.
o FTT.
o Others.
Outward

o Endorsement of Traveling.

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o Education/ Treatment/ Others.

o Cash Rebate.
o FC issuing.
o FDD/ FTT etc.

2.17. Services Offered by MBL

The Bank does believe that it has differentiated itself from other banks through its products and
services. It is banking for the people to fulfill their needs conceptualizing product and services
to meet their aspiration and expectations. The bank is proud to have exemplified the true
concept as Banglar Bank .The Bank launched several financial products and services since its
inception. Among them are:
A.

DEPOSIT Schemes
Family Maintenance Deposit
Monthly Savings Scheme
Pension and Family Support Deposit
Monthly Benefit Scheme
Quarterly Benefit Deposit Scheme
1.5 Times Benefit Deposit Scheme
Double Benefit Deposit Scheme
Special Savings Scheme.

Deposits:
The Bank mobilized total deposits of BDT 49,538.36 million as of December 31, 2008 as
compared to BDT 39,348.00 million in 2007. Competitive interest rates, attractive deposit
products, deposit mobilization efforts of the Bank and confidence reposed by the customers in
the Bank contributed to the notable growth in deposits. The Bank introduced a number of
attractive deposit schemes to cater to the requirement of small and medium savers. This

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improved not only the quantum of deposits; it also brought about qualitative changes in the
deposits structure.

Table: Trend of Deposits in MBL

B.

CREDIT Schemes
Customers credit Scheme
Small Loan Scheme
Lease Finance
Doctors credit Scheme
Rural Development scheme
SME Financing scheme
Personal Loan Scheme
Car Loan Scheme
House Loan
Finance Business Loan

Advances:
The Bank has formulated its policy to give priority to small and medium enterprises while
financing large-scale enterprises through consortium of banks. Total loans and advances of the

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Bank stood at BDT 41,993.95 million as of December 31, 2008 as compared to BDT 31,877.86
million in 2007.

Table: Trend of Advances in MBL

Loans and Advances:

The Bank has formulated its policy to give priority to small and medium businessmen while
financing large-scale enterprises through consortium of banks. Total loans and advances of the
Bank stood at BDT 31,877.86 million as of December 31, 2008 as compared to BDT 26,842.14
million in 2007. Trade and commerce, garments industry, large and medium scale industries and
construction are major sectors in which the Bank extended credit.

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Table: Trend of Loans & Advances in MBL

Card Business:
MBL cardholder can enjoy the following benefits and much more:
No Cash Withdrawal Fee: For withdrawals of cash from MBL ATM by MBL
cardholders no cash advance fee is necessary and from any other Q-cash ATM the fee is Tk.10
only. MBL is the only bank offering such unique facility. Moreover, our VISA Cardholders can
also withdraw cash from any Visa logo ATM locally and internationally.

Acceptability: International/Dual card is accepted all over the world at millions of outlets
and ATMs. A Dual card is also accepted in most of the big cities like Dhaka, Citation, Khulna,
Rajshahi, and Sylhet at more than 10,000 outlets including 4500 POS. It covers various kinds of
merchants like hospital, hotel, restaurant, department store and the card has accessibility to any
outlet having VISA logo.
Credit Facility: Mercantile Bank Ltd. Visa Credit card offers maximum 45 days credit
facilities free of interest and minimum payment is 5% of outstanding billing payment for easy
repayment and convenience of the customers.

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Supplementary Card: A Principal cardholder (local) may apply for more than one
supplementary card where one supplementary card is free. Expenses made by supplementary
card will be charged to the principle card.
Advance against Credit card: MBL cardholder can take advance as term loan up to
50% of the card limit to be repaid on the monthly installment basis. Any POS transaction over
TK. 20000 but not exceeding 50% of the credit limit is convertible to Personal loan/CCS and to
be repaid on monthly installment basis. Repayment period of such loan may be from 6 months
to 36 months.
Overdraft Facilities: Overdraft facilities up to 80% of the credit card limit may also be
allowed for payment of the installment of scheme deposit with our Bank.
Payment of Utility Bill: Payment of utility bills like telephone bills, gas bills, electric
bills, water bills, may be settled by card.
Dual Card (two in one): Single Card with double benefits. No hassle to carry two cards
(local and international). A single credit card can be used both locally and internationally to
withdraw cash from ATM for POS transaction. This is the special feature of MBL Visa card.
Debit Card: Visa debit card is mainly tagged with deposit account (CD/SB/STD) that is
automatically debited from the A/C having available balance. Debit card
can also be used for purchasing goods, services, payment of utility bills etc as well as
withdrawal of cash from ATM.
Pre-Paid Card: Those who have no account with MBL may avail Pre-Paid card facilities.
The Pre-Paid cardholders pay first buy later. Pre-Paid card offers the convenience and security
of electronic payment in situations where one might otherwise use cash, such as birthday gift or
a monthly allowance for a young adult. Examples include gift cards and salary payment etc.

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C.

FOREIGN EXCHANGE Services

Export Finance
Import Finance
Inward Remittance
Issue L/C
Shipping Guarantee

Import Trade:
Mercantile Bank Limited opted quality financing while facilitating import trade in 2008. This
year the Bank executed a total of 20,321 letters of credits amounting to BDT 56,528.80 million.
The principal items were capital machineries, garments & accessories, rice, wheat, sugar,
CDSO, vegetable oil, cement clinkers, hot roll steel, raw cotton, ships-breaking etc.

Table: Trend of Import Trade in MBL

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Export Trade:
The Bank is very much supportive in export financing since its inception. As an outcome of its
positive attitude in export performance it is holding the top position among leading banks of
new generation. A total of 17,581 export bills were handled worth BDT 43,108.50 million in
2008. The main export items of the bank were readymade garments, jute & jute goods, leather,
handicrafts, tea frozen food, fish products etc.
Cash advance fee:
a) MBL card to MBL ATM: No fee.
b) MBL card to other Q-Cash ATM: Tk.10 per transaction.
c) MBL card to other ATM: 2% of transaction amount or Tk.125 whichever is higher.
d) For international card: USD 3 or 2% of transaction amount whichever is higher.

Foreign Exchange Business:

From the very beginning a Commercial Bank like MBL is involved in financing foreign trade
apart from financing internal credit requirements in the economy. This involves handling of
import business through opening Letter of Credit and Handling of export business. As banking
has become very keenly competitive, banks find it convenient to involve in foreign exchange
business as lucrative sources of earning income and profit. Apart from financing foreign trade,
Commercial Banks also provide guarantees of various types to their clients. While these
facilities clients to undertake jobs assigned to them by various Corporations and Organizations,
this enables the Bank to earn commission, which is becoming gradually major source of earning
of Commercial Bank.

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Online Banking:
Online Banking has so far been activated with 41 Branches of the Bank from January 01, 2006.
Online service is now available for all customers Both Cash deposit and withdrawals,
Cherub Deposits and Transfer in CD, SB, STD, Loan accounts (Cherub B earing within limit)
and Monthly Savings Scheme (MSS).

Table: Trend of Export Trade in MBL

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An Overview of Dhanmondi branch

Dhanmondi Branch
Sima Blossom (1st floor)
House#3(new)
Road#16(new), Dhanmondi R/A, Dhaka-1209
Tel: +880-2-9130500, 01713452824
Fax: +880-2-8126768
Telex: 642509 MBLID BJ
E-mail: mbl@bol-online.com
Website: www.mblbd.com

The Dhanmondi Branch of Mercantile Bank Limited is located in the Motijheel commercial
area. The total manpower of this branch is 118.The total number of the senior vice president is
10.As it is the Dhanmondi Branch of the bank, the customer appearance in the bank is very
high. In the Mercantile Bank Limited, Dhanmondi Branch, the people are mostly courteous,
friendly in nature and eager to help despite the tremendous workload. Manpower is sufficient in
the branch but there is no information booth for customer information. So as a new private
bank, Mercantile Bank Limited is running steadily.

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Chapter 3

Introduction to Foreign Exchange

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3. Foreign Exchange- its meaning and definition

Foreign exchange refers to the process or mechanism by which the currency of one country is
converted into the currency of another country. Foreign exchange is the means and methods by
which rights to wealth in a country's currency are converted into rights to wealth in another
country's currency. In banks when we talk of foreign exchange, we refer to the general
mechanism by which a bank converts currency of one country into that of another. Foreign
Trade gives rise to foreign exchange. Modern banks facilitate trade and commerce by rendering
valuable services to the business community. Apart from providing appropriate mechanism for
making payments arising out of trade transactions, the banks gear the machinery of commerce,
especially in case of international commerce, by acting as a useful link between the buyer and
the seller, who are often too far away from and too unfamiliar with each other. According to
Foreign Exchange Regulation Act (FERA) 1947, "Anything that conveys the right to wealth in
another country is foreign exchange. Foreign exchange means and includes all deposits, credits
and balances payable in foreign currency as well as foreign currency instruments such as drafts,
TCs. Bill of Exchange, promissory Notes and Letters of Credit payable in any foreign currency.
". This definition implies that all business activities relating to Import, Export, Outward &
Inward Remittances, buying & selling of foreign commissions, etc. come under the purview of
foreign exchange business. Foreign exchange department of banks plays significant roles
through providing different services for the customers.

3.1. Foreign Exchange and Foreign Exchange Market:

The most important prerequisite of this market is that the buyers and sellers are systematically
in contact with each other for the purpose of executing foreign exchange transactions. For
establishing the contact, would be buyer need not personally meet the probable sellers. It is of
course true that in the early phase of the evolution of foreign exchange business there emerged
meeting places known as bourse to conduct dealings in foreign exchange.
To buy foreign goods or services, or to invest in other countries, companies and individuals may
need to first buy the currency of the country with which they are doing business. Generally,

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exporters prefer to be paid in their countrys currency or in U.S. dollars, which are accepted all
to the world.
The foreign exchange market, or the "FX" market, is where the buying and selling of different
currencies takes place. The price of one currency in terms of another is called an exchange rate.
The market itself is actually a worldwide network of traders, connected by telephone lines and
computer screensthere is no central headquarters. There are three main centers of trading,
which handle the majority of all FX transactionsUnited Kingdom, United States, and Japan.

3.2. Foreign Exchange Market and Bangladesh

Foreign Exchange Market allows currencies to be exchanged to facilitate international trade
and financial transactions. Evolution of the market in Bangladesh is closely linked with the
exchange rate regime of the country. It had virtually no foreign exchange market up to 1993.
BANGLADESH BANK, as agent of the government, was the sole purveyor of foreign currency
among users. It tried to equilibrate the demand for and supply of foreign exchange at an
officially determined exchange rate, which, however, ceased to exist with introduction of
current account
Convertibility. Immediately after liberation, the Bangladesh currency taka was pegged with
pound sterling but was brought at par with the Indian rupee. Within a short time, the value of
taka experienced a rapid decline against foreign currencies and in May 1975, it was
substantially devalued. In 1976, Bangladesh adopted a regime of managed float, which
continued up to August 1979, when a currency-weighted basket method of exchange rate was
introduced. The exchange rate management policy was again replaced in 1983 by the tradeweighted basket method and US the dollar was chosen as intervention currency. By this time a
secondary exchange market (SEM) was allowed to grow parallel to the official exchange rate.
Up to 1990, multiple exchange rates were allowed under different names of export benefit
schemes such as, Export Bonus Scheme, XPL, XPB, EFAS, IECS, and Home Remittances
Scheme. This led to a wide divergence between the official rate and the SEM rate. The situation
also gradually gave rise to a number of conflicting regulations, poor risk management, and
various types of implicit or explicit government guarantees to the users of foreign exchange.

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This resulted in a number of macro-economic imbalances prompting the government to adjust

the official rate in phases.

3.3. Functions of Foreign exchange department

Following are the functions that Foreign exchange department performs to facilitate the
transaction of foreign exchange:
Facilitating import and export trades.
Providing funded and non-funded credit facility.
Providing non-commercial remittance.
Maintaining foreign currency accounts.
Selling foreign currency bond.
Preparing and submitting statements relating to foreign currency.

3.4. Foreign Exchange Market Participants:

There are four types of market participants:
banks
brokers
customers
central banks
Banks:
Banks and other financial institutions are the biggest participants. They earn profits by buying
and selling currencies from and to each other. Roughly two-thirds of all FX transactions involve
banks dealing directly with each other.
Brokers:

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Brokers act as intermediaries between banks. Dealers call them to find out where they can get
the best price for currencies. Such arrangements are beneficial since they afford anonymity to
the buyer/seller. Brokers earn profit by charging a commission on the transactions they arrange.

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Customers:
Customers mainly large companies, require foreign currency in the course of doing business or
making investments. Some even have their own trading desks if their requirements are large.
Other types of customers are individuals who buy foreign exchange to travel abroad or make
purchases in foreign countries.
Central banks:
Central banks which act on behalf of their governments, sometimes participate in the FX
market to influence the value of their currencies.
In a way, foreign market looks like a clearinghouse to offset the purchases and sales of foreign
exchanges. The banks are natural intermediaries for offsetting the transactions, which are
carried out on five different planes:
o Between banks and customers
o Between banks in the same market
o Between banks in different centers
o Between banks and central banks
o Between central banks outside the market

3.5. Three-Tiered Market:

Foreign exchange market in Bangladesh is undeveloped and devoid of sophistication of the type
witnessed in the advanced foreign exchange markets in the western world or Far East. The
market of Bangladesh is essentially a three-tiered one:

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Between Bangladesh Bank and authorized dealers in foreign exchange (banks)

Between banks and their correspondents and branches abroad

Between banks and their customers

3.6. Foreign Exchange Transactions:

Conversion of currencies or exchanges is known as foreign exchange transactions. The
conversion may arise from a transaction between a bank and another bank at home or abroad.
The transactions involve at least two currencies. For a bank in Bangladesh, the process of
conversion frequently involves conversion of Bangladesh Taka into foreign currency and vice
versa.
Types of FX Transactions: There are different types of FX transactions:

Spot transactions:
Spot market - deals with currency for immediate delivery (within one or two business days).
Two parties agree on an exchange rate and trade currencies at that rate. This expresses only a
potential interest in a deal, without the caller saying whether he wants to buy or sell. Although
spot transactions are popular, they leave the currency buyer exposed to some potentially
dangerous financial risks.
Forward transaction:
One way to deal with the FX risk is to engage in a forward transaction. In this transaction,
money does not actually change hands until some agreed upon future date. A buyer and seller
agree on an exchange rate for any date in the future and the transaction occurs on that date,
regardless of what the market rates are then.
Futures:
Foreign currency futures are forward transactions with standard contract sizes and maturity
dates for example, 500,000 British pounds for next November at an agreed rate.
Swap:
The most common type of forward transaction is the currency swap. In a swap, two parties
exchange currencies for a certain length of time and agree to reverse the transaction at a later
date.

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Options:
To address the lack of flexibility in forward transactions, the foreign currency option was
developed. An option is similar to a forward transaction. It gives its owner the right to buy or
sell a specified amount of foreign currency at a specified price at any time up to a specified
expiration date. For a price, a market participant can buy the right, but not the obligation, to buy
or sell a currency at a fixed price on or before an agreed upon future date.

3.7. Foreign exchange position:

The exchange position is the net result of a banks sales and purchases. An authorized dealer in
foreign exchange engages itself in buying and selling currencies of different countries. At one
stage it may find itself having sold a substantial amount of a foreign currency while at the same
time accumulating sizeable surplus amount of another currency. To keep an eye on the level of
purchase and sale of each currency the bank maintains a book, known as position book.
Exchange position or open position is the difference between the cumulative sales and
purchases of each currency at any stage or context of Bangladesh. There are generally three
types of exchange position as follows:
Oversold (OS) position: When the cumulative sales exceed the purchases including the
oversight balance, the bank is said to be short or oversold in the respective currencies.

Overbought (OB) position: If the amount of a currency purchases at any stage is more than
the aggregate amount of sales both short and forward the bank reaches what is known as
long or overbought position.
Square position: In the event the amount purchased is equal to the amount sold, the bank
reaches a square position. Square position is what a bank wishes to maintain in order to
eliminate the risk of adverse movement of the exchange rate on its oversold or overbought
position.

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3.8. Components of exchange position:

Exchange position reflects all kinds of sales and purchases in each currency for which a rate of
exchange has been agreed upon, explicitly or implicitly, with the customers, other dealers in the
market and overseas correspondent and Bangladesh Bank. The purchase side of exchange
position consists of the following:

Inward remittance: All inward foreign exchange remittances from the overseas
branches and correspondents by means of cables or Mali Transfers payable to local
payees and beneficiaries fall in this category.
Outward bills: All outward bills purchased, discounted or negotiated shall be entered
into the purchase side of the exchange position regardless whether the bill is payable at
sight, on demand or after tenor. Cheques and drafts against which payments have not
already been made received in banks Nostro Account also fall in this category.
Ready and forward purchase: Ready and forward purchase of a foreign currency in
the form of bill or otherwise from customers would come under this head.
Other purchases: All other foreign exchange transaction, both ready and forward
including those carried out by the bank to maintain its position and for which a firm rate
has been quoted or agreed upon, would fall in this category.
The sales side of exchange position usually consists of the following:
i.

Outward remittances by means of TT, MT or DD.

ii.

Foreign bills including those relating to imports, which have been paid.

iii.

All sales including forward sales against which firm rates have been
quoted.

iv.

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Ready and forward sales to maintain the position.

3.9. Types of Foreign Trades

There are mainly three types of transactions which lead to foreign exchange. These are:
a) Import
b) Export
c) Foreign Remittance

3.10. Regulations for Foreign Exchange

Local regulations: Our foreign exchange transactions are being controlled by the
following local regulations:
Foreign Exchange Regulation Act: Foreign Exchange Regulation (FERA) Act. 1947 enacted on
11th March 1947 in the then British India, provides the legal basis for regulation the foreign
exchange. This act was adapted in Pakistan and lastly in Bangladesh.
Guidelines for Foreign Exchange Transaction: This publication issued by Bangladesh Bank in
the year 1996 in two volumes. This is a compilation of the instructions to be followed by the
Authorized Dealers in transactions relating to foreign exchange.

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F.E. Circular: Bangladesh Bank issues F.E. circular from time to time to control the export
import business and remittance that is to control the foreign exchange.
Export-Import Policy: Ministry of commerce issues Export Policy and Import Policy giving
basic formalities for Import and Export Business.
Public Notice: Some times CCI &E issues public notice for any kind of change in Foreign
Exchange Transaction.
Instructions from different ministry: Different ministries of the Govt. sometimes instruct the
authorized dealer directly or through Bangladesh Bank to follow something required for the
government.
International Regulations: There are also some international organizations influencing
our Foreign Exchange transactions. Few of them are discussed below:
ICC: International Chamber of Commerce is a world wide Non-governmental Organization of
thousands of companies. It was founded in 1919. ICC National committees throughout the
world present ICC views to their Governments and alert Paris Headquarters about national
business concerns. ICC has issued some publications like UCPDC, URC and URR etc., which
are being followed by all the member countries. There is also an international Court of
Arbitration to solve the international business disputes.
WTO: World Trade Organization is another International Trade Organization established on 1st
January 1995. GATT (General Agreement on Tariff & Trade) was established on 1st January
1948. After completion of its 8th round, the organization has been abolished and replaced by
WTO. This organization has vital role in international trade through its 124 member countries.

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3.11. Letter of credit

A Letter of credit is a letter issued by a bank (known as the opening or the issuing bank) at the
instance of its customer (known as the opener) addressed to a person (known as beneficiary)
undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank)
provided certain conditions mentioned in the letter gave been complied with.
3.11.1. Classification of Letter of Credit
In different considerations there are many kinds of L/Cs. Some of them are discussed below:
Irrevocable L/C
Irrevocable L/C cannot be amended or cancelled without the consent of the beneficiary or any
other interested parties. Banks commonly open this type of L/C.
Revocable L/C
This kind of L/C can be amended or cancelled by the Issuing Bank, without the consent of the
beneficiary or any other interested parties. If it is not indicated in the L/C, whether it is
Revocable or Irrevocable, then the L/C to be treated as Irrevocable.

Add-confirmed L/C:
When a third bank provide guarantee to the beneficiary to make payment, if Issuing Bank fail
to make payment, the L/C is called Add-Confirmed L/C. In case of a confirmed L/C a third
bank adds their confirmation to the beneficiary, to make payment, in addition to that of Issuing
Bank. Confirmed L/C gives the beneficiary a double assurance of payment.
Clean Clause:
It is a normal claused L/C without third bank's confirmation.

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Revolving L/C:
It is an L/C where the original amount restores after it has been utilized. How many times and
how long, the amount will restore must be specified in the L/C. For example, an L/C opened for
USD 1000 and shipment effected for USD 500, now the L/C restored for full value i.e. there is
scope to effect further shipment of USD 1000 revolving L/C may be opened to avoid difficulties
of opening new L/C. This L/C is not allowed in our present import policy.
Transferable L/C:
If the word "Transferable" incorporated in an L/C, then the L/C is transferable. The 1st
beneficiary can transfer transferable L/C to the 2nd beneficiary. But 2nd beneficiary cannot
transfer it further to another beneficiary. Transfer may be done to more than one beneficiary,
partially, if not prohibited in the L/C.
Restricted L/C:
If advising and/or negotiation of an L/C are restricted to a particular bank, the L/C is called a
restricted L/C.
Green Clause L/C:
It is an L/C, where the Issuing Bank authorizes the Negotiating Bank to grant storage facilities
to the beneficiary. The special clause was originally written in Green-ink, so the L/C is called
Green Clause. In both the case of Red Clause and Green Clause L/C, if the exporter fails to ship
the goods the financing bank has the right to demand repayment from the Issuing Bank and that
bank would have a similar right of recourse against the applicant.

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Clean Letter of Credit:

This is a commercial letter of Credit, wherein the Issuing Bank does not ask any documents as
evidence of execution of the deal under the L/C. Under the said L/C only bill of exchange may
be negotiated or may be paid without any supporting documents. Clean Letter of //Credit is not
permissible in our import policy.
Documentary Letter of Credit:
All the commercial letter of credits, where export related documents such as invoice, B/L etc.
are required to present with the bill of exchange, is called Documentary Credit. Under this L/C,
bill of exchange will not be honored without other required documents.
Straight Documentary Credit:
Under the irrevocable straight documentary credit, the obligation of the Issuing Bank is
extended only to the beneficiary, in honoring draft(s)/ documents and usually expires at the
counter of the Issuing bank. This L/C. does not authorize anybody to negotiate, purchase the
documents. This L/C. is available for payment only at the Issuing Bank's counter, not available
for negotiation.
Irrevocable Negotiation Documentary Credit:
This L/C. is available for negotiation by a nominated bank/any bank and expiring for
presentation of document at the offices of negotiating bank. The Issuing Bank is bound to
reimburse the Negotiating Bank, if it negotiates the documents complying with the credit terms.
With Recourse and Without Recourse to Drawers:
These terms are related with bill of exchange. If the L/C allow a Bill of Exchange with recourse
to the drawer, that means the Negotiating Bank has the right to claim the amount back, from the
drawer, if the B/E is dishonored by, the drawee. And in case of without recourse, the
Negotiating Bank has no right to claim the amount back.

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3.11.2. L/C can be classified according to source of fund

A) Back-to-Back L/C:
Back to Back import L/C is backed by another export L/C. where import of the goods to be
made to execute the export L/C and payment of Back to Back bills to be made normally from
related export process, the import L/C is called Back to Back L/C. A Back-to-Back L/C is
opened against an irrevocable L/C. The L/C is lien marked with the back-to-back L/C issuing
branch. Back to Back L/C may be opened up to 75% of export L/C, (FOB value) and up to 80%
where export price is more than USD 60/- per dozen in case of garments industries.
B) Cash L/C:
Where payment of import bills under L/C is being made from (i) Foreign Currency reserve in
Bangladesh Bank or (ii) F.C. account with authorized Dealer, the L/C is called Cash L/C.
C) Barter L/C:
Where final settlements are being made through commodity exchange between the nations, the
L/C is called Barter L/C.

3.12. Documents used in LC operation

The most commonly used documents in foreign exchange are:

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Bill of Exchange

Bill of Lading

Commercial of invoice

Certificate of origin

Inspection certificate

Packing list

Insurance document

Pro Forma Invoice (PI)/Indent

Bill of exchange
Bill of exchange is one of the important negotiable instruments in the mercantile world and used
as a vital document facilitating settlement of payments between buyer/importer and
seller/exporter at home and abroad. A bill who accepted by the drawer, gives evidence of the
claim as made by the drawer as well as testimony to the acceptance the debt by drawer. The
payment is done either in accordance with the terms of sale contract or under a L/C opened by
the buyer/importer in favor of the seller/exporter.
Bill of Lading
A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched
by sea. It evidence of a contract of carriage, is a receipt for the goods, and is a document of title
to the goods. It also constitutes a document that is, or may be, needed to support an insurance
claim. The details on the bill of lading include:
A description of the goods in general terms not inconsistent with that in the credit.
Identifying marks and numbers.
The name of the carrying vessel.
Evidence that the goods have been loaded on board.
The ports of shipment and discharge.
The names of shipper, consignee and name ad address of notifying party.
Whether freight has been paid or is payable at destination.
The number of original bills of lading issued.
The date of issuance A bill of lading specifically stating that goods are loaded for
ultimate destination specifically mentioned in the credit.

Commercial of invoice
A Commercial invoice is the accounting document by which the seller charges the goods to the
buyer. A commercial invoice normally includes the following information:

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 Date.
Name and address of buyer and seller.
Order or contract number, quantity and description of the goods, unit price and the total
Price.
Weight of the goods, number of packages, and shipping marks and numbers.
Terms of delivery and payment.
Shipment details.
Certificate of origin
A certificate of origin is a signed statement providing evidence of the origin of the goods.
Inspection certificate
This is usually issued by an independent inspection company located in the exporting country
certifying describing the quality, specification or other aspects of the goods, as called for in the
contract and/or the L/C. The buyer who also indicates the type of inspection he wishes the
company to undertake usually nominates the inspection company.
Packing list
This is unique document and not combined with other document. This is a listing of the contents
of each package cartoon etc. and other relevant information.
Insurance document
Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the agreed
manner and extend against fortuitous losses. Insurance document generally contains the
following information:

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The name of the insurer or his agent

The name of the ship/carrier

The name of assured

The subject matter of insurance

The peril(s) insured against

The date and subscription

The valuation

Pro Forma Invoice (PI)/Indent

Pro Forma Invoice / Indent are the sale contract between seller and buyer in import-export
business. There is slight difference between indent and Pro forma invoice. The sales contract,
which is direct correspondence between importer and exporter, is called Pro forma invoice.
There is no intermediary between them. On the other hand, the may be an agent of exporter in
importers country. In this regard, if the sale contract is occurred between the agent of exporter
and importer then it is called indent. Pro Forma Invoice is a form of quotation to a potential
buyer, inviting him to buy the goods on stated terms. This should be clearly stated that it is pro
forma and if it is accepted the details are normally transferred to a commercial invoice.

3.13. Different accounts related to foreign exchange

transaction
In L/C operation different accounts are maintained which are needed for foreign exchange
transaction. These are:
Nostro account
Nostro account means our account with you. A Nostro account is a foreign currency account
of a bank maintained its foreign correspondents abroad. For example, US Dollar Account of
MBL maintained with Citibank, N.A, New York, USA is a Nostro account of MBL.
Vostro account
Vostro account means your account with us. The account maintained with foreign
correspondent in a bank of a particular country is known as Vostro account. What is the nostro
account for a bank in a particular country is a vostro account for the bank abroad maintaining
the account thus the account of MBL with Citi Bank N.A, New York is regarded as its nostro
account held with Citi Bank, while Citi Bank N.A, New York regards it as a its vostro account
held for MBL.

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 Loro Account
Loro account means their account with you. Account maintained by third party is known as
loro account; suppose MBL is maintaining an account with Citi Bank N.A, New York and at the
same time Janata Bank is also maintaining a nostro account with Citi Bank N.A, New York.
From the point of view of MBL Janata Banks account maintained with Citi Bank N.A New
York is the loro account.
Bangladesh
Mercantile
Bank

Nostro Account
Vostro Account

USA
Citi Bank N.A

Loro Account

Loro Account

Janata Bank

Figure: Type of Foreign Correspondent Accounts

3.14. Payment mode of foreign trade

An export contract can be deemed to be successfully completed when the exporter gets paid for
the goods shipped by him, how he has to negotiations between which is to be decided during
earlier negotiations between the exporter and the importer. There are five methods of payment
which involve varying degrees of risk for the exporters are as follows:

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Payment in advance

Open account

Documentary collections

Shipment on consignment basis

Documentary credit under letter of credit

Payment in Advance
In this method of payment buyer pays seller before goods are shipped. Its generally used in
case of new relationships and for smaller Transactions where buyer is unable to obtain an L/C.
there is no advantage for buyer - Pays prior to receipt of goods and documents. Its adventurous
for seller as eliminates risk of non-payment
Open Account
In open account method Buyer pays seller subsequent to receipt of an invoice, normally after
goods are shipped. Its used when there is high trusts relationships between buyer and seller and
in inter-company transactions. It allows buyer to delay payment until goods have been
examined, and/or goods have been sold. It doesnt give any Advantage to seller - Risks nonpayment.
Documentary Collections
Documents (representing title to the goods) are exchanged through a bank for payment or
acceptance (promise to pay). It is used for ongoing business relationships and transactions not
requiring the protection and expense of L/C's. Its adventurous for buyer as delays payment until
receipt of documents and buyer can be financed directly by seller through use of time drafts. Its
benefit able for seller as they can retains title to goods until payment or acceptance.
Shipment on Consignment Basis
In this method the exporter makes shipment to the overseas consignee/ agent, but the title to the
goods, as also the risk attendant thereto, even through the overseas consignee will have the
physical possession of the goods. The payment is only made when the overseas consignee
ultimately sells the goods to other parties; this producer is rather costly and risky to the exporter.
Documentary credit under Letter of Credit:
The most popular from in recent times, as the credit and payment risks of the exporter can be
eliminated under appropriate forms of documentary credit. Documentary credit is any

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agreement, however named or described whereby a bank (the issuing bank) acting at the request
and in accordance with the instructions of the customer (the applicant for the credit):
(I) is to make payment to or to the order of a third party (the beneficiary) or is to pay, accept or
negotiate bills of exchange (drafts) drawn by the beneficiary or
(ii) Authorizes such payment to be made or such drafts to be paid, accepted or negotiated by
another bank against stipulated documents, provided that the terms and conditions of the credit
are compiled with.

PAYMENT

ISSUING ORDER

SELLER

ISSUING
BANK

DOCU MENTS

CONFIRMING
BANK

CONFIRMATION

SALES CONTRACT

BUYER

Flow Chart: Documentary Credit

3.15. Different parties involved Foreign exchange transaction

Normally the following parties are involved to a documentary credit:

Importer

The buyer or the importer is he who initiates the credit. He applies to bank for issue foreign a
documentary credit. The obligations between the importer and the issuing bank are governed by

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the application-cum-agreement submitted by the importer to the bank. He is bound to reimburse

the bank, which effects payment or incurred a deferred payment undertaking or has accepted or
negotiated under the credit as per terms, and to take up the documents.

Opening Bank

The issuing or opening bank is the importer's bank and it issues a letter of credit normally
pursuant to the terms of sales contract as set out in the application for the credit by the importer.
The issuing bank should nominate the bank, which is authorized to pay or to accept drafts or to
negotiate, unless the credit allows negotiation by any bank.

Exporter

The seller or exporter is the beneficiary of the credit. The letter of credit is opened in his favor
and addressed to him-. The beneficiary has the obligation to make export as per the contract and
produce the documents as required by the credit.

The Advising Bank

It is the bank in the exporter's country (normally the exporter's bank), which is usually the
foreign correspondent of importer's bank through which the L/C is advised to the supplier. If the
intermediary bank simply advises/notifies the L/C to the exporter part, it is called "Advising
Bank".

The Confirming Bank

If the advising bank also adds its own undertaking to honor the credit while advising the same
to the beneficiary, he becomes the confirming bank. In addition, becomes liable to pay for
documents in conformity with the L/C's terms and conditions. The liability of the confirming
bank is the primary liability and it is not contingent on the fulfillment of the obligation by the
issuing bank.

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The Accepting Bank

Accepting bank is the bank nominated in the letter of credit to accept usance bills drawn under
the credit. If the bank so nominated accepts the nomination, its responsibility to the beneficiary
is not only to accept the drafts drawn but also to make payment on their due dates.

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The Paying Bank

Paying bank is a bank in the beneficiary's country nominated in the letter of credit to make
payment against documents to be tendered under the credit. Paying Bank must examine all
documents with reasonable care to ascertain that these are drawn in accordance with the terms
and conditions of the credit.

Issuing Bank
(Bangladesh)

Advising
Bank
(India)

Reimbursing
Bank
(Japan)

Negotiating
Bank
(India)

Reimbursing Bank

The issuing bank may indicate in the credit the name of a bank. From whom the
paying/negotiating bank can obtain reimbursement. The documents are sent to the issuing bank.
The negotiating/paying bank simultaneously makes a claim with the reimbursing bank for the
payment effected. Normally the reimbursing bank would be the bank with which the issuing
bank maintains an account.

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The Transferring Bank

If the L/C is transferable, then the 1st beneficiary of the L/C may transfer the L/C to the 2nd
beneficiary, through a bank nominated by the Issuing Bank. This bank is called the Transferring
Bank.

3.16. FOREIGN EXCHANGE MANAGEMENT OF MERCANTILE

BANK LIMITED

3.16.1Foreign Exchange Department of MBL:

International trade is the system by which countries exchange goods and services. Countries
trade with each other to obtain things that are better quality, less expensive or simply different
from what is produced at home.
To buy foreign goods or services, or to invest in other countries, companies and individuals may
need to first buy the currency of the country with which they are doing business. Generally,
exporters prefer to be paid in their countrys currency or in U.S. dollars, which are accepted all
to the world.
The procedures used to exchange currency in international trade are called foreign exchange
system, banks plays vital roles in this procedures world widely. The Bangladeshi banks provide
foreign exchange services under, Foreign Exchange Act, 1947 is for dealing in foreign exchange
business, and Import and Export Control Act, and 1950 is for Documentary Credits. MBL has
also become a member of SWIFT (Society For Worldwide Inter Bank Financial
Telecommunication) in 2000, which provides a fast, secured & accurate communication
network for financial transactions such as letter of credit, fund transfer etc. As an authorized
dealer under regulations of BB, MBL Dhanmondi Branch provides the followings three type
services under their foreign exchange department.
Import Services
Export Services
Remittance Services

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3.16.2 Foreign Currency Accounts offered by MBL:

Following the liberalization of exchange controls Bangladesh Bank has authorized the banks to
maintain different types of foreign currency accounts and convertible Taka accounts. The
following are the regulations laid down by Bangladesh in respect of these accounts.

Who can open the accounts?

Branches of Mercantile Bank Limited may open Foreign Currency Accounts in the names of:
1. Bangladesh nationals residing abroad
2. Foreign nationals residing abroad or Bangladesh and foreign firms operating in
Bangladesh or abroad,
3. Foreign missions and their expatriate employees.

Resident Foreign Currency Deposit (RFCD):

This is a foreign currency denominated account. Those who domicile in Bangladesh but have to
remit money to abroad because of various reasons.

Non Resident Foreign Currency Deposit (NFCD):

This is a foreign currency denominated account. Those who doesnt domicile in Bangladesh but
have to remit money to Bangladesh because of various reasons.

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Chapter 4

Import

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4.1. Import
As a authorized dealer the major import items financed by MBL, Dhanmondi branch are
capital machinery, Hot Roll Steel, electronic equipment, rice, wheat, seeds, cement clinkers,
dyes, chemicals, raw cotton, garments accessories, fabrics, cotton etc. To import, a person
should be competent to be an importer. According to Import and Export (Control) Act, 1950,
the officer of Chief Controller of Import and Export provides the registration (IRC) to the
importer. After obtaining this, the person has to secure a letter of credit authorization (LCA)
from Bangladesh Bank. And then a person becomes a qualified importer. He requests or
instructs the opening bank to open an L/C.

Import Section of MBL:

As a authorized dealer the major import items financed by MBL, Dhanmondi branch are
capital machinery, Hot Roll Steel, electronic equipment, rice, wheat, seeds, palmolein, cement
clinkers, dyes, chemicals, raw cotton, garments accessories, fabrics, cotton etc. To import, a
person should be competent to be an importer. According to Import and Export (Control) Act,
1950, the officer of Chief Controller of Import and Export provides the registration (IRC) to the
importer. After obtaining this, the person has to secure a letter of credit authorization (LCA)
from Bangladesh Bank. And then a person becomes a qualified importer. He requests or
instructs the opening bank to open an L/C.

4.2. Parties to a letter of Credit

The Applicant
The Issuing Bank (located at the importers place)
The Beneficiary or Exporter
The Advising or Corresponding Bank (located at the exporter's place)

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4.3. Purchase Contract between importers and exporter

Now the importer has to contact with the seller outside the country to obtain the
Performa invoice/indent, which describes goods.
Indent is got through indenters a local agent of the sellers.
After the importer accept the preformed invoice, he makes a purchase contract with the
exporter declaring the terms and conditions of the import.
Import procedure differs with different means of payment. In most cases import payment
is made by the documentary letter of credit (L/C) in our country.

4.4. Import procedures

An importer is required to have the following to import through MBL:
o Applicant has to apply for opening L/C by a prescribed form.
o L/C Application Form duly filled in and signed.
o Applicant has to submit the Letter of Indent or Letter of Performa Invoice.
o For engaging in international trade, every trader must be first registered with the Chief
Controller or Import and Export.
o By paying specified registration fees and submitting necessary papers to the CCI&E. the
trader will get IRC (Import Registration Certificate). After obtaining IRC, the person is
eligible to import.

Letter of Indent
Many sellers have their agent in sellers country. If the contract of buying is made between the
buyers and the agent of the sellers then Letter of Indent is required.

Letter of Performa Invoice

If the contract is made directly between the buyers and the sellers then Letter of Performa
Invoice is needed.

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 Applicant has to submit IRC (Import Registration Certificate). It is a certificate being

renewed every year. IRC is of two types COM and IND. COM is given for commerce
purpose and IND is given for industrial purpose.
Applicant has to submit LCAF (Letter of Credit Authorization Form).
Applicant has to submit insurance coverage of products document.
Applicant has to prepare FORM-IMP.
Recently, there has been made a provision to give a certificate named TIN (Tax
Identification Number). Taxation department issues this certificate.
Then after proper scrutiny, bank will open an L/C.
While opening L/C, importer must keep certain percentage of the document value in the
bank as margin (Maintained in L/C application form).

4.5. To open an L/C, the requirements of an importer are

L/C application Form duly filled in and signed.
2. Indent or Performa Invoice.
Import Merceddised Permit Form (IMP).
L/C Authorization Form (L/CAF).
Taxpayer Identification Number (TIN).
Insurance cover note with money receipt.
A bank account number.
Membership of chamber of commerce.

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

Bank provides guarantee to importer and exporter through Letter of Credit. Thus the contract
between importer and exporter is given a legal shape by the banker by its Letter of Credit. The
process of opening L/C regarding to import through MBL, Dhanmondi branch are as following:

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Interview of probable L/C opener

At first in case of import L/C opening opener must give an oral interview to the responsible
officers of MBL. If the officer is satisfied with openers motive of import, type of import goods,
quality of imported goods and marketability of goods than they will give approval to opener to
further steps.

L/C application Form consists

o The name and address of Beneficiarys.
o The name and address of Openers.
o L/C amount. (Figure and in Ward).
o Description of Commodities.
o Performa Invoice or Indent Number.
o H.S. Code.
o Country of origin.
o IRC No.
o LCAF No.
o Last date of Shipment.
o Last date of Negotiation.
o Insurance cover note / policy no.
o Name and address of Insurance Company.
o Mentioned Part shipment allowed or prohibited.
o Mentioned Transshipment allowed or prohibited.
o Shipment formtoand by.

Performa Invoice (PI)

Performa invoice is the sale contract between seller and buyer in import-export business. That is
which is direct correspondence between importer and exporter, is called Performa invoice. PI

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sends by the exporter, and Importer provides their Company Stamp on the PI. After than PI
submit in to Bank. It consists:
o Name and Address of the Importer and Exporter.
o Detail Description of Goods.
o Total Units of Goods and Price.
o H.S Code of Goods.
o Country of Origin. Etc.

Import Merchandised Permit Form (IMP)

This form is prepared for maintaining account of the money, which goes out side the country for
the purpose of payment. This form is required by Bangladesh Bank. It is an application for
permission under 4/5 of the Foreign Exchange Regulation Act, 1947 to purchase foreign
currency for the payment of import.
IMP FORM has four copies:
Original copy for Bangladesh Bank.
Duplicate copy for authorized dealers. It is issued for processing Exchange Control
Copy of bill of entry or certified invoice.
Triplicate copy for authorized dealers record.
Quadruplicate copy for submission to the bank in case of imports where documents are
retired.
Following documents are sent with FORM-IMP:
Letter of Credit Authorization Form,
One copy of invoice,
Indent copy / Performa invoice.
The following information is included in the FORM-IMP:
Name and address of the authorized dealer,

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 Amount of foreign currency in words and figures,

Names and address of the beneficiary,
L/C Authorization Form number and date,
Registration number of L/C Authorization Form with Bangladesh Bank, and
Description of the goods.
L/C Authorization Form (L/CAF)

It has four copies, one is original and three duplicate copy. 1 st copy is for Bangladesh Bank, 2nd
copy is for importer for release the goods from check post. 3rd and 4th copy is for controller of
export and import. It consist:

Name and Address of Importer.

I.R.C. No.

Amount of L/C Credit in Tk.

Description of goods to be import.

H.S. Code Number

After receiving the above document Banker make an office note. Banker mentioned the L/C
amount, Margin of L/C, Limit, Outstanding etc. After than Banker take the signature of Foreign
Exchange In charge, Manager Operation, and the Branch Manager.
After complete this process Bankers open L/C on Behalf of Importer. MBL Dhanmondi sends
the L/C to corresponding bank. Than corresponding bank contract with the exporter. After that
the exporter takes preparation for send goods to importer and also makes the necessary
documents for provide the corresponding bank.

4.7. Collection of LCA form:

Then the importer collects and Letter of Credit Authorization (LCA) from MBL Dhanmondi
Branch.

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Opening a Letter of Credit (L/C)

Bank provides guarantee to importer and exporter through Letter of Credit. Thus the contract
between importer and exporter is given a legal shape by the banker by its Letter of Credit. The
process of opening L/C regarding to import through MBL, Dhanmondi branch are as following:

Interview of probable L/C opener:

At first in case of import L/C opening opener must give an oral interview to the responsible
officers of MBL. If the officers are satisfied with openers motive of import, type of import
goods, quality of imported goods and marketability of goods than they will give approval to
opener to further steps.

Application For L/C limit:

Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer
submits an application to the Department of MBL furnishing the following information, Nature of business.
Required amount of limit.
Payment terms and conditions.
Goods to be imported.
Offered security.
Repayment schedule.
Full particulars of bank account maintained with MBL Dhanmondi Branch.

The L/C Application:

After getting the importer applies to the bank to open a letter of credit on behalf of him with
required papers. Documentary Credit Application Form:

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 Tax Identification Number Certificate.

VAT Registration Certificate.
Membership Certificate of recognized Trade Association as per

IPO.

Performa Invoice: It states description of the goods including quantity, unit price etc.
L/C Form: MBL provides a printed form for opening of L/C (MF-fx 13) to the importer.
This form is known as Credit Application form. A special adhesive stamp is affixed on
the form. While opening, the stamp is cancelled. Usually the importer expresses his
desire to open the L/C quoting the amount of margin in percentage.
L/C authorization form (LCAF) duly signed by the importer.
The insurance cover note: The name of issuing company and the insurance number are to
be mentioned on it.
IMP form duly signed by the importer.
Forwarding for Pre-Shipment Inspection (PSI): Importer sends forwarding letter to
exporter for Pre-Shipment Inspection. But all types of goods do not require PSI.

4.8. Time limit for opening L/C

L/C (s) shall be open within 180 days from the date of issuance of LCAF or from the date of
registration of LCAF with Bangladesh Bank.

4.9. Terms of L/C

Full description of the goods along with quantity and unit price to be incorporated in the L/C
and shall take all precautions to quote the correct H.S. Codes of the goods. Prices to be quoted
on CER or FOB basis according to the P/Invoice or Indent. No import shall be made on CIF
basis without prior approval from the Ministry of Commerce.

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All L/Cs should provide for payment to be made against full sets of on board (shipped) transport
documents drawn and/or endorsed to cover by the credit to a destination in Bangladesh.
All L/Cs must specify submission of signed invoices, certificates of origin & pre-shipment
Inspection Certificate. L/Cs shall also incorporate any other documents, which are mandatory
specified for those commodities in the IPO/Public Notices/Bangladesh Bank Circulars.
It is not permissible to open import L/Cs in favor of beneficiaries or to use shipping carriers of
the countries from which import into Bangladesh are banned by the competent authority.

4.10. Shipment Validity & Expiry

All L/Cs must specify shipment validity as per terms of the P/Invoice or indent or L/C
application. However, shipment validity under any circumstances shall not exceed 9 (nine)
months from the date of issuance of LCAF or registration LCAF with Bangladesh Bank
excepting capital machinery and spare parts shipments of which shall be made within 17
(seventeen) months. All L/Cs must stipulate an expiry date and a place for presentation of
documents for payment/acceptance.

4.11. Submission of Necessary Documents by Exporter to the

Corresponding Bank

As soon as the exporter receives the credit and is satisfied that he can meet its terms and
conditions, he is in position to load the goods and dispatch them. The seller then sends the
documents evidencing the shipment to the advising bank. Exporter will submit those documents
in accordance with the terms and conditions as mentioned in L/C. Generally the documents
observed by me in the foreign exchange department are:
Bill of exchange
Commercial invoice
Bill of lading

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 Certificate of origin
Packing list
Weight list
Shipping advice.
Non-negotiable copy of bill of lading.
Pre-shipment inspection report.
Shipment certificate.

Bill of exchange
According to the section 05, Negotiable Instruments (NI) Act unconditional order signed by the
maker, directing a certain person to pay [on or to the order of a certain person or to the bearer of
the instrument. It may be either at sight or certain day sight. At sight means making payment
whenever documents will reach in the issuing bank.
Commercial Invoice
Commercial Invoice issued by exporter is the accounting document by which the seller charges
the goods to buyer.

Bill of lading
A bill of lading is a document usually stipulated in a credit when exporter dispatches the goods.
It is an evidence of a contract of carriage, is a receipt for the goods and is a document of title to
goods. It also constitutes a document that is or may be, needed to support an insurance claim.

4.12. The Documents send to the Issuing Bank By

Corresponding Bank
After receiving this document, the corresponding bank carefully checks the documents provided
by the exporter against the credit, and if the documents meet all the requirement of the credit,

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the bank will pay, accept, or negotiate in accordance with the terms and conditions of the credit.
Then the bank sends the documents to the L/C opening bank.

4.13. Cancellation of L/Cs

An irrevocable L/C cannot be cancelled without the agreement of the beneficiary and the
confirming bank, if any.
The MBL, Dhanmondi branch at the request of the importer may approach the L/C advising
bank for cancellation of the L/C and such cancellation will only be effective upon consent of the
beneficiary advised to the branch through the L/C advising bank. However, the MBL,
Dhanmondi branch may cancel the L/C without the consent of the beneficiary. Advising bank
and confirming bank, if any, if the L/C expires and the MBL, Dhanmondi branch receives no
shipping documents within 15 days of expiry of the L/C. The branch should send a massage to
the concerned bank advising such cancellation and closure of L/C file due to expiry of the same.
The MBL then cancels the Reimbursement Authorization, which has been provided to the
Reimbursement Bank while opening the L/C. The branch will reverse L/C contra liabilities,
refund margin and recover charges from the L/C applicant as per schedule of charges.

4.14. Accounting Treatment for Opening L/C

For opening L/C, importer will apply to the issuing bank. In that case, importer is called
applicant or opener. After opening an L/C bank will create a contingent liability. In that
case, the accounting posting will be the following:
Customers Liability
Contingent Liability

Dr.
Cr.

Generally L/C is opened against some margin.

While paying the money by the issuing bank, issuing bank will reverse the above entry
and the entry will be:

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Contingent Liability

Dr.

Customers Liability

Cr.

Then the issuing bank will give another entry:

Payment against Document (PAD)

Dr.

MBL General Account

Cr.

Exchange Gain

Cr.

PAD will debit because the bank will pay the money against some documents. MBL General
Account is a miscellaneous account. It will be credited because by this entry MBL creates a
liability. He has to pay the money to the advising bank. And the gain made by the transaction is
shown at Exchange Gain Account.
All these entries are made after receiving some documents from the exporters. The
above procedure is called Lodging. After giving the above entry, MBL will inform the
clients for collecting the documents from the bank. Importers will pay the due to the
bank and collects the documents. In that case, the entry will be :
Party Account
PAD Account

Dr.
Cr.

After opening the L/C, MBL (issuing bank) must receive the documents for any other
proceedings. These documents are :
i.

Bill of Lading,

ii.

Invoice,

iii.

Packing List,

iv.

Country of Origin.

Lodgment of the Documents

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After receiving the documents from the exporters, at first MBL write it in the PAD Registrar.
PAD Register contains date, PAD number, L/C number, and name of the drawer, name of the
drawee, amount, and number of copies of various documents, name of the imported items. This
written procedure is called Lodgment.

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Accounting Application
While doing lodgment, MBL makes the following entries:
PAD Account
MBL General Account
Exchange Gain Account

Dr.
Cr.
Cr.

MBL makes the payment to the reimbursing bank against the documents. Thats why, it debts
the PAD Account.
For payment, MBL deposits the money at the miscellaneous account @ 57.65 (current rate).
And sends an Inter Branch Credit Advice (IBCA) to credit the amount to a nostro account
maintained in a bank of exporters country from which payment will be made. By this
transaction, MBL makes a profit @ 0.15 per dollar.

4.15. Retirement of the Documents

The process of collecting documents from bank by the importer is called retirement of the
documents. The importer gives necessary instructions to the bank for retirement of the import
bills or for the disposal of the shipping documents to clear the imported goods from the customs
authority. The importer may instruct the bank to retire the documents by debiting his current
account with the bank or by creating Loan against Trust Receipt (LTR). Following steps are
taken while retiring the documents:

Calculation of interest.
Calculation of other charges.
Passing vouchers.
Entry in the register.

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 Endorsement in the Bill of Lading and other transport documents and in the bill of
exchange.

148

 Accounting Treatment:

Suppose the banker has the following information:

Document Value:

Tk. 100000.00

Margin:

Tk.10000.00

Date of negotiating

03.07.06

Date of retirement

20.08.06

Rate of interest

: 16%

Interest paid for (20.08.01 to 03.07.01) = 48 days.

(100000.00 10000.00)* 16% * 48

Interest =
360
= TK. 1920.00

Then the following vouchers will be made:

a) For interest:

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PAD Account

Dr.

Interest on PAD Account

Cr.

1920.00
1920.00

b) While receiving the payment:

Party Account

Dr.

91920.00

Margin Account

Dr.

10000.00

PAD Account

Cr.

101920.00

But when the party takes the endorsement of the non-negotiable copy, then Other Fees &
Commission takes place instead of Interest on PAD Account. Generally, MBL charges .15%
on the document value for collecting the document at that time.

Non-Negotiable Copy Document:

Party can clear goods only after receiving the document by the bank. Exporters send all the
relevant documents to the bank after the shipment. They also send the duplicate copy of the
documents to the importers.
But sometimes bank does not receive the document in due time. In that case, the importers
submit the duplicate copy to the bank and pay the due bills. MBL endorses the duplicate
documents and through these documents importers clear the goods from the customs. These
duplicate copies are called the Non-negotiable copy.

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 Forward Booking Contract:

It is a contract made by the opener of the L/C with a bank that the foreign currency value would
not fluctuate for a certain period even though the value of the currency changed from the date of
issue of L/C.
For example, Singer (Bd.) Ltd. opened an L/C for purchasing the parts and components of
sewing machine. At that time, singer made a contract with MBL that it would give Singer dollar
@ TK. 49.65 for a period of one month. If the dollar value rose to TK. 51.27 in that month,
MBL would be bound to give Singer @ TK. 49.65 for that month. This contract is called
Forward Booking Contract.
Loan against Trust Receipts (LTR):
MBL also perform the later mechanize it is a instrument of foreign exchange which is done
through:

Advance against a Trust Receipt obtained from the Customers are allowed to only first
class tested parties when the documents covering an import shipment or other goods
pledged to the Bank as security are given without payment. However, for such
advances prior permission/sanction from Head Office must be obtained.

The customer holds the goods or their sale-proceeds in trust for the Bank, till such time,
the loan allowed against the Trust Receipts is fully paid off.

The Trust Receipt is a document that creates the Bankers lien on the goods and
practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

Loan against Imported Merchandise (LIM):

MBL create Advance (Loan) against the security of merchandise imported through the Bank
may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their
Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh
Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before
getting the goods cleared through LIM Account.

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4.16. Performance of MBL Dhanmondi Branch in Foreign

(Import) Trade
Foreign Exchange Division of the MBL, Dhanmondi Branch is very efficient at their activities.
This Division had earned the leading profit among all divisions in the year 2008 in MBL,
Dhanmondi Branch. Here I am tried to show the performance of foreign Exchange division
(Import) of MBL, Dhanmondi Branch.

Import Trade
From the very beginning, Dhanmondi of MBL has embarked on extensive foreign exchange
business with a view to facilitating international trade transactions of the country. The Bank has
established 464 Letter of Credit amounting to BDT 2633.60 million in 2008. As against 425
Letters of Credit amounting to BDT 1861.90 million in 2007. Items of imports financed by the
Bank included capital machinery. Hot Roll Steel, electric equipments, rice, wheat, seeds,
palmolein, cement clinkers, dyes, chemicals, raw cotton, garments accessories etc. In 2007 total
Import (foreign exchange) handled by MBL stood BDT 40380.10 million. Among that
Dhanmondi Branchs volume was BDT 1861.90 million. And in 2008 total import (foreign
exchange) handle by the Bank stood BDT 56528.80 million and among that Dhanmondi
Branchs volume was BDT 2633.60 million.

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 Import Trade of Dhanmondi Branch comparing to MBL

Year
MBL
Dhanmondi Branch

(Million in Taka)
2009
62548.25
2864.33

2008
56528.8
2633.60

Source: MBL Annual Report 2008

Annual Target and achievement of import by the branch for year 2008 to 2009
(Million in Taka)

Year
2009
2008

Target
1850
1600

Achieved
2633.60
1861.90

Percentage
142.36%
116.37%

Source: Foreign Exchange Department MBL Dhanmondi Branch

In the Table we can see that, in 2008 there was target for import business of Dhanmondi Branch
was BDT 1600 million and achievement was BDT 1861.90 million and in percentage
achievement was 116.37 %. And the import target was BDT 1850 million in the year 2008 and
achievement was BDT 2633.60 and in percentage achievement was 142.36 %. In 2010 the
target is BDT 3100 million.

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1(d)Import Procedure in Flow Chart

Registration with CCI&E, Import Registration Certificate (IRC) renewal
Purchase Contract with Foreign Supplier Directly or through agent/Indent
Registration of Letter of Credit Authorization (LCA) Form
Opening/Issuance of Letter of Credit (L/C) by the Importers Bank Dr.
Importers (Opener) A/C Cr. Sundry Deposit A/C Margin on L/C
Dispatch/Transmit the L/C to the Beneficiary Through Issuing Banks
Correspondent in the Beneficiarys Country
Receipt of Import Documents from Negotiating/Collecting Bank
Scrutiny of Import Documents
Instruct Reimbursing Bank not to Honor Reimbursement Claim
Yes

Are the Documents Discrepant?

Inform Negotiation Bank about Discrepancies

Inform Opener about Discrepancies

No

Yes

Lodgment of Import Bills

Dr. PAD (Payment against Document)
Cr. H.O. A/C Reimbursing Bank
Ask the Opener to Take Delivery of Import
Documents for Release of Goods

Do they agree in Accept Documents Despite Discrepancies

No
Ask Negotiating Bank for Disposal Instruction
Do they agree to
Accept Documents
on Collection Basis?
No
Send Back Documents Dr.
S/D A/C Margin on L/C
Cr. Importers A/C

Have they responded?

No

Have they approached for

Post Import Finance?

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Retire the Import Bill

Dr. Opener A/C
Dr. S/D A/C Margin on L/C
Cr. PAD - Deliver the Documents to
the Opener for Release of Goods

Yes

Deliver the Documents

to the Importers ....
release of Goods
Collect Proceeds from
Importers Dr. S/D A/C
Margin on L/C Dr.
Importers A/C Cr. H.O.
C/C Collecting Bank

Retire the Bill by Creation of Forced LIM with H.O. Approval

Dr. S/D. A/C Margin on L/C, Dr. Forced LIM, Cr. PAD,
Clear the Goods through Banks Approved Clearing agent and
store the same Under Banks Effective Control. All Relevant
Expenses in Connection with Clearing of Goods to be Debited
to forced LIM A/C.

Yes
If you agree Recover Further Margin from the opener & Retire
the Documents by Creation of LIM., Dr. Opening A/C, Dr.
LIM, Dr. Sundry Deposit A/C Margin on L/C, Cr. PAD
Clear the Goods through Banks Approved Clearing Agent and
store the same under Banks effective Control. All relevant
expenses in Connection with clearing of goods to be Debited to
LIM A/C

Chapter 5

Export

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5.1. Export
In order to Creation of wealth in any country depends on the expansion of production and
increasing participation in international trade. By increasing production in the export sector we
can improve the employment level of such a highly populated country like Bangladesh.
Bangladesh exports a large quantity of goods and services to foreign households. Readymade
textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the
main goods that Bangladeshi exporters export to foreign countries. Garments sector is the
largest sector that exports the lion share of the country's export. Bangladesh exports most of its
readymade garments products to U.S.A and European Community (EC) countries. Bangladesh
exports about 40% of its readymade garments products to U.S.A. Most of the exporters who
export through MBL are readymade garments exporters. They open export L/Cs here to export
their goods, which they open against the import L/Cs opened by their foreign importers.

5.2. Export Policy

Export policies formulated by the Ministry of Commerce, GOB provide the overall guideline
and incentives for promotion of exports in Bangladesh. Export policies also set out commoditywise annual target. It has been decided to formulate these policies to cover a five-year period to
make them contemporaneous with the five-year plans and to provide the policy regime.
The export-oriented private sector, through their representative bodies and chambers are
consulted in the formulation of export policies and are also represented in the various export
promotion bodies set up by the government.

5.3. Export Incentives

A. Financial Incentives:
o Restructuring of Export Credit Guarantee Scheme;
o Convertibility of Taka in current account;
o Exporters can deposit 40% of FOB value of their export earnings in own accounts in
dollar and pound sterling;

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o Export Development Fund;

o Expansion of export credit period from 180 days to 270 days;
o 50% tax rebate on export earnings Duty draw back;
o Bonded warehouse facilities to 100% export oriented firms;
o Duty free import of capital equipment for 100% export oriented firms;

B. General Incentives:
o National Export Trophy to successful exporters;
o Training course on external trade;
o Arrangement of international trade fairs, commodity-based exhibitions in the country
and participation in foreign trade fairs;

C. Other Incentives:
o Assistance in improvement of quality and packaging of exportable items;
o Simplification of exports procedures.

5.4. PARTIES

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TO

EXPORT TRANSACTIONS

L/C Issuing Bank

Importer

L/C Advising Bank

Exporter

Confirming Bank

Negotiating Bank

The Paying/Reimbursing Bank

5.5. Export Procedures

The import and export trade in our country are regulated by the Import and Export (Control)
Act, 1950.Under the export policy of Bangladesh the exporter has to get valid Export
registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is
required to renew every year. The ERC number is to incorporate on EXP forms and other papers
connected with exports. MBL mainly handles export of readymade garments, jute goods,
leather, plastic scrap, handicrafts etc. The followings process must be passed by a exporter to
open a documentary credit in MBL, Dhanmondi branch:

(a) Registration of Exporters:

For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/
Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/
Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barisal/ Bogra/ Rangpur/ Dinajpur in the
prescribed form along with the following documents:

Nationality and Assets Certificate;

Memorandum and Article of Association and Certificate of Incorporation in case of

Limited Company;

Bank Certificate;

Income Tax Certificate;

Trade License etc.

(b) Securing the Order:

After getting ERC Certificate the exporter may proceed to secure the export order. He can do
this by contacting the buyers directly or through agent. In this purpose the exporter may get help
from:
License Officer;
Buyers Local Agent;

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 Export Promoting Organization;

Bangladesh Mission Abroad;
Chamber of Commerce (local & foreign)
Trade Fair etc.
(c) Signing the Contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting
exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance
and marks, inspection and arbitration etc.
(d) Receiving Letter of Credit:
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly
stating terms and conditions of export and payment.
The following are the main points to be looked into for receiving/ collecting export proceeds by
means of Documentary Credit:
o The terms of the L/C are in conformity with those of the contract;
o The L/C is an irrevocable one, preferably confirmed by the advising bank;
o The L/C allows sufficient time for shipment and negotiation.
Terms and conditions should be stated in the contract clearly in case of other mode of
payment:

Cash in advance;

Open account;

Collection basis (Documentary/ Clean)

(e) Procuring the materials:

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

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(f) Shipment of goods:

Then the exporter should take the preparation for export arrangement for delivery of goods as
per L/C and incomers, prepare and submit shipping documents for Payment/ Acceptance/
Negotiation in due time.
(g) Documents for shipment:

EXP form,

ERC (valid),

L/C copy,

Customer Duty Certificate,

Shipping Instruction,

Transport Documents,

Insurance Documents,

Invoice,

Other Documents,

Bills of Exchange (if required)

Certificate of Origin,

Inspection Certificate,

Quality Control Certificate,

G.S.P. Certificate,

(h) Documents submission:

In this step exporter who confined with MBL will prepare export related documents and submit
those documents to MBL, Dhanmondi branch for negotiation. According to those documents
MBL collects proceeds from the former issuing banks.

5.6. Export Financing by MBL:

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Financing exports constitutes an important part of a banks activities. Exporters require financial
services at four different stages of their export operation. During each of these phases exporters
need MBL provides different types of financial assistance depending on the nature of the export
contract are as follows:
Pre-shipment credit
Post-shipment credit

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Pre-shipment credit:

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior
to the actual shipment of the goods for export. MBL provides different type of Pre-shipment
credit to its worthy customers for the following purposes:

Cost of production or purchase

Packing including any special packing for export

Cost of special inspection or tests required by the exporter

Internal transport cost

Port, customs and shipping agents costs

Freight and insurance charges if the contract is either C&F contract or a CIF contract
and

Export duty or tax etc

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and
unrestricted export letter of credit in form of the followings from MBL, but PC and BTBL is
most common from of pre shipment of credit provided by MBL:
Export cash credit (Hypothecation)
Export cash credit (Pledge)
Export cash credit against trust receipt.
Packing credit.
Back to back letter of credit.
Export cash credit (Hypothecation):
Here MBL only gets charge documents and lien on exports L/C or contract, bank normally
insists on the exporter in furnishing collateral security. The letter of hypothecation creates a
charge against merchandise in favor of MBL but neither the ownership nor the possession is
passed to it.

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Export cash Credit (Pledge):

MBL provides such credit facility to exporter by pledge of exportable goods or raw materials.
Here pledged goods are kept in MBLs control and failure of the exporter to honor his
commitment, MBL can sell the pledged merchandise for recovery the advance.
Export Cash Credit against Trust Receipt:
In this case, MBL provides credit limit is sanctioned against trust receipt (TR). Its also unlike
MBLs pledge facility, only difference is that the exportable goods remain in the custody of the
exporter. This facility is allowed by MBL only to the first class party and collateral security is
generally obtained in this case.
Packing Credit:
Packing Credit is essentially a short-term advance granted by MBL to an exporter for assisting
him to buy, process, manufacture, pack and ship the goods. The highest limit of providing PC to
a first class exporter by MBL is 10% of total export value.
Charge Documents for P.C.
Responsible officer of MBL should obtain the following charge documents duly stamped prior
to disbursement:

Demand Promissory Note

Letter of Arrangement

Letter of Lien of Packing Credit (On special adhesive stamp)

Letter of Disbursement

Packing Credit Letter

Additional Documents for P.C:

o Letter of Partnership along with Registered Partnership Deed in case of Partnership
Accounts.

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o Resolution of the Board of Directors along with Memorandum & Articles of association
in case of Accounts of Limited Companies. In case of Corporation, Resolution of the
Board Meeting along with Charter is needed.
o Personal Guarantee of all the Partners in case of Partnership Accounts and all the
Directors in case of Limited Companies.

Back to Back Letter of Credit (BTB)

When exporter falls short of raw materials in that case, exporter gives lien of export L/C to bank
as security and opens an L/C against it for importing raw materials. This L/C is called Back To
Back L/C. In back to back L/C, MBL gives facility to open BTB L/C up to highest 80% of
lined export L/C.
Documents Required for Opening a Back-to-back L/C:
In case of a Back-to-Back letter of credit, a new L/C (an import L/C) is opened on the basis of
an original L/C (an export L/C). Under the Back-to-Back concept, the seller as the beneficiary
is as a security to the Advising Bank. The beneficiary of the back-to-back L/C may be located
inside or outside the original beneficiarys country. In case of a back-to-back L/C, no cash
security (no margin) is taken by the bank; bank liens the first L/C (the master L/C). In case of a
back-to-back L/C, the drawn bill is usage/time bill.
PAPERS / DOCUMENTS REQUIRED FOR OPENING OF BACK-TO-BACK L/C ARE AS FOLLOWS:

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Master L/C

Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

L/C Application and LCAF duly filled in and signed

Pro-forma Invoice or Indent

Insurance Cover Note with money receipt

IMP Form duly signed

In addition to the above documents, the following papers/documents are also required to export
oriented garment industries while requesting for opening of back-to-back letter of credit:

Textile Permission

Valid Bonded Warehouse License

Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the
applicant for quota items

A permission from Bangladesh Garments Manufacturers & Exporters Association

(BGMEA).

In case the factory premises is a rented one, Letter of Disclaimer duly executed by the owners of
the house/premises to be submitted. A checklist to open back-to-back L/C is as follows:

Applicant is registered with CCI&E and has bonded warehouse license

The master L/C has adequate validity period and has no defective clause

L/C value shall not exceed the admissible percentage of net FOB value of relative
Master L/C

Usage Period will be up to 180 days

Check the credit limit

Prepare offering sheet if regular
credit line is not available
Mark lien on the Master L/C
Issue the L/C

Flow Chart for back-to-back L/C

Payment for Back to Back L/C

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In case of back-to-back L/C for 30, 60, 90, 120 & 180 days of maturity period, deferred
payment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank.
For Garments Sector, the duration can be maximum 180 days. For importing machinery items or
capital goods for 360 days Back-to-Back L/C can be opened.
Reporting to Bangladesh Bank

At the end of every month, the reporting to Bangladesh Bank regarding the following
information is mandatory:

Filling of E-2/P-2 Schedule of S-1 category that covers the entire months amount of
import, category of goods, currency, country etc.

Filling of E-3/P-3 Schedule of for all charges, commission with T/M Form.

Disposal of IMP Form; they includes: (a) original IMP is forwarded to Bangladesh Bank
with invoice and indent, (b) duplicate IMP is kept with the branch along with the Bill of
Entry/Certified Invoice, (c) triplicate IMP is kept with the branch for office record, (d)
quadruplicate is kept for submission to Bangladesh Bank in case of imports where
documents are retired.

Post Shipment Credit:

This type of credit refers to the credit facilities extended to the exporters by the banks after
shipment of the goods against export documents. Before extending such credit, it is necessary
for MBL to look into carefully the financial soundness of exporters and buyers as well as other
relevant document.
(a)

Foreign Documentary Bill Purchase (FDBP):

Documents connected with the export in accordance with the rules and regulations in force.
MBL provides following post shipment credit to the exporters through:

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Foreign Documentary Bill Purchase (FDBP).

Advances against Export Bills surrendered for collection.

Most of the client submits the bill of export to bank for collection and payment of the BTB L/C.
In that case, MBL purchases the bill and collects the money from the exporter. MBL subtracts
the amount of bill for PC and BTB payment and gives the rest amount to the client in cash or by
crediting his account or by the pay order.
For this purpose, MBL maintains a separate register named FDBP Register. This register
contains the following information:
# Date
# Reference number (FDBP)
# Name of the drawee
# Name of the collecting bank
# Conversion rate
# Bill amount both in figure & in Taka.
# Export form number
# Export L/C number

(b)

Advances against Export Bills surrendered for collection:

MBL also accept bills for collection of proceeds when they are not drawn under an L/C or when
the documents, even though drawn against an L/C contain some discrepancies. MBL generally
negotiates bills drawn under L/C, without any discrepancy in the documents, and the exporter
gets the money from the bank immediately. However, if the bill is not eligible for negotiation,
the exporter may obtain advance from MBL against the security of export bill. In addition to the
export bill MBL generally ask for collateral security like a guarantee by a third party and
equitable/registered mortgage of property.

Appraisal of Documentary Credit in MBL:

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The sequence that are provided in open an export L/C up to its proceeds realization the
following steps are generally passed in MBL, Dhanmondi branch which are recorded in
performance register are shown below:

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Open
Export
L/C

Open
BTB
L/C

BTB
Accepted

BTB
Payment

FDBP
Accepted

Proceeds
Realization

FC
Held

PC

Figure: Different stages of export L/C

When customer open export L/C in MBL, Dhanmondi branch then it provides export finance
through packing credit (PC), the limit of PC is highest 10% of export L/C value is provided to
customers by MBL. Generally export L/C holder have advantage of opening back-to-Back
(BTB) L/C under its export L/C, in MBL customers can open BTB L/C up to 80% of their
export L/C value.
When BTB L/C documents is realized than MBL acknowledged the date and amount of
payment for BTB Bills to its export L/C holder. The period of payment of BTB Bills is always
kept longer than period of export value realization which helps to reduce risk of MBL.
When export proceeds than documents is presented in MBL than foreign documents bills is
presented for purchase (FDBP) as 10% is given as PC and 80% is for BTB L/C so the remaining
percentage of L/C value is purchased by MBL. When proceeds is realized than 10% is taken for
PC and 80% is used for BTB payment and remaining is deposited to foreign currency (FC) Held
account. If customers only present foreign documents bills for collection than remaining portion
of export value other than PC and BTB payment will be deposited to parties CD account.

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1(e)Export Procedure in Flow Chart

Registration with CCI & F. Export Registration Certificate (ERC) renewal
Security Export Order from Foreign Buyer Directly or through agent
Receiving L/C from Buyers bank through an advising Bank in Bangladesh
Certificate of ESP form by Authorized Dealer (Bank)
Will the Exporter be allowed any
Pre-Shipment Credit Facility?

Yes

Mark Banks Lien on the Face of the Original L/C

No

Obtain Necessary Securities

Dr. P/C
Cr. Exporter A/C

Shipment of Goods by Exporter

Arrange Shipment of Goods through Banks

Approved C&F agent and Instruct them to send the
Original Bill of Lading etc. to the Bank Directly.

Preparation of Export Documents for

Submission to Negotiation Bank
Scrutinizing Export Documents by Negotiating Bank

Are the Documents in Order?

No

Ask Exporter to Removed Discrepancies

Yes
Are the Document Removed?
Negotiate Documents
Dr. FDBP
Cr. Exporters A/C
Cr. P/C A/C

Yes

Despatch Documents with

Reimbursement Instruction

Yes

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Retire FDBP
Dr. HO.A/C Foreign Bank
Cr. FDBP/exporter A/C
Cr. Income A/C Exchange Earning
Reverse Liability Voucher

Inform Opening
Bank About
Discrepancies

Do they Allow
Negotiating?

No
Send the Documents for Collection with
Reimbursement Instruction. Pass Liability
Voucher & Enter into FFDBC Register

Check Whether your A/C with

Foreign Bank has been credited
Has it been credited?

No

No

Send Reminder to Paying Bank

Chapter 6

Foreign Remittance

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6.1. Foreign Remittance

Foreign remittance means remittance of foreign currencies from one place/persons to another
place/person. In broad sense, foreign remittance includes all sale and purchase of foreign
currencies on account of Import, Export, Travel and other purposes. However, specifically
foreign remittance means sale & purchase of foreign currencies for the purposes other than
export and import. As such, this chapter will not cover purchase & sale of foreign currencies on
account of Import & Export of goods.
On March 24, 1994 Bangladesh Taka was declared convertible for Current account International
Transaction. As a prelude to this wide-ranging reforms were made in the countrys foreign
exchange regime to lay the ground for a market friendly environment to induce investment,
growth and productivity. Following liberalization under convertibility, most remittances are now
approved by the Authorized Dealers themselves on behalf of the Central Bank. Only a few
remittances of special nature require Bangladesh Banks prior approval.

6.2. Foreign Remittance Section of MBL

Foreign exchange department of MBL, Dhanmondi branch are responsible to deal with outward
and inward remittance other export and import only when remittance are in foreign currency.
MBL has already made foreign remittance arrangement with UniCredito Italiano, Italy and
ICICI bank Canada to expedite inward foreign remittances. MBL also has established Drawing
Arrangement with United commercial Bank and Arab Bangladesh Bank for prompt delivery
services of remittances to the beneficiaries located any corner of Bangladesh.

6.3. Workings of this department:

Overall supervision of Foreign Remit. Dept.

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

Purchased).

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Issuance of outward TT & FDD.

Issuance of proceed responding certificate (PRC).

Foreign Collection, Bangladesh Bank Clearing Check Collection, which comes from all
branch of MBL.

Withdrawal from F.C. A/C.

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

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

Preparation of related statements including convertible Taka Accounts.

Preparation of IBCA & IBDA and Balancing of Collection and other special
assignment as desired by Department in charge.

Balancing of Account Statements.

Compliance of audit & inspection.

Statement of all related works submitted to Bangladesh Bank.

All foreign remittance transactions are grouped into two broad categories of remittance i.e.
Outward remittance & Inward remittance. As an AD MBL foreign exchange department focuses
on these two sources of remittance.

Foreign remittance section of MBL, Main Branch is an integral part of Foreign Exchange
Department. And this section of Foreign Exchange Department deals with incoming and
outgoing foreign currencies. Therefore on the basis of its function, foreign remittance is divided
into two types. These are:Foreign remittance section of MBL, Main Branch is an integral part of
Foreign Exchange Department. And this section of Foreign Exchange Department deals with
incoming and outgoing foreign currencies. Therefore on the basis of its function, foreign
remittance is divided into two types. These are:

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Outward Foreign Remittance and

Inward Foreign Remittance

6.4. Outward Foreign Remittance:

Remittances issued by MBL, Main Branch to foreign correspondents to fulfill its customers
needs are considered to be the Outward Foreign Remittances. It comprises the followings:
FDD Issued
FTT Issued
TC Issued
Endorsement of foreign currencies in the passport.
Sale of foreign currencies.

Foreign demand draft (FDD) issued:

People have to send money to abroad for various purposes. MBL issues most of the FDD for the
purpose of payment of the application fees to the foreign universities.

For the issuance of

FDD, FORM T/M has to be filled-in duly. This form is filled up under the Foreign Exchange
Regulation Act, 1947. This form contains:

The purpose of travel,

Name of the country where the applicant will go,

Name of the air or shipping company,

Passport number,

Date and place of issue of the passport are given

This form has to be duly signed by the applicant. In case of application fee, the applicant has to
mention the name of the university in whose favor the FDD is issued. MBL charges TK. 400 for
each FDD.

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Accounting Treatment:
MBL gives the following entries while issuing FDD:
Clients Account/ Cash

Dr.

Commission

Cr.

IDT

Cr.

Travelers Cheque (TC) issued:

MBL issues only American Express Travelers Cheque (TC). For TC, customer has to fill up
T/M form. He has to fill up the purchase form also. Purchase form has four copies. One copy
for American Express Bank, one copy for PBL, and two copy for the customer. For TC MBL
charges 1% as commission.
Requirements for purchasing TC:
There are some requirements that are to be fulfilled by the Travelers Cheque purchaser. The
requirements are:

Passport holder himself has to be present while issuing Travelers Cheque.

The passport must be a valid one.

Air ticket has to be confirmed.

Steps involved in issue of Travelers Cheque (TC):

o After verifying all these documents the customer is asked to fill up prescribed
application form.
o In the application the customer states the amount he is willing to endorse and it is being
verified that his required amount is within the stipulated.
o Then the customer pays cash or by debiting his account the Travelers Cheque is issued.
o Endorsement is given on the passport and on the ticket. Customer fills up the T/M Form.

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o Purchased application form has to be filled up by the purchaser.

o Entry has to be given in the Foreign Currency Register and in the Travelers Cheque
Register.
Endorsement of cash:
Cash foreign currency can also be remitted through the cash endorsement in the passport. In
case of endorsing cash in the passport, the requirements are similar to those of Travelers
Cheque. But according to the foreign exchange Regulation Act, 1947 an individual cannot take
more than $1000.00 in cash in a year. Thats why; the concerned officer checks the last voyage
of the purchaser. If he/she made any voyage and if he/she purchase dollar at that time, then the
officer will deduct the amount and will give the rest to the purchaser.
PBL cannot endorse more than $600.00 as cash at a time. For more than $600.00, the customer
has to purchase TC. For cash endorsement PBL maintains a separate register. For giving cash
foreign currency, PBL charges Tk. 100.00 as service charge.

Forms used for Outward Remittance:

Two forms are used for Outward Remittance of Foreign Currency, such as:
IMP Form: All outward remittances on account of imports are done by form IMP.
T.M. Form: For all other outward remittances form, TM is used.

Private Remittance:
For the following private purposes, outward remittances are permitted:

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Family remittance facility.

Remittance of Membership Fees/Registration Fees etc.

Education.

Remittance of Consular Fees.

Remittance of Evaluation Fees.

Travel.

Health & Medical.

Official/Semi-Official Visit by the officials of Government/Autonomous Bodies.

Seminars and workshops.

Foreign Nationals.

Remittance for Hajj

Other Private Remittances.

Official & Business Travel:

For the following official and business purposes, outward remittance is permitted:
Official Visit.
Business Travel quota for New Exporters.
Business Travel Quota for Importers and Non-exporting producers.
Exporters' Retention Quota.

Commercial Remittance:
For the following commercial purposes, outward remittances are permitted:

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Opening of branches or subsidiary companies abroad.

Remittance by shipping companies, Airlines & Courier Service.

Remittance of Royalty and Technical Fees.

Remittance on account of Training & Consultancy.

Remittance of Profits of Foreign Firms/Branches.

Remittance of Dividend.

Subscriptions to Foreign Media Services.

Costs/Fees for Reuters Monitors.

Advertisement of Bangladeshi Products in mass media abroad.

Bank Changes.

Sundries.

6.5. Inward Foreign Remittance:

Normally, Inward Foreign Remittance comprises of all incoming foreign currencies.
Remittances issued by the correspondent banks situated in the foreign countries and thereby
drawn on MBL, Main branch are considered to be its Inward Foreign Remittances. Followings
are the Inward Foreign Remittances of MBL, Main branch.
o FDD Payable
o FTT Payable
o TC Payable
o Encashment of foreign currencies endorsed in the passport.
o Purchase of foreign currencies.
Foreign TT Payable:
Foreign remittance section also pays the claim of the foreign TT. After receiving TT payable,
MBL performs the following functions:
o Customer has to fill up a C Form if the amount exceeds $2000.00. C Form describes
the purpose of sending the TT.
o The dollar amount comes to the Head office of PBL through American Express, New
York.
o PBL, Motijheel branch sells the dollar to Head Office @ Tk. 56.50 (this rate was
applicable when I was in Foreign Remittance Section) and collects the money in local
currency.
Opening of Foreign Account:
MBL opens foreign currency account. Foreign currency account is used for receiving foreign
currency from abroad or for sending the currency to abroad. It can be used in favor of a person
or in favor of exporters.

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Following papers are required to open a foreign currency account:

Exporters foreign currency account opening form (application form, two signature cards
duly filled-in and signed by the potential account-holder with authenticated seal and
introduction by a valued customer in the bank).
Two copies of passport size photographs of each operator attested by Chairman of the
company.
Export registration certificate.
Attested photocopy of the membership certificate of the concerned association
(BGMEA/ Others).
Export proceeds realization certificate--- declaration / undertaking regarding the
utilization of foreign currency.
Incase of Limited Company:

Memorandum & Articles of Association of the Company.

Power of Attorney.

Resolution of the Board of Directors.

Certificate of Incorporation.

Certificate of Commencement of Business.

List of Directors.

Trade License.

Student File Opening:

Student can endorse $200.00 at a time in his own name. But if the amount exceeds $200.00,
then the student has to open a student file. For opening a student file, the following documents
are required:
o Preliminary application and information for admission.
o Letter of approval by the university of the student.
o A filled-in application form for foreign currency in abroad.
o Transcript of Records given for the last degree by the university.
o Certificate given by the Board for S.S.C. / H.S.C. or equivalent examination.

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In case of tuition fees, applicant must send the currency in favor of the institute. He cannot take
the fees of the institute with him personally. Usually a student has to endorse at least one third
of the fees of a year.
Accounting Treatment:
Each day, the foreign remittance department gives the following vouchers:

One debit voucher for cash USD sold.

One debit voucher for TC sold.

One debit voucher for IDT (For total amount)

One credit voucher for foreign currency USD (cash sold)

One credit voucher for account payable TC sold.

One credit voucher for commission on TC.

One credit voucher for other fees & commission.

One credit voucher for photocopy.

One debit voucher for account payable TC sold.

One debit voucher for Prime General Account (For TC sold).

One debit voucher for FDD.

One debit voucher for Prime General Account (For FDD).

Reporting to Bangladesh Bank by MBL:

As authorized dealer of foreign exchange Mercantile Bank works as important source of
Bangladeshi government to collect information about remittance. MBL has to report monthly to
Bangladesh Bank in following forms.

6.6. Types of out ward form:

Two forms are used for Outward Remittance of foreign Currency such as:

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 IMP FORM
T.M. FORM
IMP Form:
All outward remittance on account of Imports is done by form IMP. MBL, Dhanmondi branch
weekly informs Bangladesh Bank about outward remittance of import and it sends IMP FORM
information in each month to BB. Among four copies of IMP Form original copy is kept by
customs and MBL fill up Duplicate, Triplicate, and Quadruplicate copy of IMP Form with
following information Such as:

IMP number with MBLs code, serial no. and year code

Name and branch of bank

Amount of foreign currency paid in figures and in words

LCAF number, Date and value in Taka according to LCAF

Description of goods along with unit, quantity and H.S. code.

Invoice value

Country of origin

Port of shipment, mode of transport and place of importation

Code of reporting month, country receiving payment, county of origin goods,

commodity, unit, quantity, type of LCAF, currency, amount are also reported in IMP
Form by MBL

Imp from will be duly signed and sealed by importer and authorized officer of MBL.

Duplicate, Triplicate copy of IMP Form are send to Head office of MBL by MBL,
Dhanmondi branch where as head office send Duplicate copy to BB and Triplicate copy
is kept in head office and Quadruplicate copy is kept in regarding import L/C file by
MBL, Dhanmondi branch.

Along with IMP Form Proforma invoice, commercial invoice and LACF is attached.

T.M. Form:

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For all other outward remittances form T.M. is used. MBL, Dhanmondi branch provides all
outward remittance information other than import through Travels & Miscellaneous (T.M)
FORM to BB. The following information is provided through T.M Form:
o Name and branch of bank
o Amount of money remitted outside the country
o The name, address and country of the person to whom currency is paid
o Code of month of reporting, country receiving payment, purpose of payment, category,
currency, amount.
o Person remitting the currency and authorized officer of MBL, Dhanmondi branch, duly
signs T.M Form.

6.7. Types of inward form:

Two forms as prescribed by Bangladesh Bank are used for purchase of Foreign Currencies such
as:
EXP form
Form C
EXP Form:
o Remittances received against exports of goods from Bangladesh are done by form EXP.
MBL; Dhanmondi branch weekly informs Bangladesh Bank about inward remittance of
export and it sends EXP FORM information in each month to BB. MBL fill up two copy
of EXP Form with following information such as:
o EXP number Duplicate, Triplicate, and Quadruplicate with MBL, Dhanmondi branch
code, serial number and year code.
o L/C number, date of L/C opening, L/C value.
o Amount proceeds realized method of currency such as Taka or foreign currency and date
of realization.

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o Among two copies one copy is send to BB along with MBL head office and another
copy is kept in relative documentary credit file as office copy by MBL, Dhanmondi
branch.
o Along with duplicate copy commercial invoice and short shipment certificate if any is
attached.

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Form C:
Inward remittances equivalent to US $2000/- and above are done by Form C. However,
declaration in Form C is not required in case of remittances by Bangladesh Nationals working
abroad. Utmost care should be taken while purchasing Currency Notes, Travelers cheque,
Demand Draft & similar Instrument for protecting the bank from probable loss as well as safety
of the Bank officials concerned. MBL, Dhanmondi branch provides information about person
who remits currency and relationship with the person to whom currency is remitted and reason
for remitting currency to BB.
In case of reporting for export and import to Bangladesh Bank MBL, Dhanmondi branch
categories IMP FORM and EXP FORM into four categories according to currency and their
characteristics those are as follows:
U.S Dollar- the documentary credit opened on US Dollar is reported to BB under this
category.
ACU Dollar-the export import related to India, Iran, Nepal, Pakistan, Sri Lanka,

Bhutan and Myanmar will be reported to BB at ACU Dollar.

EURO-the documentary credit opened with EURO exchange based countries are reported
under this category.
EPZ-the documentary credit opened related to EPZ industries are reported to BB under

this category.

6.8. Exchange Rate and Exchange Gain of MBL:

Exchange rate is the rate at which one currency is converted to another currency. In case foreign
exchange the rates, which are used to convert in local or any other currencies, incase of foreign
dealings. Bangladeshi banks use exchange rates that are convertible to different currencies into
BDT.

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Exchange rate is determined by Bangladeshi banks from interbank offer rate (IOR). Bangladesh
bank provides interbank offer rate and the MBL purchase currency at spot rate where as spot
rate is addition of different primary chargers such cost of transfer, cost of freight etc along with
inter bank offer rate.
Incase of selling of currency or payment of import MBL, Dhanmondi branch adds different
charges as documents and telex charges to customers so BDT increases and incase of buying or
receiving export value charges as documents and telex charges are deducted from customers so
BDT decreases in case of selling. In case of selling charges are added and incase of buying
charges are deducted from spot rate because MBL is mot responsible to carry out documents
charges and telex charges for others or customers.
Exchange gain of MBL, Dhanmondi branch arises from transaction foreign currency with Head
Office. In case payment of import or selling currency convertible to BDT MBL Dhanmondi
branch buys from Head Office 0.10 paisa lower and sells it to customers at 0.10 paisa higher
which will provide exchange gain. In case of currency buying or export payment receiving
MBL, Dhanmondi branch buys currency from customer and sells it 0.20 paisa higher than
purchase rate from customers to Head Office that ultimately provide exchange gain. So MBL,
Dhanmondi branch arranges exchange gain in following two ways:

In case of payment of import or selling currency MBL, Dhanmondi branch buys

currency from Head Office at 0.10 paisa lower than selling price.

In case of payment received of export or buying currency MBL, Dhanmondi branch

sells currency to Head Office at 0.20 paisa higher than buying price.

6.9. Foreign Exchange Risk Management by MBL:

Foreign exchange rate fluctuations affect banks both directly and indirectly. The direct effect
comes from banks' holdings of assets (or liabilities) with net payment streams denominated in a
foreign currency. Foreign exchange rate fluctuations alter the domestic currency values of such

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assets. This explicit source of foreign exchange risk is the easiest to identify, and it is the most
easily hedged.
Foreign exchange risk is treated by MBL as market risk because market risk is the potential for
loss from changes in interest rates, foreign exchange rates and equity and commodity prices. So
transactions related to foreign exchange positioning will bring market risk to MBL. The
vulnerability of the MBLs as a whole to foreign exchange fluctuations depends on more than
just its holdings of foreign exchange.
Foreign exchange risk is defined as the possibility of losses due to change in exchange rates
according to market forces. The foreign exchange risk of MBL is minimum as all the
transactions are carried out on behalf of the customers against underlying foreign exchange
transactions.
Treasury Division of MBL independently conducts the transactions and the MBL head office of
Treasury is responsible for verification of the deals and passing of their entries in the books of
accounts. All foreign exchange transactions are revalued at (Market-to-Market) rate as
determined by Bangladesh bank at the month-end. All Nostro accounts are reconciled on
monthly basis and the management for their settlement reviews outstanding entries beyond 30
days.

6.10. Income Sources of Foreign Exchange Department:

The different income sources of foreign exchange department of MBL, Dhanmondi branch are
as follows:
o Income on commission of L/C.
o Income on data transmission/ SWIFT charges
o Income on postage
o Income on Courier Charge
o Income on discrepancies
o Income for amendment charges
o Income from IMP and EXP fill up Charges

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o Income from exchange gain

o Income on miscellaneous charges

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6.11. Dealing in Foreign Currency Notes & Coins:

Only Authorized Dealers and Authorized Money Changer are permitted to deal in foreign
currency notes & coins Authorized Dealers and Money Changers may freely buy foreign
currency from incoming passengers regardless of nationality and regardless of whether or not a
declaration on form FMJ is produced at the time of encashment. If this form is produced, the
amount enchased should be endorsed on it.
The Authorized Dealers may also purchase foreign currency notes, coins and other travel
instruments freely from Authorized Money changers without production of Form FMJ.
Disposal of Foreign Currency notes/Coins & others by Incoming passengers:
Incoming passengers may bring in any amount of foreign exchange with declaration FMC at
the time of arrival. No declaration is necessary for amounts up to US$5000/- for non residents,
the entire amount brought in with declaration or up to US$5000/- brought in without declaration
may be freely taken out at the time of departure or may deposit the amount in F.C Account
subject to submission of form FMJ for excess of US$5000. - Or equivalent.
An incoming person, who is ordinarily resident in Bangladesh
(I)

may retain foreign exchange up to US$5000/- or equivalent brought in without

declaration or

(II)

take-out the same freely at the time of departure form Bangladesh without endorsement
in passport and air ticket

(III)

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Deposit the amount in RFCD account of the person concerned.

Chapter 7

Analysis & Findings

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7. Analysis & Findings

7.1. Foreign exchange business of MBL
The performance of foreign exchange business of Mercantile Bank Ltd. can be visualized from
the following data table. Here, five years data of foreign exchange business are presented. These
are off-balance sheet items and showed as contingent liability.

Table: Foreign exchange business of MBL

Source: Annual report, 2008

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Graph: Foreign Exchange business

In the graph it is observed that the foreign exchange business of Mercantile Bank Ltd. has been
increasing with the passage of time but last year it is declined. Growth of import and export are
decline by 4.85% and 4.21% respectively.

7.2. Foreign exchange income of MBL

Foreign exchange income is a great source of revenue for the bank. This revenue comes in two
forms: commission and exchange gain. Here, five years data of foreign exchange income is
presented in graph-

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Graph: Foreign Exchange income

In the graph the different sources of income for foreign exchange business are revealed and the
income is showing a continuous increasing trend. The most dominant variable in foreign
exchange income is exchange gain. This is achieved from both export and remittance business.

7.3. Foreign exchange income, operating income and profit

The foreign exchange income, operating income and profit after tax for five years is presented
in Table. The foreign exchange income has a contribution to operating income as well as to
banks profit.

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Table: Foreign exchange income, operating income and profit

Source: Annual report, 2008

Figure: Operating Income & Foreign exchange income

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In the Table it is shown that along with the increasing trend in foreign exchange income the
operating income is also increasing. So, foreign exchange income has a positive effect on
operating income as well as profit. Table-8.1, 8.2, 8.3 focuses on the important information of
foreign exchange business of Mercantile Bank Ltd.

7.4. SWOT analysis

The comparison of strengths weaknesses, opportunities, and threats is normally referred to as a
SWOT analysis. The central purpose of the SWOT analysis is to identify strategies that align,
fit, or match a companys resources and capabilities to the demands of the environment in which
the company operates. To put it another way, the purpose of the strategic alternatives generated
by a SWOT analysis should be to build on company strengths in order to exploit opportunities
and counter threats and to correct company weakens. SWOT analysis explains in two broad
ways on viewed of organizations environment. These are:
a) Internal Environment Analysis: It includes:

Strength

Weakness

b) External Environment Analysis: It includes:

Opportunity
Threats
During my internship period in MBL I have found some aspects relating to the Banks strength,
opportunity, weakness and threats, which are more or less. I think affecting the banks
performance in total, which are explained below:

7.4.1. Strengths
o MBL has already established a favorable reputation in the banking industry of the
country. It is one of the leading private commercial banks in Bangladesh. The bank has
already shown a tremendous growth in the profits and deposits sector.

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o Mercantile Bank Ltd. is maintaining a strong capital base. By the end of December
2008, capital adequacy ratio of the bank was 10.68% that is well above the stipulated
requirements of 9%.
o Earning base in assets of the bank was 88.00%in 2008 as compared to 92.40% in 2007.
The ratio indicates efficient utilization of resources to earn revenues.
o MBL has provided its banking service with a top leadership and management position.
The Board of Directors is the skilled person in business world. The top management
officials have all worked in reputed banks and their years of banking experience, skill,
and expertise will continue to contribute towards further expansion of the bank.
o MBL has already achieved a high growth rate accompanied by an impressive profit
growth rate in 2008. The number of deposits and the loans and advances are also
increasing rapidly.
o

MBL has an interactive corporate culture. The working environment is very friendly,
interactive and informal. And, there are no hidden barriers or boundaries while
communicate between the superior and the employees. This corporate culture provides
as a great motivation factor among the employees.

o MBL has the reputation of being the provider of good quality services too its potential
customer

7.4.2. Weakness

This bank has not any long-term strategies of whether it wants to focus on retail
banking or become a corporate bank. The path of the future should be determined now
with a strong feasible strategic plan.

The bank failed to provide a strong quality-recruitment policy in the lower and some
mid level position. As a result the services of the bank seem to be Deus in the present
days.

Service quality of this bank is good but hot high as the customers want and
expectation. The quality of the service at MBL is higher than the Dhaka Bank, Prime
Bank or Dutch Bangle Bank etc. But the bank has to compete with the Multinational
Bank located here.

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Some of the job in MBL has no growth or advancement path. So lack of motivation
exists in persons filling those positions. This is a weakness of MBL that it is having a
group of unsatisfied employees.

In terms of promotional sector, MBL has to more emphasize on that. They have to
follow aggressive marketing campaign.

7.4.3. Opportunity
In order to reduce the business risk, MBL has to expand their business portfolio. The
management can consider options of starting merchant banking or diversify into leasing
and insurance sector.
The activity in the secondary financial market has direct impact on the primary financial
market. Banks operate in the primary financial market. Investment in the Secondary
market governs the national economic activity. Activity in the national economy controls
the business of the bank.
Opportunity in retail banking lies in the fact that the countrys increased population is
gradually learning to adopt consumer finance. The bulk of our population is middle
class. Different types of retail lending products have great appeal to this class. So a wide
variety of retail lending products has a very large and easily pregnable market.
A large number of private banks coming into the market in the recent time. In this
competitive environment MBL must expand its product line to enhance its sustainable
competitive advantage. In that product line, they can introduce lots of the ATM to
compete with the local and the foreign bank.
In addition of those things, MBL can introduce special corporate scheme for the
corporate customer. At the same time, they can emphasize more on various social
activities because it has these opportunities.

7.4.4. Threats
o The default risks of all terms of loan have to be minimizing in order to sustain in the
financial market. Because default risk leads the organization towards to bankrupt.
Mercantile Bank has to remain vigilant about this problem so that proactive strategies
are taken to minimize this problem if not elimination.

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o The low compensation package of the employees from mid level to lower level position
threats the employee motivation. As a result, good quality employees leave the
organization and it effects the organization as a whole.
o In recent years, the numbers of private bank is increasing. These banks always pose a
threat for others by coming up with new product line, innovative technology, quality
services, etc. thus the level of competition rises and create threat for Mercantile bank
Ltd.
o Compared to their private banks of Bangladesh, the compensation of MBL is not so
attractive. This poses a threat on the employees of switching to other banks from MBL.
o

Daily basis interest on deposit offered by HSBC.

7.5. Findings
The study mainly focuses on the Financial performance and Foreign Exchange Operations
of MBL. All the findings that are originated from my analysis are enumerated below fewer than
two broad heads:
Findings from financial performance analysis of MBL:
After analyzing the financial and overall performance of MBL, I have identified some sort of
issues which are given in below:
The Bank is too much centralized. For each and every work branch office has to get
permission from the head office. The head office tightly controls each and every branch
office. This dependency on head office causes slow down their activities.
Interest rate on deposit is much higher than other banks, which increase their cost of
fund and it diminish the opportunity to provide loan at a lower interest rate. It makes
high demand on short term deposit and manages these liabilities with loan they might
need to borrow from call money market.

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 Mercantile Bank Limited has committed to their prospective customers to honor its of
cheque with in 30 second after submission but unfortunately they are not able to fulfill
this.
MBL is 3rd generation bank of our country. The liquidity level of the bank is fluctuating
year to year and always below the standard limit.
The banks operating cost to income ratio is increasing year by year which is not
desirable.
The banks net profit margin is decreasing yearly which indicates that the bank is run in
a worst situation.
The bank has financed on an average of above 93% of its total assets with debt in every
year. So the bank should more emphasize on equity capital than the debt capital.
PC bank is not comprehensive banking software. It is desirable that a more
comprehensive banking should replace PC bank system.
Findings from foreign exchange operations analysis of MBL:
General foreign exchange service portfolio: Foreign Exchange operations mainly include
L/C, Import and export procedures. As an Authorized Dealer, MBL, Main Branch is always
committed to facilitate import of different goods into Bangladesh from the foreign countries.
Import Section, which is under Foreign Exchange Department of the branch.
Different Means of Payment: The bank provide different means of payment for the importers
and exporters whereas they prefer. The clients make their payment by Cash in advance, Open
Account, Collection Method, Letter of credit.
Concentrate on Export Incentives: The bank is currently concentrated on different types of
export incentives to attract the actual and potential customers. They are Financial Incentives,
General Incentives, and Other Incentives. Most of them are already implemented.
Growing fastest Correspondent Relationship: The number of foreign correspondents is
584 as of December 31, 2007. Efforts are being continued to further expand the Correspondent

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Relationship to facilitate Banks growing foreign trade transactions. The Bank is using SWIFT
communication system for fast and accurate handling for foreign trade. The Bank is connected
to REUTERS also for up-to-date information.
Other findings of the study are:
The Foreign Exchange Department is very much Strong. Clauses they use in dealing
with the foreign Bank in term of L/C opening and amendment of L/C, are very much
expedient to the foreign Bank. It is giving a competitive advantage to the MBL. For this,
businessmen like to deal their business with the MBL.
The operations of international trade are as per local and international laws, rules,
customs and practices.
The top executives and officers are very helpful to the clients. Some of our businessmen
do not know the exact procedures of international trade. The officers of MBL help them
to properly execute their business.
Financing in the international trade is very crucial for the economy as well as it is risky.
Sometimes the government imposes restriction to import and export some products. As a
result the rate of opening L/C become reduces.
MBL provide little assistance in relation with foreign exchange to the small entrepreneur
comparing to large business houses. Small entrepreneur has to keep higher margin,
sometimes 100%, regarding opening a L/C.
The presence of modern data processing and communication equipments is inadequate
in MBL. This cause a considerable degree of inefficiency in the banks performance,
especially in the foreign exchange department.
Internal Control System (ICS) of MBL is not up to the standard (as per BAS).
Anti money laundering procedures of the bank is very effective.
The marketing strategy adopted by the bank is effective but not efficient. The
appearance of the bank in the printing media and electronic media has become a matter
of fortune.
The specialization of the personnel on a particular task is not ensured. It has been found
that executives are transferred from one department to another department frequently,

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from branch to another in every three years without ensuring that they are acquainted
with the task.
The expansion process of the bank has little match with the modern pace of
globalization. Despite being stoned in 1999, the bank has only 53 branches now. Even it
does not have branch in many commercially and industrially important places.

Financial Summary of MBL

Deposits:

The Bank mobilized total deposits of BDT 49,538.36 million as of December 31, 2008 as
compared to that of BDT 39,348.00 million up to December 2007. Competitive interest rates,
attractive deposit products, deposit mobilization efforts of the Bank and confidence reposed by
the customers on the Bank contributed to the notable growth in deposits.

148

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Loan & advance

The bank has formulated a policy to give more priority to small and medium enterprises (SME)
while financing large-scale enterprises through consortium of banks.

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Import Trade
Mercantile Bank Limited has opted quality financing while facilitating import trade in 2008.
During the year, the Bank executed a total of 20,321 Letter of Credit amounting to BDT
56,528.80 million. The principal items were capital machineries, garments & accessories, rice,
wheat, sugar, CDSO, vegetable oil, cement, clinkers, hot roll steel, raw cotton, ships-breaking
etc.

Export Trade
The Bank is very much supportive in export financing since its inception. As an outcome of its
positive attitude, in export performance it is holding the top position among leading banks of
new generation. A total of 17,581 export bills were handled worth BDT 43,108.50 million in
2008. The main export items of the Bank were Readymade Garments, jute & jute goods, leather,
handicrafts, tea, frozen food, fish products etc.

Foreign Remittance
Total foreign remittance in the single year in 2008 made a record high to the tune of BDT
4,722.90 million. The Bank has deepened its step on the foreign soils further by establishing
more and more remittance arrangements with overseas exchange companies where Bangladeshi
expatriates are working. These include United Kingdom, U.A.E, Kuwait, Bahrain, Canada,
Italy, France etc.

Asset Portfolio
The Banks total assets outstanding as of December 31, 2008 amounted to BDT 55,928.72
million.

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1(f) Financial Summary:

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Economic Value Added Statement:

Economic Value added (EVA) indicates the true economic profit of the company. EVA is an
estimate of the amount by which earnings exceed or fall short of the required minimum return
for shareholders at comparable risk. EVA of the Bank stood at BDT 497.32 million as of
December 31, 2008 as against that of BDT 263.46 million in 2007.

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1(g) Market Value Added Statement:

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1(h) Operating Profit:

1(i) Total Income:

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1(j) Interest Income:

1(k) Interest Expense

148

1(l) Total Expense

148

1(m) Profits After Tax

1(n) Earnings per Share (EPS)

Schedule Charges of Foreign Trade

148

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Chapter 8

Recommendation & Conclusion

148

8.1. Recommendation
I had the practical exposure in Mercantile Bank Ltd. for just three months, with my little
experience in the bank in comparison with vast and complex banking system; it is not so easy to
recommend some suggestion to enhance the performance level of the organization. I have
observed some shortcomings regarding operational and other aspects of their banking. On the
basis of my observation I would like to present the following recommendations:

o The Branch should move to the fully automated banking system. This will save a lot of
time of personnel working here and will increase their and the Banks performance
thereby.
o In case of importing goods the Bank should aware about over invoicing so that nobody
can get chance to send money abroad illegally.
o In case of exporting goods the Bank should aware about under invoicing so that nobody
can get chance to avoid Tax, Vat, and Duty.
o MIS cell should be developed through internal; tax e-mail etc.
o Accounting system of the Bank should be software base.
o Fund management of the Bank should be more efficient. This will reduce the average
cost of working fund.
o Productivity measurement should be done from time to time through developing
customer services.
o Stuck up advances should be reduced through more recovery at lower rate of interest.
o If the bankers can scrutinize the Commercial invoice it will decrease the Money
Laundering.
o The Assistant Commissioners of Tax can contribute more. They must be more careful
about invoicing and restricted products.
o Internal control system MBL to be further strengthened.
o Mercantile Bank Ltd. Foreign Exchange Department now using only one software and
that is PC BANK. But recently the bank is taking initiatives for installing new

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software named TEMONUS T24. It is very dedicated software. It has real time online
banking,

ATM facilities and E-banking and lot of more. So I think it will be a great progress for
the bank.
o The bank should introduce new innovative products to attract new potential customers
and also keep its existing customer happy.
o Improve own ATM network and maintain sufficient fund in ATM booth.
o ATM card facilities are not easy of MBL. So they are losing their many potential
customers. So I think MBL should take necessary step to easy their ATM card facilities
for their customers.
o Bank should hold and increase overall satisfaction rate and provide modern service,
modern equipment, light behavior, physical facilities and so on.
o There are more gaps are showing between perception and expectation of the
respondents. As soon as possible remove this gap, which are existing between clients
and Bank
o The bankers must be careful in financing international trade So that, the bank does not
fall in bad loss provision sated by BB.
o Bank should fixed-up specific types of client strategy according to the different
character of client.
o Commission income occupies the major part of the total earnings of a bank and banks
profitability mainly depends on commission earning capacity, so research and
development cell of the bank should put more effort for the purpose of introducing an
efficient Foreign Exchange department.
o Human resource is another sector for the branch to be developed urgently. Human
resources in the branch need to be equipped with adequate banking knowledge. They
should have basic knowledge regarding money, banking, finance and accounting.
Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can
arrange sufficient training program on these subjects.

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o Many times, the branchs photocopier remains out of order. Printers are of obsolete
technology. ACs gets out of order frequently. Attention should be given on proper
maintenance and replacement of phone, computer, printer fax, machine and photocopier.
o Bank can introduce more advanced MIS system to mobilize its day to day activities. It
will help the employee to do their works more quickly and at the same time maintaining
their quality of work.
o The management should impart more emphasis on the advertisement of the bank in
different electronic and printing media. The Basic goal of the advertisement should be
firstly to make people know and understand that the bank is universal one and permits
anyones access.
o The spread out mechanism of the bank should be faster and progressive as well. Being
established in 1999, the bank has established only 41 branches in ten (10) years. The
mode of extension is much slower than other contemporary and equivalent banks.
Branches should be opened in every industrial and commercial corner of the country.
o More products of varied interests should be introduced for the diversified client group.
Opportunity in retail banking lies in the fact that the countrys increased population is
gradually learning to adopt consumer finance. The greater bulk of our population is of
middle classed. Different types of retail lending products would create great appeal to
this mammoth class. So a wide variety of retail lending products has a very large and
easily pregnable market. I think the Management should employ at least few more
employees in Foreign Exchange Department of Dhanmondi Branch. I have seen from
my practical experience that many customers wait for a long time for any service as they
see that the some concerned officials are doing their best to meet the requirements of the
customers. But as the Foreign Exchange procedure is designed with many small tasks.
There is a burning need for some additional employees. The workload in this department
is so high that at every quarter in the year MBL places a good number of interns in this
division.

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8.2. Conclusion:
Banking is becoming more and more vital for economic development of Bangladesh in
mobilizing capital and other resources. Mercantile Bank, being a third generation bank, is also
extending such contributions as to the advancement of the socioeconomic condition of the
country.
It is not possible to get 100% from anywhere especially for those organizations which with mass
people. MBL has some problems but it is encouraging that they are trying to overcome these
obstacles.
My main objective of doing internship in a bank was to know about the Banking procedures.
Though my topic is Foreign Exchange Operations of MBL So I have spend most of the time
in this section. My experience in MBL foreign exchange department has provided me with an
insight in the day to- day operations of a bank.
It is not possible to get 100% from anywhere especially for those organizations which deal with
mass people. MBL has lot of problems especially in Dhanmondi Branch. But it is encouraging
that Dhanmondi Branch is continuously trying to overcome these obstacles. In comparison with
other branches of MBL the performance of Dhanmondi branch is quite satisfactory.
The overall performance of MBL despite some criticism is above the average of present banking
industry. Solid revenue growth together with strict discipline on expenses and a culture of sound
risk management have upgraded the Bank to a level of excellence. In its pursuit of excellence,
the Bank constantly reviews its systems, policies, process and prices of its products and services
in line with the changing market reality. Thus, MBL intends to pave the way for a new era in
banking

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Chapter 9

Acronyms & Bibliography

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9.1. ACRONYMS
C&F : Clearing and Forwarding
CRF : Clean Report of Finding
CRM : Credit Risk Management
DD : Demand Draft
EPB : Export Promotion Bureau
EXP : Export
EC : European Community
EDBP : Foreign Documentary Bill Purchase
ERC : Export Registration Certificate
FBPAR : Foreign Bills Payment Awaiting
FDR : Fixed Deposit Receipt
FOB : Free on Board
IFDD : Issuance of Foreign Demand Draft
IBCA : Inter Branch Credit Advice
IBDA : Inter Branch Debit Advice
IFBC : Inward Foreign Bills for Collection
IMP : Import
LCA : Latter of Credit Authorization
L/C : Letter of Credit
LBP : Local Bill Purchase
MBL : Mercantile Bank Limited
OBC : Outward Bill Collection
OD : Over Draft
PAD : Payment against Document
PO : Payment Order
STD : Short Term Deposit

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 TC : Travelers Cheques
TT : Telegraphic Transfer
BB : Bangladesh Bank
SWIFT :Society for Worldwide Inter Bank Financial Telecommunication

9.2. Bibliography:
Annual report of MBL
www.mblbd.com
www.wikipedia.com
A text book of Banking by Radhaswami
Bangladesh Bank circular
Probationary officer training lecture sheet
Reading Materials of the Course On: International Trade Payment and Foreign
Exchange, 2004, Bangladesh Institute of Bank Management.
Foreign Remittance records, Mercantile Bank Limited.
Rose, Peter S. (1999), Commercial Bank Management, Fourth Edition, Irwin-McGrawHill New York.
Research Methodology of C. R. Kothari.
Foreign Exchange Regulation Act, 1947 (VII of 1947).
The Foreign Exchange Market; Eiteman et al., Chapter 4; winter 2004.
Daily Statement of Mercantile Bank Limited at Dhanmondi Branch, Dhaka.
Monthly Report of Mercantile Bank Limited of the year, 2008.
Schedule Bank Statistics of Mercantile Bank Limited, July-December,2008,
Statement of affairs of MBL, Dhanmondi Branch.

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9.2. Appendix

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