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Letter of Submission

Date: To The Head Department of Business Administration University Of Science And Technology Chittagong Subject: Submission of Internship Report. Dear Sir, It is my pleasure to submit my Internship Report on An Overview of General Banking and Foreign Exchange Mechanism of Bank Asia Limited, Khatungonj Branch, Chittagong to you after completion of three months internship program with Bank Asia Ltd. I tried my best to gather relevant information for preparing a complete report. Without the sincere co-operation and proper guidance of you, it is not possible for me to prepare the report. For this act of kindness I am grateful to you. This report is not free from mistakes due to some limitations. I hope you accept it with gracious consideration.

Sincerely Yours, ---------------------------Signature KEYA DEBI ROLL NO 347 (Major in Finance) Department of Business Administration University Of Science And Technology Chittagong.

Bank Asia
Limited

TABLE OF CONTENTS
Content----------------------------------------------------------------------------------Page Acknowledgement ------------------------------------------------------------------- 1 Executive Summery -----------------------------------------------------------------2 Chapter 1 ------------------------------------------------------------------------------4 Introduction ---------------------------------------------------------------------------4 Organization Overview-------------------------------------------------------4 Origin of the Report -----------------------------------------------------------4 Background of the Study ------------------------------------------------------5 Objectives -----------------------------------------------------------------------5 Scope of the Study -------------------------------------------------------------6 Methodology ------------------------------------------------------------------- 6 Limitations --------------------------------------------------------------------- 7 Chapter 2 -------------------------------------------------------------------------------- 8 Organization Briefing ----------------------------------------------------------------- 8 Corporate Information---------------------------------------------------------- 8 Organizational Hierarchy ------------------------------------------------------ 9 Management Hierarchy -------------------------------------------------------- 10 Khatungonj Branch ------------------------------------------------------------- 11 Mission statement & corporate objectives -----------------------------------11 Corporate Objectives ------------------------------------------------------------ 12 Values that are considered to be the Guiding Factors ---------------------- 12 A Brief Overview of the Principles Businesses of Bank Asia ------------- 13 Performance of Khatungonj Branch ------------------------------------------- 15 Major Findings & Analysis ------------------------------------------------------ 16 Chapter 3 ------------------------------------------------------------------------------------- 20

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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General Banking ---------------------------------------------------------------------------- 20 Customer Service -------------------------------------------------------------------- 20 Accepting Deposits ------------------------------------------------------------------- 21 Procedure of Opening Accounts ------------------------------------------------------- 21 Types of Deposits accounts & their Formalities ------------------------------------ 21 Cheque Book Prepare ------------------------------------------------------------------- 25 Other Tasks ------------------------------------------------------------------------------- 25 Accounts Department -------------------------------------------------------------------- 26 Daily Tasks -------------------------------------------------------------------------------- 26 Periodical Tasks --------------------------------------------------------------------------27 Annual Closing -------------------------------------------------------------------------- 27 Local Remittance ---------------------------------------------------------------------- 28 Pay order -------------------------------------------------------------------------------- 28 Demand Draft --------------------------------------------------------------------------- 29 Telegraphic Transfer ------------------------------------------------------------------- 30 Collection -------------------------------------------------------------------------------- 31 Outward Bill Collection ---------------------------------------------------------------- 32 Clearing ----------------------------------------------------------------------------------- 32 Chapter 4 ------------------------------------------------------------------------------------------34 Foreign Exchange Mechanism --------------------------------------------------------------- 34 The meaning of Foreign Exchange --------------------------------------------------- 34 Objectives of Foreign Exchange ----------------------------------------------------- 35 Foreign exchange dept. of Bank Asia, Khatungonj Branch ---------------------- 35 Foreign Exchange Mechanism -------------------------------------------------------- 36 Import Dept. ----------------------------------------------------------------------------- 37 Major Tools in Foreign Exchange: Letter of Credit ------------------------------ 40 Lodgment of Documents procedure ------------------------------------------------ 44 Parties Involved in L/C -------------------------------------------------------------- 44 Different Types of L/C provided by Khatungonj Branch ----------------------- 47 Advantages & Disadvantages of L/C ----------------------------------------------- 50 Types of Contacted price for L/C --------------------------------------------------- 51 Nature of Credit ------------------------------------------------------------------------52 Foreign Remittance -------------------------------------------------------------------- 54 Documents Needed for Import & Export Procedure ------------------------------ 55 Export Department ----------------------------------------------------------------------56

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Post shipment Credit ------------------------------------------------------------------- 59 Back to Back L/C ------------------------------------------------------------------------ 60 Reporting to Bangladesh Bank -------------------------------------------------------- 61 Export L/C --------------------------------------------------------------------------------62 Procedure for FDBP -------------------------------------------------------------------- 65 Foreign documentary Bills for Collection ------------------------------------------- 65 Export Bill Scrutiny Sheet ------------------------------------------------------------ 66 Settlement of Local Bills -------------------------------------------------------------- 66 Accounting Treatment for Purchasing of Local Bill ------------------------------ 66 Mode of payment of Export bills Under L/C -------------------------------------- 67 Advising L/C --------------------------------------------------------------------------- 68 Test Key Arrangement ---------------------------------------------------------------- 68 Chapter 5 ---------------------------------------------------------------------------------------- 69 Conclusion and Recommendation ------------------------------------------------------------ 69 Bibliography -------------------------------------------------------------------------------------72.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Acknowledgement
All praise to be the creator and sustainer who has given me strength and opportunity to complete this report. It is indeed a great pleasure and honour on my part to have the opportunity to submit this report after three months of practical orientation in Bank Asia Limited. This practical orientation was meant to familiarize me with the real life banking. No report is fulfilled without the help of others. Some people spread their hands to me for preparing this report. Here I remember the gentlemen and specify those. I cannot forget to mention their name. At first, I would like to thank to our honorable teacher Dr. Md. Solaiman Dean, Faculty of Business Administration (USTC) and Mr. Shaidul Queder Lecturer. Department of Business Administration who have requested Bank Asia Limited for my internship program. In this connection I would also like to thank Mr. Surajit Sarbabidya Assistant Professor, Department of Business Administration (USTC) of our internship program for all of the possible help. I would like to express my gratitude and heartfelt thanks to my internship supervisor Mr. Shaidul Queder Lecturer, Department of Business Administration for his kind guidance, generous co-operation and valuable suggestions pursuing internship and this report. I would like to pass thanks from the core of my heart to Mr. Swapan Das Gupta, Senior Vice- President & Manager, Bank Asia, Khatungonj Branch, Ctg for his unconditional support, which facilitated me to complete my internship in the bank successfully. I also wish to render my grateful thanks to all senior and junior officers of Bank Asia Ltd., Khatungonj Branch, who helped me during the time of my internship program at the bank. I must mention the excellent working environment and the positive group behavior of this bank, which helped me tremendously to observe the banking activities, work with the staffs and stay for three months without any hesitation. Keya Debi , 2007

CHAPTER 1 INTRODUCTION

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Organization Overview
Bank Asia began its journey on the 27 th of November 1999 with the inauguration of the banks Corporate Office at the Rangs Bhaban. The overwhelming public response has enabled the Bank to keep up the plan of expanding its network. The opening of the Principal Office was the big leap forward and successively the opening of Gulshan and Chittagong Branch expanded the horizon of Bank Asia to bring its services to the valued clients more effectively.

Bank Asia conducts all types of commercial banking activities. The core business of the bank comprises of import, export, working capital finance and corporate finance. The bank is also rendering personal credit, services related to local and foreign remittances. The Personal Credit scheme of the bank, which is designed to help the fixed income group in raising standard of living is competitively priced and has been widely appreciated by the customers. The banks strategy is to gradually cover the total arena of banking. The objectives of Bank Asia are to provide high quality service to its customers, to participate in the growth and expansion of our national economy, to set high standards of integrity, to bring total satisfaction to our clients, shareholders and employees, and to become the most sought after bank in the country, rendering technology driven innovative services by the dedicated team of professionals. Bank Asia came into the headlines and attention of everyone when it acquired the operation of Bank of Nova Scotia, a Canadian Bank. This is the first time that a local private bank acquired any operation of a foreign bank in Bangladesh. The breakthrough was possible for some visionary decision-makers and also dedicated team of professionals who are constantly putting all their best efforts to establish the bank as one of the leading concern in the industry. Origin of the report

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

Present world is changing rapidly to face the challenge of the competitive free market economy. To keep pace with the trend banks need executive with modern knowledge. After complete the BBA course, I am assigned to write a report (which is known as internship) on the experience that I gain three months long orientation in the different departments of khatungonj branch of Bank Asia Limited.

Background of the study I have tried to prepare the report in such a way that it reflects what I learn during the orientation period. I tried to clarify my experience with practical knowledge on overall banking activities.

Objectives
1. The primary objective in this research paper is to fulfill the partial requirement in the Bachelor of Business Administration (BBA) degree. 2. Besides fulfilling the degree requirement, this internship report intends to cover a comprehensive analysis of banking activities of khatungonj Branch of Bank Asia. 3. The report is aimed at studying and understanding the various products offered by the Banks each Department to its clients as well as the several activities carried out to achieve the departmental objectives. 4. In addition, the report also studies how Bank Asia, khatungonj branch is maintaining growth in overall banking activities. 5. To comply with the entire branch banking procedure. 6. Finally, this internship report also aims to analyze the performance of the branch as well as Bank Asia Limited as a whole.

Scope of the study

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Bank Asia limited is one of the leading banks in Bangladesh. The scope of the study is limited to the khatungonj Branch only. The report covers the organizational structure, background, banking activities, functions and the performance of the branch. I mentioned about the government rules and regulations on different banking activities.

Methodology
Certain methods and techniques were utilized to collect data for this report. Both primary and secondary sources were chosen as effective means of collecting data relevant for this report. Interview was the basic technique that was employed to collect primary data from people within the organization. For the procedure of different banking operations, I had observed the operations and worked with the officers at the same time. I had interviewed the Bank Asia Officials for getting more information. On the other hand, secondary sources were used to collect data regarding the companys performance since its inception. Publications and database within the organization helped me to gather data not only about the organization. In addition, further more the secondary sources of information are the different annual report kept in the banks.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Limitations
This report may have some incompleteness due to some of the limitations I encountered while completing it, that are mentioned below: 1. One major limitation was the time constraint as every department has many activities. This report could have been prepared in a much broader and extensive manner with more time and space availability. 2. Some essential data could not be gathered because of confidentiality concerns. 3. I was not able to visit the different branches of Bank Asia and had to depend on the Khatungonj Branch for all the information regarding overall banking. 4. Another limitation was that the information gathered could not be verified for accuracy.

CHAPTER 2 ORGANIZATION BRIEFING Bank Asia

Corporate Information

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Letter of intent received on 24/02/1999 First meeting of the promoters held on 15/04/1999 Certificate of incorporation received on 28/09/1999 Certificate of commencement of business received on 27/09/1999 First meeting of the board of director held on 01/10/1999 Banking license received on 06/10/1999 Branch license received on 31/10/1999 Inauguration held on 27/11/1999 Authorized capital :800 million Paid up capital:218 million Total number of promoters:22 Total number of director :13 Auditor :S.F.Ahmed &Co(SFACO)chartered accountants Legal advisor: Lee, Khan ,&Associates Registered office:113-116 old airport road (8th floor) Tejgaon Dhaka -1215, Bangladesh

ORGANIZATIONAL HIRARCHY
OF BANK ASIA LIMITED
CHAIRMAN VICE CHAIRMAN MANAGING DIRECTOR SENIOR EXECUTIVE VICE PRESIDENT

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Bank Asia
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EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT FIRST EXECUTIVE VICE PRESIDENT SENIOR EXECUTIVE OFFICER EXECUTIVE OFFICER SENIOR OFFICER OFFICER MANAGEMENT TRAINEE OFFICER JUNIER OFFICER ASSISTANT OFFICER BANKING OFFICER TELLER

MANAGEMENT HIRARCHY OF
BANK ASIA LIMITED
KHATUNGONJ BRANCH

SENIOR VICE -PRESIDENT & MANAGER

SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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SENIOR OFFICER

OFFICER

MANAGEMENT TRAINEE OFFICER

ASSISTANT OFFICER

BANKING OFFICER

TELLER

Khatungonj Branch
On 24th September, 2002 Khatungonj branch (17 th Branch of Bank Asia) started their business activities in khatungonj area. Khatungonj Branch is the chartered member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) among Bank Asias other branches. SWIFT is widely used for purposes like fund transfers, L/C and guarantee issuance that can be made instantly. Khatungonj branch is operated with 15 employees, three of whom were previously engaged with MCB (Muslim Commercial Bank), two were previously engaged with FSBL (First Security Bank Limited), and rests were brought from

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

different branches of Bank Asia. Currently, the Khatungonj Branch offers corporate banking, correspondent banking, and treasury services to its customers including local corporations, multinational companies, multinational agencies, domestic missions and other donor agencies, NGOs, and financial institutions. It also offers a limited range of retail banking products to provide for individual banking needs as well.

Mission Statement and Corporate Objectives MISSION


To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy. To set high standards of integrity and bring total satisfaction tour clients, shareholders and employees. To become the most sought after bank in the country, rendering technology driven innovative services by our dedicated team of professionals.

Corporate Objectives
Bank Asias objectives are reflected in the following areas. Highly personalized service. Customer-driven focus. Total commitment to quality. Outstanding products. Contribute in the economy Quality of human resources Commitment to its clients at each level

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Bank Asia
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The company believes that communication with, and feedback from, its clients help it achieve its goal of providing world-class products and services. Bank Asia regularly conducts client satisfaction surveys and make immediate accommodations and adjustments where needed. It also constantly monitors its standards, and strives to meet clients requirements.

Values that are considered to be the guiding factor


All the activities and decisions of Bank Asia are based on, and guided by, these values. 1. Placing the interests of clients and customers first. 2. A continuous quest for quality in everything the company does. 3. Treating everyone with respect and dignity. 4. Conduct that reflects the highest standards of integrity. 5. Teamwork from the smallest unit to the enterprise as a whole. 6. Being good citizens in the communities, in which they live and work.

A Brief Overview of the Principal Businesses of Bank Asia, Khatungonj Branch


Trade Financing
The acquisition of Khatungonj Branch gave Bank Asia new strength in its trade

financing activities. Previously Bank Asia was not facilitated with SWIFT which is very crucial in efficient modern banking correspondence. Now the Khatungonj Branch has correspondence with over 800 financial institutions worldwide. Khatungonj Branch provides L/C payment, L/C advising, negotiation, reimbursement, shipping guarantee, export bill collection services to its valued clients. Khatungonj Branch becomes, in effect, Bank Asias one of the strongest

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

international banking arms, helping to serve their clients through its global network.

Corporate Banking
Bank Asia, Khatungonj Branchs corporate banking arm provides a range of products and services that address the financing needs and transaction structuring requirements of large and mid-sized corporate customers. Services provided include loan syndication and asset sales, corporate advisory, trade finance, and working capital and term financing. Working closely with the Banks trading professionals; Corporate Banking also provides a range of foreign exchange, interest rate management and risk management products.

Private Banking
The Private Bank at Bank Asia, Khatungonj Branch meets client needs with a line of discretionary portfolio management, custodial services, foreign exchange, deposit services, credit facilities, and personal banking services.

Retail Banking
Retail Banking at Bank Asia, Khatungonj Branch provides all types of clients with typical banking services such as, savings accounts, current accounts, call and short-term deposit accounts, fixed deposit accounts, time deposits, foreign currency accounts and secure locker services.

Treasury Services
The treasury department of Bank Asia, Khatungonj Branch, equipped with Reuters dealing system, provides the following services: Competitive foreign exchange rates in all major currencies. Attractive rates for foreign currency deposits. Forward covers to hedge trade transactions.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Dealing rooms in all major financial centers.

PERFORMANCE OF KHATUNGONJ BRANCH

Bank Asia Limited, Khatungonj Branch starting their banking activities only two and half years, which I think is not a enough time for a branch to show their full capabilities in the banking activities because there are more then 20 banks branch compete also in khatungonj area. However, Bank Asia khatungonj branch already establish good image in the areas banking activities by providing faster customer service then other banks. In the short time of starting banking activities, Khatungonj branch giving good contribution in profit then other branches of bank Asia Limited. During internship period the performance of the khatungonj branch are given below:

Total Deposit Total Advance Interest Income

May, 2006 83,91,58,872.36 1,00,87,15,136.00 1,08,54,285.83

Jun,2006 81,43,16,282.67 1,07,18,12,365.92 1,14,73,981.63

July,2006 76,82,01,414.28 1,24,18,42,735.78 1,39,01,474.33

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Other Income Total Income Interest Expenses Other Expenses Total Expenses Net Provisional Profit/Loss Import Export

16,57,039.88 1,25,11,325.71 61,08,303.19 12,93,144.81 74,01,458.00 51,09,867.71 19,26,78,921.50 1,75,58,765.00

22,37,875.63 1,37,11,857.26 69,64,736.12 11,88,115.83 81,52,851.95 55,59,005.31 54,46,25,528.28 25,68,675.97

24,23,087.22 1,63,24,561.55 81,04,786.43 9,99,496.23 91,04,282.66 72,20,287.89 61,97,81,342.65 29,29,410.00

From the above data, it observed that Bank Asia, Khatungonj Branch try to contribute every month in profit or loss then other branch. In the month of July, Khatungonj branch earn more profit then zonal head office as well as rest of other branch in Chittagong city.

Major Findings and Analysis


Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle. The following will briefly introduce the audience to the Bank Asias internal strengths and weaknesses, and external opportunities and threats as I have explored in the past ten weeks.

Strengths
Superior quality
Bank Asia provides its customers excellent and consistent quality in every service. It is of highest priority that customer is totally satisfied.

Dynamic
Bank Asia draws its strength from the adaptability and dynamism it possesses. It has quickly adapted to world class standard in terms banking services. Bank Asia has also adapted state of the art technology to connect with the world for better communication to integrate facilities.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Financial strength
Bank Asia is a financially sound company backed by the enormous resource base of the mother concern RANGS group. As a result customers feel comfortable in dealing with the company.

Efficient management
All the levels of the management are solely directed to maintain a culture for the betterment of the quality of the service and development a corporate brand image in the market through organization wide team approach and open communication system.

State of the art technology


Bank Asia utilizes state-of-the-art technology to ensure consistent quality and operation. The proof of that can be found in one of its branches, Scotia that is equipped with Reuters and SWIFT. All these facilities will be introduced in every branch very shortly.

Expertise
One of the key-contributing factors behind the success of Bank Asia is its employees who are highly trained and most competent in their own field. Bank Asia provides their employees training both in-house and out side job.

In-house utility
Bank Asia is free from dependence from the ever-disruptive power supply of our public sources. The required power is generated by the company through generator fed on diesel. Water generation at present is also done by deep tube wells on site and is abundant in quantity.

Excellent working environment


Bank Asia provides its workforce an excellent place to work in. Total complex has been centrally conditioned. The interior decoration was done exquisitely with the choice of soothing colors and blend of artiste that is comparable to any multinational bank.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Weaknesses
Limited workforce:
Bank Asia has very limited human resources compared to its financial activities. There are not many people to perform most of the tasks. As a result many of the employees are burdened with extra work loads and works late hours without any overtime facilities. This might cause high employee turnover that will prove to be too costly to avoid.

Problem in delivery
Few of the Bank Asias products offered to its clients like Money++ and Personal Credit (PC) are lying idle due to proper marketing initiative from the management. These products can easily be made available in attractive way to increase its client base as well as its deposit status.

Opportunities
Government support
Government of Bangladesh has rendered its full support to the banking sector for a sound financial status of the country, as it is becoming one of the vital sources of employment in the country now. Such government concern will facilitate and support the long-term vision for Bank Asia.

Evolution of e-banking
Emergence of e-banking will open more scope for Bank Asia to reach the clients not only in Bangladesh but also in the global arena. It will also facilitate wide area network in between the buyer and the production unit of Bank Asia to smooth operation to meet the desired need with least deviation.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

Threats
Mergers and acquisitions
The worldwide trend of mergers and acquisition in financial institutions is causing concentration the industry and competitors are increasing in power in their respective areas.

Poor telecommunication infrastructure


As previously mentioned, the world is advancing towards e-technology very fast. Though Bank Asia has taken effort to join the stream, it is not possible to complete the mission due to the poor technological infrastructure of our country.

Frequent currency devaluation


Frequent Taka Devaluation and foreign exchange rate fluctuations and particularly South-East Asian currency crisis adversely affects the business globally.

Emergence of competitors
Due to existence of unserved demand in financial sector, it is expected that more financial institutions will be introduced in the industry very shortly. And we have already seen such cases in our country that lots of new banks are coming in the scenario with new services. Bank Asia should always be prepared for the competition in the coming years.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

CHAPTER 3 GENERAL BANKING


General banking is the starting point of all the banking operations. It is the department which provides day-to-day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, remit funds, issues bank drafts and pay orders etc. Since bank is confined to provide the services everyday, general is also known as retail banking. Customer Service Bank Asia Ltd. is providing modern banking facilities to the customer. It is committed to fulfill every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service and to bring maximum benefits for the customers, the shareholders and the society at large. Its a great pleasure of Bank Asia to introduce following services: 1. Deposit Growth plus (DG+): In this scheme, customer deposit monthly installments ranging from Tk. 1,000 to Tk. 5,000 and after 3 or 5 years receives a handsome amount of money. 2. Monthly Benefit plus (MB+): It is a 5 Year scheme that lets customer to earn monthly benefit of Tk. 1,000 its multiple by minimum initial deposit of TK. 1,00,000 or its multiple.

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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3. Double benefit plus (DB+): Its 6 or 10 Years scheme. Customers deposit double in 6 Years and treble in 10 years. Minimum initial deposit for the scheme is Tk. 10,00,000 or its multiple. 4. Bonus saving scheme: A savings account held by subscribers with minimum balance of Tk. 50,000 will attract not only the usual savings interest but a father 10% bonus on interest. 5. Customized Loan: This loan is for those customers who possessed Bangladesh Sanchay Patra. Which will mature the next 5 years but he needs money. 6. Personal Credit Scheme: Customer can borrow from Tk. 50,000 to Tk. 3,00,000 to meet their personal needs. 7. Corporate Credit: This scheme removes customers form fiscal obligation. The terms and conditions are simple and easier. To get only of these products, customer needs to open his/her account. Bank has some rules and procedures to open an account. The customer must observe proper documentation formalities before opening with bank.

Accepting Deposits
Bank Asia Limited accepts the deposits like other banks may be classified into : 1. Demand Deposits : These deposits are withdrawn able without notification e.g. current deposits bank Asia Limited accepts demand through the opening of a) Current account b) Savings account c) Call deposits the fellow bankers. 2. Time Deposits: Time deposits are payable at a fixed date of after period of notice. Bank Asia Limited accepts time deposits through fixed deposits receipt (FRD), short term deposit (STD) and bearer certificate deposit (BCD) etc. While accepting these deposits a contract is made between the bank and the customer. Procedure for opening of accounts Before opening of a current or savings account the following formalities must be completed by the customers:

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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1. 2. 3. 4. 5. 6.

Application on the prescribed form. Furnishing photographs Introduction by an account holder Putting specimen signatures in the specimen card Mandate if necessary After fulfilling the above formalities Bank Asia Limited provides the customer a cheque book.

Types of deposits accounts and their formalities Bank Asia Limited offers following types of accounts and the formalities in addition to then previous are as follows: Current Account: Every business men must have this type of account, because without this account a business men could not operate his daily financial activities and here client is very valuable for bank because client are high richer. So, Bank Asia Limited officers their client not interest or no restriction on this account. Current account can easily modify on loan a/c such as secured over draft (SOD) or over draft (OD) a/c. Following are the condition of current open: In the name of individual : The client has to fill up a light green account opening form terms and condition are printed on the back of the form The form contains the declaration clause special instruction etc Two copies of passport size photograph duly attested by the introducer are affixed with the form. In the joint name: In this type, the formality is the same as individual account but in the special instruction clause either or survivor or former clause is marked. Proprietorship: In addition customer has to submit the valid trade license and tax paying identification number (TIN) along with application. Partnership: In case of partnership account the bank asks for: A Copy of the partnership agreement. A letter having signature of all the partners containing the following particulars. The name and address of all the partners. The nature of the firms business,

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Bank Asia
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The name of the partners authorized to operate the account in the name of the firm. Including authority to draw, endorse and accepting the bills and mortgage and sell the properties belonging to the firm. Limited Company: To open an account for a limited company, bank asks for the following document: Registration certificate from the registrar of joint stock of companies. Certificate of Commencement of business. Memorandum of Association. Articles of Association. Copies of annual account. Copy of the Boards resolution which contains1. The Name of the persons who have been authorized to operate the bank account on behalf of the company. 2. The name of the persons who have been authorized to execute documents with the bank on companys behalf. Societies Clubs associations: In these cases, Bank Asia Limited requires the followings documents: 1. 2. 3. 4. Registration certificate under the societys registration Act 1962. Copies of Memorandum articles of association. Resolution of the managing committee. Power of attorney to borrow.

Savings Account: To encourage savings habit among the general public banks allow deposits to open savings account. Here rate of interest is 6% and customer must keep minimum balance of Tk. 15,000 if below not given interest and weekly cheque given only two. Also from year 2004, bank Asia Limited offers their Clients if they keep above balance Tk. 50,000 per month then they will earn bonus 10% on interest. The number of withdrawals is generally restricted. Requirements to be open an account are as follows: Account opening from to be filled up by the applicant. Two passport size photograph attested by the introducer is needed. Introductory reference to be obtained from account holder acceptable to the bank. Specimen signature of the application is taken on the signature card. In savings account minimum Tk. 500 is taken as deposit.

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Bank Asia
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For opening every type of account a signature card and different register for different types of account is maintained in the bank. An Account number is given for each account and the description of the account is entered in the computer. According to the rules of the bank a letter of thanks should be given to the account holder and to the introducer but in practice it is not done. Call Deposit: these deposits are raised from fellow bankers. They can be recalled by the lending bank or repaid by the borrowing bank anytime. The rate of interest is usually low, except when money market is tight. Short Term Deposit: In term deposits the deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. Here interest rate is 5%. In bank Asia Limited various big companies, organizations. Govt. departments keep money is STD accounts. Frequent withdrawal i discouraged and requires prior notice. Fixed Deposit Receipt: It also known as time deposits of time liabilities. There are the deposits, which are made with the bank for a fixed period specified in advance. The bank and need not maintain cash reserve against these deposits and therefore. Fixed Deposit Receipt: It also known as time deposit for time liabilities. These are the deposits, which are made with the bank for a fixed period specified in advance. The bank need not maintain cash reserve against these deposits and therefore, the bank offers high rate on such deposits. In bank Asia Limited FDR account is opened in three term basis-3 months, 6 months, 1 year and rate of interest based on amount i.e. within Tk. 1,00,00,000 (one corer) for 3 months interest is 8% for 6 months interest is 8.50% and for 1 year interest is 9%. Again, above Tk. 1,00,00,000 (one corer) for 3 months interest is 8.25% for 6 months interest is 9.50%. No cheque book required for this given customer FDR instruments. Now Bank Asia Limited also provides customer SMS banking service. Internet banking service and ATM banking service. Through SMS facility customer can access his/her account using his/her mobile phone anywhere, anytime at their convenience to know the account position. Subscribers also can access their accounts with Bank Asia to know: Balance and transaction information Alert message

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
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Promotional messages Wish messages Through internet banking customer can access his/her account to view and print the balance and account statement for any transaction date (s). How to use: www.Bankasia.net> Internet banking>Account No>Password. Through ATM banking customer allotted with initial secret passwords by the Bank Asia Ltd. The customer may change the password assigned by Bank Asia Ltd. As frequently thereafter as possible through their website/ATM booth. By ATM card client can collect money not over Taka 20,000 above per day.

Cheque Book Prepare


According to section 6 of negotiable instrument act, 1881, a cheque is A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. To facilitate withdrawals and payment to third parties by the customers, Bank Asia Limited provides a cheque book to the customer. Cheque Book contains 10 leaves for savings account, for current account or short term deposit account; it is 25 or 50 leaves. A cheque book issuing register is maintained in this regard. This register contains the cheque book number, leaf number, issuing date. After giving these entries to this register, information is sending to the computer department for taking necessary steps to pass the cheques during withdrawal. The cheque book also contains requisition slip, which is used by the customer to obtain new cheque book. When all the leaves are used, the customer submits slip to the bank. A senior official then issues a new cheque book and subsequent entries and given in the register and computer. If the cheque book is lost, the customer has to furnish a guarantee indemnifying the bank. After fulfilling this. a now cheque book is issued. Other task: Pay order issuing procedure Pay order payment procedure T T issuing procedure OBC & IBC procedure Responsibility by the officer: Describe his product and services to the client Give quick service to the client

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Handling them to the smiling face Maintaining a good customer relationship Take each customer with greater importance Checking account no, balance no, cheque serial and date carefully

Thus Bank Asia Limited committed to provide high quality of service to their customer, bring total satisfaction to their clients, shareholders and employees as they believe that marketing starts after the sale is over, not when the sale is completed.

Accounts Department:
Account department is called as the nerve center of the bank. In banking business, many transactions are everyday and these transactions are to be recorded properly and systematically as the banks deal with the depositors money. Any deviation in proper recording may hamper public confidence and the bank has to suffer a lot otherwise. Improper recording of transactions will lead to the mismatch in the debit side and in the credit side. To avoid these mishaps, the bank provides a separate department; whose function is to check the mistakes in assign vouchers or wrong entries or fraud or forgery. This department is called as Account Department. Besides the above, the bank has to prepare some internal statements as well as some statutory statements which to be submitted to the central bank. Account Department prepares these statements also. The department has to submit some statements to the head office, which is also consolidated by the head office later on. The tasks of the department may be seen in two different angles.

Daily Tasks:
The routine daily tasks of the account department are as follows: First task of accounts department is to open the server. Positing the transaction in the cashbook. Properly party account interest checking and follow up. Preparing the daily position of the branch comparing of the deposit and cash.

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

branch as per. Making payment of all the expenses of the branch. General ledger and subsidiary ledger separately. daily voucher properly recorded, maintained, checking and also register recorded. Daily cash position must match will computer entries and checking authorized Different deposit account interest, payment account, closing account charges realize Recording inter-branch fund transfer and providing accounting treatment in this Preparation of statement or weekly financial statement. Bank Asia general account calculation. One of the important task of Accounts department is daily end and day open in the

signature. and interest calculation etc. regard.

computer.

Periodical Tasks :
The routine periodical task performed by the department are as follows Preparing bill of month house rent, electric bill, telephone bill, interior decorator bill Monthly profit & loss account prepare. Preparing the monthly salary statements for the employees. Publishing the basis data of the branch. Monthly SBS-1 (Schedule Bank Statistics) and quarterly SBS-2 statement prepare. Preparing the weekly position for the branch, which is send to the Corporate Office to and security guard bill etc.

maintain Cash Reserve Requirement (CRR).

Annual Closing :
Bank Asia Limited has done their closing activities two times in a yer i.e. June closing & December closing. I have an opportunity to see and observe khatungonj branch closing from near. The balancing of all books and register shall to be done before begging annual closing work. The figures should be reported on the statement of the branch, if these are tailed with those of computer generated statement, books and registers of the branch.

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Before starting the work, day-end report of the previous day should be checked and verified. Following statement should be sent to the corporate office on the closing day. Business performance- deposit, loans & advance and profit or loss Statements of affairs-before closing Statements of affairs-after closing Statement of income and expenses SBS-1, SBS-2 and SBS-3 Statements of Furniture and fixture.

After calculating the branch total deposits, total advance, interest income, other income, total income, interest expenses, other expenses, total expenses, net provisional profit or loss, import and export and export etc. one copy with authorized officers signature sent to zonal head office and corporate office.

Local Remittance
In banking languages money transmitted domestically are known as local remittance. Sending money from one place to another place for the customer is another important service of banks. And this service is an important part of countrys payment system. For this service people especially businessmen can transfer fund from one place to another place very quickly. For local remittance purpose Bank Asia Limited purchase and sells some instruments for its customers. The instruments are Pay Order, Demand Draft, and Telegraphic Transfer etc.

Pay Order (P.O.) :Pay Order is an instrument which is used to remit money within a city through banking channel. The instruments are generally safe as most of them are crossed. P.O. gives the payee the right to claim payment from the issuing bank. Payment from issuing branch only generally used to remit fund within the clearing house area of issuing branch. Payment process of the paying bank is made through clearing and charge only commission and vat i.e. if amount is below Tk. 2,00,000 then commission is tk. 50 and vat is tk. 1 again if amount is above tk. 2,00,000 then commission is tk. 75 and vat is tk. 12. The bank payment order is in the from of receipt and issued by joint signature of two officials. It ensure payment to the payee as the money deposited by the purchaser of PO is kept in the

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banks own A/c named Payment Order A/C. Payment of the instrument to be made from the branch it has been issued. It is not transferred and therefore it can only be paid to : The payee in identification. The payees banker, who should certify that the amount would be credited to payee The purpose by cancellation provides the original PO is surrendered by him to the

A/c. bank.

PAY ORDER ISSUE PROCEDURE: Step 1 Filing of P.O. application form by the client with officers charges commission and other charges in the application form. Step 2 Step 3 By Transfer Cheque or By Cash Payment. If by transfer cheque, receive the cheque and confirm the acceptability of the cheque i.e. whether the cheque should be honored or not. If by cash payment, cash received by the officer and signed and sealed by him in the application. Step 4 By transfer Cheque, if honored debit the amount in the clients personal A/C and signed & sealed by the officer in the application form. Step 5 By transfer Cheque or cash payment, preparation of the pay order signed by two officers and issue to the client. Step 6 Posting in the pay order issue module and pas entries in the general ledger.

Demand Draft (D.D.) :

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Demand draft is an order to pay money, drawn by the one officer of bank upon another office of the same bank for a sum of money payable to order demand. A draft cannot be drawn payable to bearer of a named payee. A draft cannot be payable to bearer. Issuance of demand draft : While issuing DD an official must be confirmed about the branch where the DD is to be issued or drawn as asked for by the application. Application on prescribed form for DD is obtained from the applicant duty filled and signed by them. Transfer, application will be asked to deposit the amount of DD and exchange/commission computed correctly at prescribed rate. On receipt of cash voucher will be passed and scrolled by the offices, DD will be issued or record to DD issue register filling the appropriate columns. Test number if required is affixed on both DD and advice as instructions given by the head office. It is mentioned here that DD application is treated as credit voucher showing credit entry against contra branch (paying branch). For any amount of DD advice of IBCA should be issued and sent to drawee branch. Payment procedure : Proceeds by DD received by the paying bank as and when it responds the relative advice on receipt of DD advice from different branched the paying banker will verity genuineness of the advice by the way of verifying test and signature. Total amount of advice will be debited of SB A/C and credited to drafts payable A/C. On production of DD by the beneficiary payment will be made by debited to the A/C credited earlier. If payment is to be made before receipt of the advice, DD is paid being recorded in EXAdvice register by debit to drafts payable A/C (suspenses A/C DD paid without advice). Before making payment of the DD the branch will be as certain the genuineness of its insurance as well as the genuineness of the payee open drafts may be paid proper identification of the payee and crossed drafts can never be paid in cash over the counter. DEMAND DRAFT ISSUE PROCEDURE : Step 1 Step 2 Step 3 Step 4 Step5 Filing of P.O. application form by the client with officers charges commission and other charges in the application form. Receive cash or transfer cheque from the cline. Preparation of DD by the officer carefully Preparation of IBCA form by crediting the responding branch. DD and IBCA singed by the authorized officers and DD is given to the customer.

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Step6

Posting in the general ledger and IBCA sent to the responding branch.

Telegraphic Transfer (T.T) :


Telegraphic transfers are by far the quickest method of transferring fund from one place to another. The remitting branch sends a telegraph messages to the other end, to pay a certain sum of money to a named payee. Such a messages is usually sent in code languages. Prefixing or suffixing a check cipher authenticated the messages. a check cipher for a remittance is worked out on a test key table, access to which is allowed only To authorize officers. Ali TT are followed by written confirmations under the signature of authorized officer of the remitting branch. The receiving branch, after thoroughly checking the telegraphic messages, acts on it TELEGRAPHIC TRANSFER ISSUE PROCEDURE: STEP 1 FILLING OF P.O. APPLICATION FORM BY THE CLIENT WITH OFFICERS CHARGES COMMISSION AND OTHER CHARGES IN THE APPLICATION FORM. Step 2 Step 3 Step 4 Step 5 Receive cash for transfer cheque from the client. Message sent to responding branch through test number. Preparation of IBCA form by crediting the responding branch. Posting in the general ledger and IBCA sent to the responding branch.

Cancellation of PO/DD/IT : STEP 1 Step 2 APPLICATION IN WRITTEN TO THE MANAGER OF THE ACCOUNT MAINTAINING BRANCH. Verification of the specimen signature. Incoming Step 3 Outgoing Step 4 Bills Payable DD Payable ------------------ Dr. Bank Asia General A/C --------------------- Dr. Bank Asia General A/C --------------------- Dr.

Party A/C --------------------------------------- Dr. Send letter to the paying Bank.

Collection

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For safety and security people use financial instruments like DD, PO, Cheque etc. for financial instruments (bills) on their customers. the techniques that the Bank uses for this purpose are clearing sent for collection (SC) and Local Short Credit (LSC). when the bill is within the range of local clearing house it is sent for collection through clearing house. But if the bill is out of the clearing house range then it is collected by SC [Commonly known as Outward Bill for collection (OBC)] and when the bank collects bill, as an agent of the collection bank the system in known as LSC [Commonly known as inward Bill for Collection (IBC)].

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OUTWARD BILL COLLECTION


Client for collection deposits

Cheque of different clearing Zone.

Receive the cheque and the deposit slip is duly signed and

Sealed the cheque (by OBC seal) and recorded in OBC register.

Send the cheque to principal office for collection (let the) collection is of Dhaka Zone)

Endorsement of the cheque

Customers Liability ------ Dr. Bankers Liability ----------- Cr.

The Principal Office collects the bill and informs through IBCA

Responding of the IBCA

Clearing
Posting Bankers Liability ----------Dr. As a cheque, payment order of bill comes from a bank within the range of local clearing house then it is sent for collection through clearing house. The cheque may be crossed or not. If a customer of Bank Asia Limited deposits a cheque another bank. Which is within clearing area, than Bank Asia Limited will credit his amount and collect it (cheque). Thought the amount is credited in the customers account but he will not the money until the cheque is honored.
Customers Liability ------- Cr.

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Collection procedure for clearing The Cheque is first deposited through a received seal with the help of a slip. The collection bank gives a crossing with Bank Asia Limited. It indicates that the mentioned bank is the collection bank. Entry for outward clearing register is given with clearing seal and giving the cheque a subsidiary seal. The Cheque is then sent to Bank Asia Limited, local office along with other cheque (if any). Three sets of voucher are prepared for purpose. ] If the chque is on other branch of Bank Asia Limited with in some clearing area then it is collected through clearing house of Bank Asia Limited.

CHAPTER 4 FOREIGN EXCHANGE MECHANISM


Foreign Exchange Department is international department of Bank. It deals globally. It facilitates international trade through its various modes of services. It bridges between imports and exports. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly

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deals in foreign currency. This is why this department is called foreign exchange department. Some national and international laws regulate functions of this department. Among these, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and import and export control act, 1950 is for Documentary Credits (UCPDC 1993 revision & international Chamber of Commerce Publication no- 500) is also an important law for settlement of terms and conditions between exporter and importer and export operation for banks. Foreign trade department plays an important role for bank Asia as well as it contributes in the growth of our national economy. Like other departments of Bank Asia Limited also gives emphasis on smooth and quick service for this particular department.

The Meaning of Foreign Exchange:


Foreign Exchange means foreign currency. It includes all deposits, credits and balances payable in foreign currency as well as foreign instrument such as drafts bill of exchange, promissory note in any foreign currency. According to Foreign Exchange Regulation Act 1947, Any thing that conveys a right to wealth in another country is foreign exchange. Foreign exchange department plays significant roles through providing different services for the customer. Facilitating the trade with foreign country is the most important among those services the key instrument which facilitates this trade is L/C (Letter of Credit).

Objective of foreign exchange:


To settle the transaction related in export and import. To help the own people in abroad to send their money. Encourage foreign investment in the home country. To enhance the foreign investment.

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To help the own people to go in abroad. To facilitate the foreigner to visit in our country. To help the people to remit money who are working in abroad or the foreigner who are working in the home country. To maintain the international trade. Our study on foreign exchange mechanism covers, Export, Import and remittance business, which are sequentially discussed hereafter.

Foreign Exchange Department of Bank Asia, Khatungonj Branch


Correspondent Banking is one of the major banking activities of The Khatungonj branch of Bank Asia. Khatungonj Branch is expected to be the leader in Correspondent Banking among Bank Asias other branches. Khatungonj Branch provides trade finance related and international payment products to valued clients through its international network, and as a provider of international payment services, it allows its clients to leverage the most advanced payment services offered today and provide the highest quality services to the clients. The Trade Finance Department of Khatungonj Branch is well equipped with senior level officers with blend of both young and old and matured with years of experience in this area. They serve the needs of the client banks and also the corporate clients and try their best to maintain and enhance the relationships with them. 1.1. Foreign Exchange Mechanism:

BUYER/ IMPORTER
Makes Payment against

Advises and/or confirms l/c

Pays or Reimburses

Instruction to Pay or Reimburse

Application for Opening l/C

INDENTOR

SELLER EXPORTER BENEFICIARY


Makes Payment

Submit Documents

Document

ADVISING

ISSUING BANK

REIMBURSING 39 BANK/ Forward Document Makes Payment Issue OR L/C FIG: FOREIGN EXCHANGE MECHANISM BANK An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, NEGOTIATING Khatungonj Branch.

BANK. Bank Asia


Limited

Present Document

Foreign Exchange Department

IMPORT DEPARTMENT
1.1. Understanding: Imports are foreign goods and services purchased by consumers, firms, & Governments in Bangladesh. The importers are asked by their exporters to open letter of credits so that their payment against goods is ensured.

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1.2. IMPORT PROCEDURE: To import through BA, a customer requires(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Bank account Import Registration Certificate (IRC) Tax Paying Identification Number Proforma Invoice Indent Membership Certificate LCA (Letter of Credit Authorization) form duly attested One set of IMP Form Insurance Cover note with money receipt

Other import procedure can be shown by the following flow chart ,

1.3. IMPORT MECHANISM:

To import, a person should be competent to be Importer . According to Import and Export Control Act, 1950, the Office Of Chief Controller Of Import and Export provides the registration (IRC) to the importer. After obtaining this person has to secure a letter of credit authorization (LCA) from

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Bangladesh Bank. And then a person becomes a qualified importer . He is the person who requests or instructs the opening bank to open an L/C . He is also called opener or applicant of the credit . THINGS WHICH ARE DONE HERE: The following things are done in this department : Total supervision of Import Department (Cash/Back to Back L/C) . Foreign Correspondence related to above . Payment of Back-to-Back L/C and endorsement of Export L/C against payment . Follow-up of Back-to-Back overdue bills . Correspondence regarding Back-to-Back L/C and Cash L/C . Maintenance of Due Date Diary. Maintenance & record of related L/C Documents . Audit Compliance. Matching of Bill of Entry with IMP, follow-up of pending Bill of Entry Quarterly Statement . Batch Checking. L/C opening/ Amendment (Back to Back L/C) . Endorsement of Export L/C when opening . Batch checking. Balancing of L/C Contingent Liability 9Back to Back L/C) . Follow-up of Sub-judice bills and maintaining liaison with Head Office and Foreign Correspondent. All correspondence related to Back-to-Back L/C with Head Office and Foreign Correspondent. Supervision of checking, Lodgment and retirement of Import documents under Back-toBack L/C. Issuance of Certificate and attestation of papers/documents of garments clients as required by BGME, EPB & other regulatory bodies. Checking, lodgment, retirement of Import documents under Back-to-Back L/C . Issuance of Shipping Guarantee (Back to Back L/C) . IMP Form Fill-up (Cash L/C).

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Inform negotiating Bank about maturity date of Back-to-Back L/C . Quarterly statements for Bonded ware House . Balancing of Accepted Liability. Statement of outstanding accepted import bills under Back-to-Back L/C . L/C opening and Amendment of Cash L/C (and Inland L/C) . Maintenance and record of Passbook and IRC . Maintenance & Record of related L/C (s) & Documents . Credit Report. Statement of IRC Renewal fees to CCI&E. Preparation of monthly foreign exchange business position . L/C Lodgment (Cash). Checking of Cash L/C documents. L/C Retirement. LCA Issue. BLC Statement. Differed Payment (Cash). Follow-up of outstanding BLC. Correspondent (Cash L/C). Proof Sheet of LC Margin and Contingent Liability (Cash L/C) . Issuance of shipping guarantees (cash) IMP forms fill-up (cash) .

Major Tool in Foreign Exchange: Letter of Credit


The letter of credit is one of the oldest forms of trade finance still in existence. In its simplest definition, a letter of credit (L/C) is an instrument issued by a bank on behalf of the importer (buyer) promising to pay the exporter (seller/beneficiary) upon presentation of shipping documents in compliance with the terms stipulated therein. In effect, the bank is substituting its credit for that of the buyer. Broadly, we can define letter of credit as a written undertaking given by a bank (issuing

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bank) to a seller (beneficiary/exporter) at the request and on the instructions of the buyer (applicant/importer) to pay either at sight or at a determinable future date, a stated sum of money against stipulated documents and fulfilment of all the terms and conditions in the L/C.

A letter of credit is most suitable under the following circumstances:


When the importer is not well known, the exporter selling on credit terms may wish to have the importers promise of payment backed by a buyers banker. When the importer does not want to pay the exporter until it is reasonably certain that the merchandise has been shipped in good condition.

Importance of Letter of Credit


In international trade, since the buyer and seller are quite distant from each other, a problem often arises as to when to make the delivery of the goods and when to make the payment for the delivery. This problem is absent in trading within the national boundary as both the buyer and seller can meet each other and settle the deal. However, in international trade neither the exporter nor the importer can rely completely upon the other. A letter of credit is an effective instrument that not only solves this problem but also acts as a means of finance for the buyer. This method is a compromise between the buyer and the seller because it affords certain advantages to both the parties. The exporter is assured of receiving payment from the issuing bank as long as it presents documents in accordance with the letter of credit. It is important to point out that the issuing bank is obligated to honor drawings under the L/C regardless of the buyers ability or willingness to pay. On the other hand, the importer does not have to pay for the goods until shipment has been made and the documents are presented in good order. However, the importer still must rely upon the exporter to ship the goods as described in the documents, since the letter of credit does not guarantee that the goods purchased will be those invoiced and shipped. So, the usual time of payment under a letter of credit is when shipment has been made, while the goods are available to the buyers after payment. The risk to the exporter is very little or none, depending on credit terms, while the risk to the importer is that he has to rely on the exporter to ship goods described in the documents. Because of

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all the protection and benefits it accords to both the exporter and importer, letter of credit is a critical component of many international trade transactions.

The Letter of Credit (L/C) Process


The various steps involved in the operation of a letter of credit are described as follows. Please refer to Figure below for an elaborate illustration. 1. The importer and exporter have made a contract before a letter of credit has been issued. 2. The importer applies for a letter of credit from his banker known as the issuing bank. He may have to use his credit lines. 3. The issuing bank opens the letter of credit that is channeled through its overseas correspondent bank, known as the advising bank. 4. The advising bank informs the exporter (the beneficiary) of the arrival of the letter of credit. 5. Exporter ships the goods to the importer or other designated place as stipulated in the letter of credit. 6. Meanwhile, the exporter also prepares his own documents and collects transport documents or other documents from relevant parties. All these documents will be sent to his banker, which is acting as the negotiating bank. 7. Negotiation of export bills happens when the banker agrees to provide him with finance. In such case, he obtains payment immediately upon presentation of documents. If not, the documents will be sent to the issuing bank for payment or on an approval basis as in the next step. 8. Documents are sent to the issuing bank (or reimbursing bank, which is a bank nominated by the issuing bank to honor reimbursement from negotiating bank) for reimbursement or payment. 9. Issuing bank honors its undertaking to pay the negotiating bank on condition that the documents comply with the letter of credit terms and conditions. 10. Issuing bank releases documents to the importer when the latter makes payment to the former or against the latters trust receipt facility. 11. The importer takes delivery of goods upon presentation of the transport (usually shipping) documents.

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Figure: Diagrammatic explanation of the various steps in the operation of a L/C.

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Contract Contract

Importer, Importer, Buyer, Buyer, Applicant Applicant

Ship Ship Goo Goo ds ds


Take Take Delivery Delivery Of Of Goods Goods

Exporter, Exporter, Seller, Seller, Beneficiary Beneficiary

Appl Appl y y For For L/C L/C

Release Release Documents Documents Against Against Cash Cash or or T/R T/R

Negotiation Negotiation of of Export Export Bills Bills

Prepare Prepare and and Pass Pass Documents Documents

Advis Advis e e L/C L/C

Make Make Paymen Paymen tt

Issuing Issuing Bank Bank

Send Send Document Document s s

Advising Advising Bank/ Bank/ Confirming Confirming Bank/ Bank/ Negotiating Negotiating Bank Bank

L/C L/C

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Lodgment of Documents Procedure


It is an also another important procedure of Letter of Credit. Its simply means in what condition bank will make payment. After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retiring the documents. All this time many things can happen. These are indicated in the following: Discrepancy found but the importer accepts no problem occurs in lodgment. Discrepancy found and importer not agreed to accepts In this case, importer protest and send back all the documents to the exporter and request him to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C. Documents are OK but importer is willing to retire the documents In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as FORCED PAD. Everything is OK but importer fails to clear goods from the port and request bank to clear - In this case banks clear the goods and takes delivery of the same by paying customers duty and sales tax etc. So, this expenditure is debited to the importers account and in banking it is called LIM.

Parties Involved in Letter Of Credit (L/C)


The Applicant: The applicant is the party who approaches a bank in order to issue the letter of credit. Generally, the applicant is an importer who reaches an agreement with the exporter before approaching the bank to issue the

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letter of credit. The applicant is also normally obligated to reimburse the issuing bank for any payments made under the letter of credit. The Issuing Bank: The bank issuing the letter of credit is known as the issuing bank and it is usually the bank with which the importer maintains an account. The issuing bank undertakes an absolute obligation to pay upon presentation of documents drawn in strict conformity with the terms and conditions of the letter of credit. The Advising Bank: The correspondent bank in the beneficiarys country to which the issuing bank sends the letter of credit is commonly referred to as the advising bank. The advising bank simply advises the letter of credit without any obligation on its part. However, the advising bank shall take reasonable care to check the apparent authenticity of the credit that it advises. The Beneficiary: The beneficiary or exporter is the party entitled to draw payment under the letter of credit. The beneficiary will have to present the required documents to avail payment under the letter of credit. The Confirming Bank: The confirming bank confirms that the issuing bank has issued a letter of credit. The confirming bank becomes directly obligated on the credit to the extent of its confirmation and by confirming, it acquires the rights and obligations of an issuer. Letter of credit confirmation is usually done by the advising bank or a third bank in the beneficiarys locate. The Negotiating Bank: The bank that agrees to examine the documents under the letter of credit and pay the beneficiary is called the negotiating bank. Typically, the advising bank is nominated as the negotiating bank. Reimbursing Bank: The bank nominated by the issuing bank to provide reimbursement to the negotiating bank or the payee bank is referred to as the reimbursing bank. 50
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Different Types of Letter of Credit provided by Khatungonj Branch


1. Revolving Credit
A revolving credit is a credit, which provides for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. It can be revolved with respect to either: a) Time b) Amount (i.e. total value of the credit) a) A revolving credit with respect to time can be cumulative or non-cumulative. i) A cumulative credit allows any unused credit amount of a previous month to be carried forward to the next month. ii) A non-cumulative revolving credit, on the other hand, provides for a maximum amount of credit to be drawn each month. If the exporter fails to draw for the month, the amount in that month (full amount or any utilized balance) will be forfeited automatically. b) A revolving credit with respect to amount allows the credit amount to be renewed as soon as the exporter presents his shipping documents and uses up the credit amount. As the issuing bank theoretically may incur unlimited liability, this type of revolving credit is very rare. Circumstances for issuing a revolving credit: If an importer is trading with an overseas exporter and purchasing the same goods on a regular basis, with the same terms and conditions and at the same unit price, he can issue a revolving credit to his exporter instead of having to issue a letter of credit with the same terms and conditions every time. This will save him time and trouble of having to apply for many credits.

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2. Transferable Credit
A transferable credit is a credit, which can be transferred in whole or in part by the original beneficiary to one or more second beneficiaries. It is normally used when the first beneficiary does not supply the goods himself, but acts as an intermediary between the supplier and the ultimate buyer.

Characteristics of transferable credit


a) A transferable credit must be an irrevocable credit, that is, it cannot be cancelled or amended without the beneficiarys consent. b) A transferable credit can only be transferred once. It cannot be transferred from the second beneficiary to a third beneficiary/beneficiaries. However, it can be transferred to more than one; second beneficiary. c) The bank charges in respect of the transfer are payable by the first beneficiary. d) The transfer must be in accordance with the terms and conditions of the original credit, except that: i) The name and address of the first beneficiary may be substituted for the name and address of the applicant for the credit. ii) The amount of the credit and the unit price may be reduced, to allow the first beneficiary to take his/her profit. iii) The expiry date of the credit and the shipment date may be shortened.

Risks to the applicant in transferable credit

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a) He has to deal with an unknown supplier the integrity of the second beneficiary is not known. b) Quality of merchandise is not assured. c) Amendments may not be advised to this ultimate supplier, so documents will never comply with the letter of credit terms even though the second beneficiary presents documents in compliance with the transferable credit.

3. Back to Back Credit


Back to back credit is one of the most common letter of credit issued in Bangladesh. When a beneficiary receives a letter of credit which is not transferable and he cannot furnish the goods himself, he may arrange with his banker to issue a second credit (which is known as a Back to Back L/C) to a supplier to supply the goods. As both the letters of credit cover the same goods, the Back to Back Credit must be issued with identical terms to the master credit except that the credit amount, unit price if any, are smaller. The expiry date under the Back to Back Credit is earlier while the latest shipment date may have to be advanced. The bank issuing the Back to Back Credit will obtain repayment through the master credit, which is deposited to the issuing bank of the Back to Back Credit. The bank must try to maintain control of the documents and hold them after payment to the supplier, pending receipt of its customers invoices, and then present the documents itself for payment under the master credit in favor of his customer.

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Advantages & Disadvantages of Letter of Credit

ADVANTAGES
An importer can be assured that the exporter has complied with certain terms and conditions as specified in the L/C before payment. He can insist on shipment of goods within a certain time by stipulating a latest shipment date. Importer He can have expert advice from the banker as to the L/C terms. He can ask for financial assistance from his banker. Protection offered by Uniform Customs and Practice for Letter of Credit (UCP 500). The risk of non-payment is lower provided he complies with L/C terms and conditions. It is safe method through which to obtain prompt payment after shipment. The exporter can have expert advice from his banker. The exporter can also seek financial assistance from his banker before the buyer makes payment, such as negotiation of export bills, export bills etc. Exporter

DISADVANTAGES
Since banks deal in documents only, goods may not be the same as those specified in the credit. Issuing banks are obliged to pay even though the conditions of goods may be poor. L/C commissions are relatively costly. (1/4% on first US $50,000) Line of credit or application is necessary before an importer can open an L/C, and this may cause extra inconvenience and is timeconsuming.

It is comparatively costly. Sometimes, the terms and conditions cannot be fulfilled, such as unreasonable shipment date and expiry date, adding on L/C the clause of restriction of a designated vessel to be informed by L/C amendment. The goods are shipped before receiving payment, and so it is not 100 percent safe.

Types of Contracted Price for L / C

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FOB price ( Free a. Under FOB basis, the exporter quotes the price covering all his on Board) expenses until the goods duly packed are delivered on board. b.The carrying vessel named and arranged by the buyer with the freight and the insurance being paid by the buyer along with any cost and all risks from the time the goods are placed on board inclusive of those arising out of the ships failure on berth. C&F/CFR ( cost a. In this case, the exporter quotes the FOB price plus freight and also and Freight) makes all arrangements for the shipment of goods. b. Importer bears insurance cost. CIF freight) FAS ( ( Cost, a. Under CIF, the exporter quotes C&F price plus insurance cost. The & responsibility of carrying out all formalities for shipment of the goods devolve upon the seller. Free a. Under FAS, the seller quotes the price covering all his charges until such tie as good are loaded on train at the specified railway station. The buyer is responsible for all further necessary arrangements and charges. FOR ( Free on a. Under this type of contract the seller quotes the price covering all Rail) his charges until such time as the goods are loaded on train the specified railway station. The buyer is responsible for all further necessary arrangements and charges. Ex-Factory a. The seller quotes the price of the goods ex-factory on the date agreed. The importer is responsible for all charges from the time he takes delivery of the goods from the exporters yard.

insurance

Alongside ship)

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Nature of Credit

a. All import credit is generally documentary credit that is bill of exchange must contain documents to the title of goods. Mere Document & clean presentation of B/E by exporter is not sufficient for honoring the credit. bill in case of Documentary credit. b. Clean credit requires no document with B/E for its honoring. Clean L/C is not allowed in Bangladesh except with the prior approval of the Exchange Control of the country. a. In revocable L/C, the opener of L/c can anytime withdraw his commitment to honor the bill of exchange of the Exporter. Revocable Irrevocable. & b. In case of irrevocable L/C, banker cannot withdraw his obligation. Here his commitment is legal obligation. In international trade, only irrevocable L/C is used. a. sometimes the exporter may not rely on the L/c of our bank. Exporter requires the L/C to be confirmed by another bank situated in his country. Then on request of issuing Bank, any bank in exporters country gives guarantee about the payment. This is called confirming Bank. Generally this confirming bank is Adding confirmation b. By adding such confirmation, confirming banks undertakes the liability to honor the bill of Exchange of exporter and for this it debit the account of issuing Bank with it. a. Sometimes, the importer may require amendment to be made in L/C. Amendment credit. of b. But this amendment must be made with the consent of exporter otherwise amendment will have no validity. Advising bank.

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a. All L/C must mention the expiry date of L/C within which documents for payment/acceptance/negotiation must be presented. Validity and b. This date must exceed the last date of shipment. c. L/C must also stipulate a specified time period after the date of issuance of the bill of lading or other shipping documents, during which presentation of documents for payment / acceptance / negotiation must be made.

Expiry of credit

d. In the absence of a specified period of time being stipulated the Period will be assumed to be 21 days from the date of the bill of lading.

Foreign Remittance
Now a days financial authority of the country is giving more importance on foreign remittance. Remittance can be divided into two parts: Outward Remittance: All remittance from Bangladesh to a foreign currency or local currency credited to non-resident Taka accounts of foreign banks or convertible Taka accounts of foreign banks or convertible Taka account constitute outward remittances of foreign exchange. Inward Remittance: The term Inward Remittance includes not only remittance by T.T. M.T, drafts etc. but also purchases of bills, purchases of drafts under travelers letters of credit and purchases of Travelers cheques. Bangladesh Bank has to provide some rules and regulation concerning on remittance flow. For example, most outward remittances approval is to be taken from the authorized Dealers (AD). Only a few remittances of special nature require Bangladesh Banks prior approval.

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Purchases of foreign currency require an application to the AD or Bangladesh Bank whenever necessary. There is no restriction in cape of inward remittances. Everybody cannot deal in foreign currency. According to FER act only Ads and authorized moneychangers are permitted to deal in foreign currency etc. It should be mentioned that the bank branch has to send its daily FX (Foreign Exchange) position to Bangladesh Bank. FX position shows branchs liabilitys (Deposit in FC, RAD, TC sold etc), Assets (FC cash in hand, Bills purchased), Debit entries (IBDA) passed in Nostro A/C (for payment received for export, TT received etc.) and credit entries (IBCA) passed in the Nostro A/C(for TT issue, import payment etc). Thus Foreign Trade division is a very important department of every branch as it provides services for the activities of import, export and remittance. As such this department is an important earning source of the Bank.

Documents Needed For Import & Export Procedure

For Import 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Import registration certificates, (IRC) from the chief controller and export (CC&E). Letter of credit authorization (LCA) Form. LC application form duly signed by importer. Pro-forma invoice. Insurance cover note with money receipt. IMP form duly signed by importer. Proof of having TIN in all cases of importers, excepting personal use. Proof of having VAT registration certificate. Valid membership certificate from registered local chambers of trade association. Charge documents etc.

For Export 1. Export Registration Certificate (ERC) from CCI & E. 2. L C Documents.

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3. 4. 5. 6. 7. 8.

E X P from duly signed by the exporter. Certificate of origin. Shipping documents. Inspection Certificate. Packing List & Bill of Loading. Invoice & Certificate of export form by authorized dealer (Bank).

After submitting the documents, exporters send the goods to importer. Then beneficiary prepares export documents for submission to negotiation Bank. The Bank scrutinizes the export documents. To narrow down the gap between the countrys export and import payment, Bank Asia is providing services to exporters by following export policy 1997-2002. The schemes for covering risk on export credit: Export credit guarantee (Pre-shipment) Export credit guarantee (post-shipment) Export payment risk policy (comprehensive guarantee) Whole Turnover pre-shipment finance guarantee.

EXPORT DEPARTMENT UNDERSTANDING: In the Export section, two types of L/C s are opened

Back to Back L/C Export L/C Things done here: The following things are done in this department:

Scrutiny of Export Shipping Documents . Follow-up for realization of Export Proceeds . All Correspondence relating to Export Department . Compliance of Audit & Inspection. Advising of Export L/Cs to the beneficiary . Authentication of L/C and Amendments from other Correspondent Bank .

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Transfer of Export L/C to the 2 Beneficiary & issuance of notice of transfer to L/C issuing
nd

Bank. Recording of Export L/C particulars in Export L/C Transfer Register . Realization of transfer changes. Issuance of proceeds realization certificates . And other works as & when directed by the manager and Sub-Manager . Certificate of EXP Forms. Posting of Tickets. Lodgment of Export Bills (FBP, FDBC, IBP & IBC) . Preparation of tickets elating to negotiation of documents . Negotiation of Inland Bills. Maintenance of all records related to FBP, FDBC and Inland Bills . Balancing of FBP, FDBC, and IPB & A/R Export A/Cs . Preparation of statement and all returns to Bangladesh Bank and Head Office (Weekly/ Monthly/ quarterly).

EXPORT BILL SCRUTINY: Scrutinizes the export bill on the following points, A. General: Late shipment. 0 1 2 3 1 0 1 2 3 Late presentation. L/C expired. L/C overdrawn. Partial shipment or transshipment beyond L/C terms .

Bill Of Exchange:

Amount of bill differs with Invoice. Not drawn on L/C issuing bank not signed. Tenor of B/E not identical with L/C Full set not submitted Invoice: 61
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0 Not issued by the beneficiary Not signed by the beneficiary 1 Not made out in the name of the Applicant Description, Price, quantity, sales terms of the goods not corresponds to the credit. Not marked one fold as original Shipping marks differs with B/L & packing list. 2 Packing List: Gross weight, net weight, & measurement, number of cartoons/ packages differs with B/L. 0 1 2 Not marked one fold as original. Not signed by the beneficiary. Shipping marks differs with B/L. 3 0 1 Bill of Lading/Air Way Bill :

Full set of bill not submitted. B/L is not drawn or endorsed to the Order Of BA . Shipping on Board, Freight Prepaid or Freight Collect etc . notations are not marked on the B/L. B/L not indicate the name and capacity of the party i .e. carrier or master, on whose behalf the agent is signing the B/L . Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel. Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of lading).

2 3 4 5

Short Form B/L. Charter party B/L. Description of goods in B/L not agrees with that of Invoice, B/E & P/L. Alterations in B/L not authenticated . Loaded on deck.

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B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages. Others: Non-Negotiable documents not forwarded to buyers or forwarded beyond L/C terms. Inadequate number of Invoice, Packing List, & others submitted. Short shipment certificate not submitted. EXPORT FINANCE: Pre-shipment credit: Pre-shipment credit usually takes the following forms: Overdraft against hypothecation of exportable commodities . Overdraft against Trust Receipt (T.R.) Packing Credit (P.C.)

Post shipment Credit: Post shipment credit refers to credit facilities extended to export after actual shipment of goods against shipping documents. It is usually provided in the following ways. Bill negotiation / purchase. Bill for collection.

(I) Bill Negotiation / Purchase: The most usual method of financing exporters at the post-shipment stage is negotiation of documents under L/C. Here the bank acts as negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents generally include a) Bill of Exchange b) Bill of lading c) Insurance policy d) Invoice e) Certificate of origin,

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ETC. The documents are to submit within the period mentioned in the L/C. The documents are sent to the L/C opening branch with a forwarding letter. Then the branch claim reimbursement from the issuing bank or from the reimbursing bank. On negotiation/ Purchase of the export bills, the exporter is paid the value of the bill (converted into Bangladesh Taka at the ruling bill buying rates). (ii) Documents on Collection Basis: The documents, which are not negotiable by the branch due to some discrepancies, are sent to L/C opening bank on collection basis. The bank mentions the discrepancies on their forwarding schedule. On receiving the documents, the L/C opening bank will further scrutinize the document with the L/C and inform the importer regarding discrepancies found in the documents. If these are acceptable to the importer and or permissible with the exiting Exchange control regulation, the documents will be lodged and L/C opening bank will send the payment instruction to the collection bank.

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 of the first L/C offers it as a 'security' to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back-to-Back L/C may be located inside or outside the original Beneficiary's country. In case of a Back-to-Back L/C, no cash security (no margin) is taken by the Bank; Bank liens the first L/C. In case of a Back-to-Back L/C, the drawn bill is an Issuance/ Time bill. In BA, papers/documents required for submission for opening of back-to-back L/C: a) Master L/C b) Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC) c) L/C application & LCA form duly filled in signed. d) Proforma Invoice or Indent. e) Insurance Cover Note with money Receipt 64
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f)

IMP- form duly signed

In addition to the above the following papers/documents are also required for export oriented garment industries while requesting for opening of back-to-back letter of credit, 1) Textile permission 2) Valid Bonded Warehouse License 3) Quota allocation letter issued by Export Promotion Bureau (EPB) in favor of the applicant in case of quota items. In case the Factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted.

PAYMENT OF BACK-TO-BACK L/C: In case back to back as 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. ACCOUNTING TREATMENT FOR BACK-TO-BACK L/C: When the document is arrived, the following vouchers are passed Customers A/C Commission on acceptance Debit Credit

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Customers A/C

Credit

If the party is paid in foreign currency, B/C. rate is applied in this regard. International Department takes the T.T. O/D. rate. If the payment is made to ID in local currency in notional rate, ID follows T.T. Clean Rate. When the party is to be paid, OD Sight rate is followed. If the fund is not available to make the payment, the following vouchers are to be passed, OAP Customers A/C REPORTING TO BANGLADESH BANK: At the end of every month, the reporting regarding the following information is mandatory, A. Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import, category of goods, currency, country etc. B. Filling of E-3/P-3 schedule for all charges, commission with T/M form. C. Disposal of IMP form, which includes, Original IMP is forwarded to Bangladesh Bank with invoice and Indent. Duplicate IMP is kept with the Bank along with the bill of entry/ Certified Invoice. Triplicate IMP is kept with the Bank for office record. Quadruplicate is kept for submission to Bangladesh Bank in case of imports where Credit Debit

documents are retired. EXPORT L/C: The other type of L/C facility offered by BA is Export L/C. 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

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exports 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 garment products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garment products to U.S.A. Most of the exporters who export through BA are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers. FORMALITIES FOR EXPORT L/C: The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfil before and after shipment of goods. These formalities or procedures are enumerated as follows, 1. ERC: The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCIE). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports. Obtaining EXP: After having the registration, the exporter applies to BA with the trade license, ERC, and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter. 2. Securing the Order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this. 3. Signing of the Contract: While making a contract, the following points are to be mentioned, Description of the goods Quantity of the commodity Price of the commodity

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Shipment Insurance and marks Inspection Arbitration

The following points are to be looked for, i) ii) iii) iv) the L/C. 4. 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. 5. Registration of Sale: This is needed when the items proposed to be exported are raw jute and jute goods. 6. Shipment of Goods: The following are the documents normally involved at the stage of shipment, EXP Form Photocopy of registration certificate Photocopy of the contract Photocopy of the L/C The terms of the L/C are in conformity with those of the contract. The L/C is an irrevocable one, preferably confirmed by the The L/C allows sufficient time for shipment and a reasonable time If the exporter wants the L/C to be transferable, divisible and

advising bank. for registration. advisable, he should ensure those stipulations are specially mentioned in

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Customs copy of ERF Form for shipment of jute goods and EPC Form for Freight certificate from the bank in case of payment of the freight at the Railway receipt, Berg Receipt or Truck Receipt. Shipping instructions. Insurance policy.

raw jute. port of lading is involved.

After those, exporter submits all these documents along with a Letter of Indemnity to BA for negotiation. An officer scrutinizes all the documents. If the document is a clean one, BA purchases the documents on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

PROCEDURE FOR FDBP: After purchasing the documents, BA gives the following entries, FDBP A/C Customer A/C (Before realization of proceeds) Head Office A/C FDBP A/C Debit Credit Credit Debit

(Adjustment after realization of proceeds) A FDBP Register is maintained for recording all the particulars. The salient contents of a FDBP register are Date, Ref. No. (FDBP), Name of the Party (Drawer), Drawee, Name of collecting Bank, EXP Form no., Export L/C no., and etc. FOREIGN DOCUMENTARY BILLS FOR COLLECTION: BA forwards the documents for collection due to the following reasons, 69
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i) ii) iii)

If the documents have discrepancies. If the exporter is a new client. The banker is in doubt.

Foreign documentary bills for collection signify that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entries are given, Head Office A/C Clients A/C Government Tax A/C Postage A/C Income A/C profit on Exchange Credit Credit Credit Debit Credit @ T.T. Clean @ O/D sight @ 0.25% of Invoice value

After passing the above vouchers, an Inter Branch Exchange Trading Debit Advice is sent for debiting the NOSTRO account. BA has 11 NOSTRO accounts with its reimbursing bank. An FDBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds. EXPORT BILL SCRUTINY SHEET: By the Export Bill Scrutiny Sheet the bankers scrutinize the details of a L/C before make the payment. Here the details refer as Exporter's name, Presentation date of documents, L/C no., Expiry date, L/C amount available. Moreover the banker also look after the date within which the documents to be presented, Bill of lading, Shipment date in the L/C, Invoice number and date, Export L/C no, date, issued by, Liability position, Discrepancies, and Calculation of Bill amount (Exporter's Retention Quota, Commission, and Margin).

SETTLEMENT OF LOCAL BILL: The settlement of local bills is done in the following ways, 1. The customer submits the L/C to BA along with the documents to negotiate.

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2. BA official scrutinizes the documents to ensure the conformity with the terms and conditions. 3. The documents are then forwarded to the L/C opening bank. 4. The L/C issuing bank gives the acceptance and forwards an acceptance letter. 5. Payment is given to the customer on either by collection basis or by purchasing the document. ACCOUNTING TREATMENT FOR PURCHASE OF LOCAL BILL: Local Bill Purchase Documentary Party A/C Commission Interest A/C Credit Credit Debit Credit

A LBPD Register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register. MODE OF PAYMENT OF EXPORT BILLS UNDER L/C: The most common methods of payment under a L/C are as follows , 1. Sight Payment Credit: In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporters presentation of the documents. 2. Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to himself in addition to other documents, that the bank negotiates. 3. Deferred Payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No Bill of Exchange is involved. In BA, payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T. clean rate. The difference between the two rates is the exchange trading for the branch.

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4. Acceptance Credit: In acceptance credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

ADVISING L/C: When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

TEST KEY ARRANGEMENT: Test key arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is a systematic procedure by which a test number is given and the person to whom this number is given can easily authenticate the same test number by maintaining that same procedure. BA has test key arrangements with so many banks for the authentication of L/C messages and for the transfer of funds .

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CHAPTER 5 CONCLUSION AND RECOMMENDATION

During the three months internship program at Khatungonj Branch, almost all the desks have been observed more or less. This internship program, in first, has been arranged for gaining knowledge of practical banking and to compare this practical knowledge with theoretical knowledge. Comparing practical knowledge with theoretical involves identification of weakness in the branch activities and making recommendations for solving the weakness identified. Through all departments and sections are covered in the internship program, it is not possible to go to the depth of each activities of branch because of time limitation. However, highest effort has been given to achieve the objectives the internship program. During the internship, it is found that the branch provides all the conventional banking services as well as some specialized financing activities to the economy. Now, I would like to present my observations and give my opinion to improve the banking service and

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make the customer more satisfied. The following few paragraphs will give us an idea of how this can be achieved.

Organized Training for Employees A well-educated, skilled and enterprising workforce with wide experience in banking is a precondition for the growth and progress of any bank. Sustaining growth and leadership require trustworthy and dedicated workforce. And for this purpose proper training has no alternatives to create more efficient employees for any organization.

Renovation of Customer Service Since a number of new banks are coming to existence with their extended customer service pattern in a completely competitive manner. Customer services must be made dynamic and prompt. Now a days, people especially business people have very little time to waste. So the bank should make its service prompt so that people need not give more time in the banking activities. Speed up Processing of Loan Application

If loan-processing time is lengthy, it will not get good borrower. Most of this is spent for correspondence between Head Office and Branch. So the branch should speed up its loan processing time. For reducing loan-processing time, branch manager should be given ore power to sanction loan. This power can eliminate the time. Branch should have independent appraiser for appraising term loan proposal. Introduce Modern Technology Without using modern technology no bank can even think of remaining in the business in near future. So the bank must decide right now hoe can equip its branches with modern

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technology. Use of modern technology in one sense can increase cost but another sense it increases productivity highly and it attract big clients. It can introduce ATM services its branch. Use of automatic machine like cash counter machine, ATM brings speed in banking services. Providing More Industrial Loans It seemed to me that the bank having a large amount of deposit is not simply encouraging the large scale of producers that is this bank is not providing that much of long term industrial loans to accelerate the economy as well as to help the economy to solve unemployment problem of our country.

Bank should be Innovative and Diversified in its Services This branch provides only conventional services. Modern banking today is introducing various kinds of deposit account with different attractive features each of which may attract different groups of people. This bank does not offer any consumer credit schemes like other bank which is one of the vital sources of deposit mobilization. Bank should diversify its banking services and add new features in its services so that it can attract customers from all groups of people. Financial Engineers of Bank Asia should be innovative in developing new banking services, which will attract customers and reduce costs. It can introduce customer loan scheme, provide bridge loan, or can engage in lease financing. It can also underwrite shares of newly incorporated public companies.

Bank should immediately enter into the credit card market This bank does not have any plan to enter into the credit card market. It is well versed that tomorrows payment will be consisted of only plastic money (Credit Card). A large part of business transaction will be done by credit card in near future. In western word, more than 50% of transactions are in credit card. If this bank does not prepare from now

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on, it cannot compete in the future market. So, the branch should give special attention to the introduction of Credit Card. Therefore Khatungonj Branch has to think of new ways to not only retain clients but also to gradually develop its customer base in order to maintain its significant contribution in Bank Asia and become the leader among its other branches. To combat this threat, Khatungonj branch has to reengineer its plans and pursue a continuous service improvement strategy to retain as well as enhance business relationship with clients. Thus by providing this various services, Khatungonj Branch, Bank Asia Limited is playing an important role in the banking system and in the payment system of Bangladesh.

BIBLIOGRAPHY

Bank Asia Limited. Management Trainee Report. Jeff Madura. International Financial Management. (West Publishing company, 4th edition, 1995). Documentary Credits, Uniform Customs & Practice. International Chamber & Commerce (ICC) Publication, 1996. Uniform Rules for Bank Reimbursements. International Chamber & Commerce (ICC) Publications, 1696.

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Uniform Rules for Collection. International Chamber & Commerce (ICC) Publications. Revision 1996.

EXECUTIVE SUMMARY
This report is prepared as a requirement of the Internship phase of RMBA Program of International Islamic University Chittagong (IIUC). The report contains four main sections: Introduction The Banks Profile General Banking Activities of Bank Asia Limited Foreign Exchange Activities of Bank Asia Limited

First part focuses on the organization overview, origin, background of study, objectives of the report, its scope, methodology & limitations of the report. Second part focuses on the different aspects of Bank Asia Limited such as background, mission statement, objective, services offer, organizational structure, values, strengths, opportunities, weaknesses, threats, financial statement of Bank Asia Ltd. This section

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Bank Asia
Limited

describes Corporate Information of Bank Asia Ltd, various product and services offers for their target market and financial position of the Bank. Third part discusses about the General Banking operation of Bank Asia, which provide the foundation of banker customer relationship through opening account. This is the busiest department and the daily transactions is concerned to the customers for drawing or deposition money, selling of instruments to them for remittance purpose, collection of their instruments providing other ancillary services to them and keep customer section busy. Officers of this department should possess the required behaviors for optimum satisfaction of the customers. They make every endeavor to ensure their clients satisfaction. Officers cooperative & friendly professionals working in the branches will make customers visit an enjoyable experience. Bank Asia offers wide-ranging products and services matching the requirement of every customer. Transactional accounts saving schemes or loan facilities from Bank Asia Ltd. make available their customers a unique mixture of easy and consummate service quality. Fourth and final part of the report is foreign Exchange activities of Bank Asia Ltd. This section contains Import, Export, Foreign Remittance and other Release of Foreign Exchange. Without any Banks co-operation, it is not possible to run any business or production actively in financing imports and exports of a country. Imports and Exports need financial helps from a financial institution in various stages of their activities. For the purpose, Bank Asia Ltd. undertaken the Trade Finance Services. Their branches in Dhaka & Chittagong are staffed by personnel experienced in International Trade Finance. These offices are the focal point for processing Import and Export transactions for both small and large corporate customers. They offer a complete range of Trade Finance Services. Bank Asia Ltd. consider the borrowers business standing, integrity, liability with the bank, terms and conditions of the L/C, securities offered etc. Remittance services are available at all branches of Bank Asia Ltd. and foreign remittances may be sent to any branch by the remitters favoring their beneficiaries. Remittances are credited to the account of beneficiaries instantly through Electronic Fund Transfer (EFT) mechanism or within shortest possible time. There are many risks involved in Foreign Trade, therefore, Bank Asia Ltd. clearly justify the customers from a neutral point and gather the current Information about the Market. 78
An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.

Bank Asia
Limited

Prepare Release Negotiation Advise Make Apply Take Send Exporter, Importer, Advising Ship L/Cand Issuing Pass of Export Documents Documents Delivery Payment For L/C L/C Buyer, Goods Seller, Bank/ Contract Documents Bank Bills Of Goods Against Cash Beneficiary Confirming Applicant or T/R Bank/ Negotiating

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An Overview of General Banking & Foreign Exchange Mechanism of Bank Asia Ltd, Khatungonj Branch.