[Type the document subtitle]
[Pick the date]
[Type the company name] ahadul
Submitted By:
Ahadul Islam
ID: 2009110000049
Batch: 22
ndMajor in Finance
Program: BBA
Southeast University
LETTER OF TRANSMITTAL
Date of Submission: 11th May, 2013
Date of Submission: 11th May, 2013
Date of Submission: 11th May, 2013
11th May, 2013
Dean
Department of Business Administration School of Business Studies
Southeast University
Subject: Submission of Internship Report on “Foreign Exchange on the First Security Islami
Bank Limited, Banani- Branch”. Dear Sir,
I have much pleasure to present the report of the internship program “Foreign Exchange on The
First Security Islami Bank Limited, Banani- Branch”. I would like to take this occasion to
express to you my sincere gratitude for the placement to me in an organization like First Security Islami Bank Limited. And for support and encouragement you have always so generously
extended to me in my work.
I have tried my best to get an orientation to the practical work environment and to gather all related information, and have placed my hearty effort to prepare the report accordingly directed. I hope that my report will meet your expectation and serve its purpose.
Sincerely Yours,
……….. Ahadul Islam
ID: 2009110000049
Batch: 22nd (Major in Finance)
Program: BBA
LETTER OF ENDORSEMENT
11th May, 2013
Dean
Department of Business Administration School of Business Studies
Southeast University
Subject: Declaration regarding the validity of the Internship Report. Dear Sir,
This is my truthful declaration that the “Internship Report” I have prepared that it is not a copy of any “Internship Report” previously made by any other student.
I also express my honest confirmation in support of the fact that the said “Internship Report” has neither been used before to fulfill any other course related purpose nor it will be submitted to any other person or authority in future.
Sincerely Yours,
……….. Ahadul Islam
ID: 2009110000049
Batch: 22nd (Major in Finance)
Program: BBA
At first, we thank to almighty Allah who made us capable to prepare this Internship
report for the First Security Islami Bank as the topic of “Foreign Exchange on the
First Security Islami Bank Ltd.”. Secondly we cordially thank our honorable
supervisor…………
.
who gave us opportunity to prepare this report and helped us
up to this level best whenever we need him.
Serial Number Particulars Page Number
Chapter 1: Introduction
1.1 Origin of the Report 2
1.2 Objectives 2
1.2.1 General Objective 1.2.2 Specific Objective 1.3 Scope of the First Security Islami Bank Ltd 3 1.4 Limitations of the First Security Islami Bank Ltd 3
1.5 Methodology 3
1.6 Approach 4
1.7 Information Source 4
1.8 Report Organization 4
Chapter 2: Organizational Overview
2.1 Historical Background 6 2.2 Vision of the First Security Islami Bank 7 2.3
Mission of the First Security Islami Bank
7 2.4
Goal of the First Security Islami bank
7 2.5 Special Features of FSIBL 7 2.6
FSIBL’s Inter Division and Branch Coordination
8 2.7 Online Banking 8 2.8 SMS Banking 8 2.9 Merchant Banking 9
Chapter 3: Products and Services
3.1 Product and Services 11 3.1.1 Depository Products 11 3.1.2 Loan Products 11 3.1.3 Other Product and Services 11
Chapter 4: Foreign Exchange
4.1 Foreign Exchange Definition 13 4.2 Process of Foreign Exchange 13 4.3 Foreign Exchange evaluation 14
Table of Contents
Table of Contents
4.4 Lending principles 15 4.5 Foreign Exchange Point of View 16 4.6 Foreign Exchange Regulation Act, 1947 16
4.7 Bangladesh Bank 17
4.8 Taka 17
4.9 Dollar 17
4.10 Authorized Dealers 17 4.11 Foreign Exchange Regulation Act, 1994 18 4.12 Deregulatory Measures 18 4.13 Policy Guidelines 19 4.14 Foreign Exchange Business Transaction Service 20 4.15 Authorized Dealer and Money Changer 24 4.16 Bangladesh Bank Transaction with ADS 25 4.16.1 Forward Dealing in Foreign Exchange 26 4.16.2 Outward Remittances 26 4.16.3 Inward Remittances 27 4.17 Foreign Investment and Operation in Securities 28 4.17.1 Foreign Investment 28 4.17.2 Operation in securities 30 4.18 Introduction of foreign exchange department 31 4.18.1 Letter of Credit (LC) 31 4.18.2 Dollar and Traveler’s Cheque Endorsement 31 4.18.3 Foreign Remittance 32 4.18.4 Foreign Currency Account 32 4.19 Letter of Credit (L/C) 32 4.20 Types of Letter of Credit 32 4.20.1 Revocable L/C 32 4.20.2 Irrevocable L/C 32 4.21 Foreign Exchange Operation of FIRST SECURITY
ISLAMI BANK LTD. Bank 33
4.22 Import section 33
4.22.1 Import Registration Certificate (IRC) 33 4.22.2 Function of Import section 34 4.22.3 Import Form 34 4.22.4 Import Procedures 35
4.23 Export Section 35
4.23.1 Export Registration Certificate (ERC) 35 4.23.2 Function of Export Section 36 4.23.3 Export Form 36 4.23.4 Export procedure 36 4.23.5 Documentation for Export Purpose 37 4.24 Foreign Documentary Bill For Collection (FDBC) 37 4.25 Foreign Documentary Bill For Purchase (FDBP) 37
4.26 Foreign Exchange Risk 38
Chapter 5: SWOT Analysis
5.1 SWOT analysis of The First Security Islami Bank
Limited 40
Chapter 6: Analysis and Findings
6.1 Analysis and Findings 42
6.2 Analysis 43
6.3 MAJOR FINDINGS 44
Chapter 7: Conclusion and Reference
7.1 Conclusion 47
Chapter
1
Origin of the Report
The Applied Research Work program exercise a significant importance as it is undertaken after completion of a vast theoretical course, Organized by the Department of Business Administration, the students study thoroughly about the institutions. At the end of the program, the students are required to place the accomplishment and findings of the work through the writing of report covering the topic assigned to them. During the program each student is supervised and guided by a teacher of the department. It enables the students to develop their analytical skills and scholastic aptitudes.
I have conducted a study on “Foreign Exchange on First Security Islami Bank Limited’. My supervisor Dr. Sirajudaulla Shahin, Dean, Department of Business Administration, Southeast University, Dhaka, also approved the topic and authorized me to prepare this report as part of the fulfillment of internship requirement.
Objectives
The objective of this report is to focus on two broad issues. Such as— General Objective:
• This internship report is prepared primarily to fulfill the Bachelor of Business Administration (BBA) degree requirement under the Department of School of Business, Southeast University
• Briefly look at First Security Islamic Bank and understand the whole banking process, keeping close attention on their culture.
Specific Objective:
The second objective and the main issues of this report is as
follows-• To have exposure to the foreign exchange operation of First Security Islami Bank Limited.
• To discuss the services offered by First Security Islami Bank Ltd.
• To identify the major strengths and weaknesses of First Security Islami Bank Limited in respect to other banks regarding foreign exchange operation.
Scope
The report limits its scope to First Security Islamic Bank only.
Limitations
• The time frame, 3 months, is insufficient to know all activities of the branch and prepare the report.
• It was very difficult to collect the information from various personnel for their job constraint.
• As some of the fields of banking are still not covered by our courses, there was difficulty in understanding some activities.
• Another limitation of this report is Bank’s policy of not disclosing some data and information for confidential reason, which could be very much useful.
• Because of the limitation of information, some assumptions were made. So there may be some personal mistake in the report
Methodology
This report has been prepared on the basis of experience gathered during the period of internship from January 23, 2013 to April 22, 2013 at the Banani Branch. For preparing this report, I have undergone group discussion and interviewed with officers and clients of the bank. To carry out the study both primary and secondary data were used.
Primary Sources
Secondary Sources
Face to face conversation with the employees
Appointment with the top officials of the Bank
By interviewing clients of the Bank
Internal Sources
Bank’s Annual Report
Different circulars, manuals and files of the bank.
External Sources
Different books and periodicals related to the banking sector.
Figure 1: Source of Primary and Secondary Data
Approach
The report is based on both primary and secondary research. The secondary research provided the main input for the report. This provided a theoretical basis of the report. The primary research was done to interlink between different concepts & processes of Foreign Exchange in The First Security Islami Bank.
Information Source
Information collected to furnish this report is both from primary and secondary in nature. This study is mainly based on the information extracted from various published annual reports, books, documents, study reports and articles. Interviews and discussion with the senior executives of the Bank gave some insights into the problems and issues of the study. The methods of collecting data followed throughout the study may be detailed as under:
• Foreign Exchange dealing with FSIBL.
• Practical Banking experience of the bank’s officers. • Discussion with the officers / executives of the Bank. • Annual Reports
• Journals of existing literature • Different websites.
Report Organization
This report is divided in five chapters. The following chapter is the organization part i.e. this chapter will give an overview of First Security Islami Bank Limited. In chapter (i) introduction, (ii) organizational overview, (iii) products and services, (iv) Foreign Exchange, (v) Analysis and Findings, (vi) SWOT analysis (vii) conclusion and reference etc.
Chapter
2
Organizational
overview
HISTORICAL BACKGROUND
First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Fifty Three (53) branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.
At the beginning, FSIBL started their business with traditional commercial banking services. However, from 2008 they converted their business to Islamic Banking with Islamic Shariah Act. The FSIBL has played a pioneering role in shaping the future of the Banking industry in Bangladesh since its inception. The Bank started in 1999 with 14 branches and now it has 53 branches in Bangladesh and recently the bank introduce an Exchange House in Canada.
The Bank also maintains a comprehensive correspondent relationship with top ranking banks. FSIBL has already started their on-line, SMS, ATM banking facilities for their clients and also be Merchant Banking facilities.
Vision of the First Security Islami Bank
“Wherever you are, you can Bank with us” is the motto of First Security Islami Bank. FSIBL is prepared to meet the challenge of the 21st century well ahead of time. To cope with the challenge of the new millennium it hired experienced and well-reputed banker of the country from the inception. The bank has efficient and dedicated professional and equipped with modem
technology to provide the best service in the need of the people and thus to realize its vision. So the Bank defamed its Vision: ‘to be the most efficient Islamic Bank in terms of customer service profitability and technology application’.
Mission of the First Security Islami Bank
To develop & deliver the most innovative products, manage customer experience, deliver quality services that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank
Goal of the First Security Islami bank
To exceed customer expectations through innovative Islamic financial products & services and establish a strong presence to recognize shareholder’s expectation and optimize their rewards through dedicated work force.
Special Features of FSIBL
• All activities of FSIBL are conducted under a profit/loss based system according to Islamic Shariah to get the nation rid of Usury.
• Its investment policies under different modes are fully Shariah compliant and well monitored by the board of Shariah Council.
• FSIBL has included online banking in its wide range of services. Bangladeshi software has been introduced in this feature to promote the local developers.
• FSIBL regularly arranges its AGMs (Annual General Meeting). Whenever needed EGMs (Extraordinary General Meeting) are also arranged.
• They believe in providing dedicated services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity.
• The bank is committed towards establishing a welfare-oriented banking system to meet the needs of low income and underprivileged class of people.
• The Bank upholds the Islamic values of establishment of a justified economic system through social emancipation and equitable distribution of wealth.
• Following the Islamic traditions, it is assisting in the economic progress of the socially deprived people; in the creation of employment opportunities and in promotion of rural areas to ensure a balance development of the country.
FSIBL’s Inter Division and Branch Coordination
All the 53 branches are computerized under distributed server environment. Another few branches are planning to open in near future. FSIBL has already started their on-line, SMS and ATM banking facilities for their clients.
FSIBL have set up Wide Area Network through Radio, Fiber-Optics & other available communication media systems to provide any branch banking to their customers. Customer of one branch is now able to deposit and withdraw money at any of our branches.
Online Banking
FSIBL Online banking application addresses the needs of small, individual and corporate account holders of the bank. This application provides a comprehensive range of banking services that enable the customer to meet most of their banking requirements over the Net at any branch.
SMS Banking
SMS banking is a technology-enabled service offering from banks to its customers, permitting them to operate selected banking services over their mobile phones using SMS messaging. First
Security Islami Bank Ltd. has officially launched SMS banking service from December 17, 2007.
Merchant Banking
FSIBL’s Merchant Banking Group is strongly positioned to offer perfect financial solutions its client’s business. They specialize in the arrangement of various forms of Foreign Currency Credits for Corporate. FSIBL provide the resources, convenience and services to meet its clients’ needs by arranging Foreign Currency credits through:
• Commercial loans • Syndicated loans • FCNR loans
• Loans from Export Credit Agencies • Financing of Imports.
Chapter
3
Product and Services
In the memorandum and articles of association of the First Security Islami Bank is revised its area of operation is clearly written. The product of FSIBL is targeted to fulfill that aim. The product and services that are currently available are given below:
• Depository Products
FSIBL is posed to extend L/C facilities to its importers / exporters through establishment of correspondent relations and Nostro Accounts with leading banks all over the world.
• Loan Products
First Security Islami Bank offers a wide range of loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client.
• Other Product and Services
There are other products and services that FSIBL has introduced. They are: • Online Banking Services
• Locker Services • Utility Bills • ATM services
Chapter
4
Foreign Exchange Definition:
Purchase or sale of one national currency in exchange for another nation's currency, usually conducted in a market setting. Foreign exchange makes possible international transactions such as imports and exports and the movement of capital between countries. The value of one foreign currency in relation to another is defined by the exchange rate.
Process of Foreign Exchange:
We can define as the process of foreign exchange on the first security Islami bank limited. At the process of the foreign exchange hedging their remittance and control over their stock market or financial market. We can see the process of foreign exchange as—
Figure 2: The Foreign Exchange Hedging Process
The foreign exchange market (Forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main
interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies
The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states especially Eurozone members and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies. First Security Islami Bank Ltd. (FSIBL) is committed to extend high quality services to its clients through different financial products and profitable utilization of fund by undertaking various lending operations including financing trade, consumer finance, commerce & Industry etc. In conducting lending operations FSIBL always bears in mind the essence of proper foreign exchange identification and their effective securities management. It is also dedicated that purpose in proper identification and management of foreign exchange may result in a large quantum of bank advances turning into non-performing.
In the above background, First Security Islami Bank Ltd. calls attention to the need of an effective foreign exchange management process has prepared the policy guidelines for foreign exchange and securities Management. The policy will be reviewed annually by the Board of Directors of the bank. The policy must be strictly followed by all concerned officials and any deviation from the risk management policies to be clearly identified and justification for approval to be provided.
Foreign Exchange evaluation:
To default control of foreign exchange for FSIBL generally adopts the following their evaluation process:
• Prevailing grow up financing facilities in the financial market. • Increasing transacting one country to another country.
• Financial standing of the borrower supported by financial statement and other documentary evidences.
• Step by step following their exchange rate. • Effect of any applicable regulations and laws. • Viability of the business concern.
• Cash flow analysis and also projections thereof. • Market aspect
• Total global exposure of the borrower • CIB Status of borrower
Lending principles:
To safeguard Bank's interest over the entire period of the advance, FSIBL generally gives emphasis on a comprehensive view of the capital, capacity, integrity of the borrower, adequacy, nature of security, compliance with all legal formalities, and completion of all documentation and finally a constant watch on the account. Where advances are granted against the guarantee of a third party, that guarantor must be subjected to the same credit assessment as made for the principal borrower. The basis of security valuations is expert third party assessments, current market price and forced sale value.
While making lending decisions, particular attention should be given to the analysis of credit proposals received from heavily leveraged Companies and those dealing in non-essential consumer goods, taking special care about their debt servicing abilities. Besides the bank gives emphasis on the following sound credit principles:
(a) Present and future business potentiality for optimum deployment of Bank's fund to increase return on assets.
(b) Preference for self-liquidating quality business. (c) Avoiding marginal performers.
(d) Foreign Exchange is basic to change or exchange a value of currency from one country to another countries currency.
(e) Managing the amount, size, nature and soundness of one-obligor exposures relative to the size of the borrower and Bank's position among his other lenders.
(f) Personal guarantees of the principal partners or the Directors of the Companies and where necessary, subordination agreement should be obtained.
(g) The asset-conversion or transaction flow cycle and the net trading cycle of the customer i.e. the terms on which they conduct-the business.
Foreign Exchange Point of View:
In the modern world no country is self-sufficient, one country is to depend on other countries and from this point of view there arises the question of foreign trade and foreign currency
transactions. That is, the international trade involves foreign exchange transactions particularly for receipt and payment against export and import of goods and services from one country to another. Without foreign exchange transactions we cannot think of foreign trade. Of course, various rules and regulations are to be followed in connection with the foreign trade and foreign exchange transactions.
Foreign Exchange Regulation Act, 1947
Foreign Exchange Regulation (FER) Act, 1947 (Act No. VII of 1947) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then, in Bangladesh. The Act is reproduced. Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank’s offices and their jurisdictions provide a list.
Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications, which are published in the Bangladesh Gazette. Notifications issued by the Bangladesh Government and the erstwhile Government of Pakistan and the Bangladesh Bank and the erstwhile State Bank of Pakistan is reproduced. Directions having
general application are issued by the Bangladesh Bank in the form of notifications, foreign exchange circulars and circular letters.
The major objectives of the act are to conserve the limited foreign exchange resources and to ensure that the available foreign exchange is utilized only for priority requirements the economic and financial interests of Bangladesh and the maintenance of the proper accounting of foreign exchange receipt and payments. Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank reviews the exchange control measures from time to time and revises the instructions on policy and measures, whenever necessary through different Foreign Exchange (FE) circulars.
Authorized dealers in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day-to-day dealings.
Authorized dealers at the level where transactions with the customers take place implement all the regulatory amendments or changes. And so Authorized dealers are to ensure compliance with the regulations by the customers. The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued they are under.
This publication summarizes the instructions issued under the FER Act as well as the prudential instructions issued by Bangladesh Bank (as of 30th September, 1996) to be followed by ADs in their day-to-day foreign exchange transactions.
Bangladesh Bank
Bangladesh Bank (BB) means the Bangladesh Bank established under the Bangladesh Bank Order, 1972 (President’s Order No. 127 of 1972).
Taka
Taka means the Bangladeshi currency value name in Taka unless otherwise specified.
Unless otherwise indicated the term dollar used in this publication shall mean the US dollar.
Authorized Dealers
Wherever used in this publication, the term Authorized Dealer or AD would mean a bank Authorized -by Bangladesh Bank to deal in foreign exchange under the FER Act, 1947.
Foreign Exchange Regulation Act, 1994
This Act regulates the exchange of foreign currencies, remittances and opening of foreign currency account under various classifications. According to this law, FC Accounts can be opened without initial deposits, and bears no interest and both the account holder and the nominee can operate the account. The entire remittance from adored is free from income tax. It also states the documents required for the opening of such account.
Deregulatory Measures:
Since 1976 a lot of reform measures have been undertaken in Bangladesh. On October 20, 1993 Bangladesh Taka was declared convertible on current account transactions and in April, 1994 Bangladesh government has been awarded with the status of article VII of IMF.
The major deregulatory Measures and changes taken place during last few years have been pointed out in the following paragraphs —
• Bangladesh bank in exercise of the powers conferred by the Foreign Exchange Regulations act, 1947 issue licenses to commercial banks to deals in foreign exchanges. Recently the Central bank also permitted a number of Moneychangers to exchange cash foreign currency notes, coins or foreign currency instruments such as Travelers’ Checks.
• With the exception of a few reserved sectors, foreign investors are free to make investment in Bangladesh in industrial enterprises. Foreign investors are free to remit their post-tax profits and dividend to their own country.
• Foreign owned as well as joint venture industrial units located in Bangladesh might freely borrow funds in foreign currency from abroad. Local banks may extend working capital loans or term loans in local currency to foreign controlled or foreign owned firms operating in Bangladesh.
• Non-resident foreign currency deposit (NFCD) accounts may now be maintained as long as the account holder’s desire.
• Bangladesh nationals having bank accounts abroad who were opened while working there may now maintain such accounts even after return to Bangladesh.
• Education sectors were declared folly convertible. Prior permission of Bangladesh Bank is not required for releasing foreign exchange in favor of Bangladesh students studying abroad or willing to proceed abroad for studies.
• Bangladesh Bank has stopped sales and purchases with Authorized dealers of any currency other than the US Dollar; to encourage the Authorized dealers to buy and sell other currencies in the interbank market.
• Bangladesh Foreign Exchange Dealers Association (BAFEDA) has been formed and a ‘Code of Conduct’ for treasury operations and Inter-Bank foreign exchange market has been formulated.
Policy Guidelines
The Investment Policy guidelines of the Bank describes details fundamental Investment and foreign exchange policies, outlines general principles that are designed to govern the implementation of more detailed Investment procedures and foreign exchange and securities system.
Foreign Exchange Business Transaction Service:
Schedule of Charges/Commission on Foreign Exchange Business Transactions/Services
Sl. Types of Service/Particulars Rate of Charges/Commission
IMPORT
1
L/C opening Commission
a) Cash At Sight (Foreign) @ 0.40% for each quarter b) Cash At Sight (Local)
c) Deferred/Usance (Foreign)
@ 0.50% for each quarter d) Deferred/Usance (Local)
LC Transmission (SWIFT) At actual L/C Advising Tk.750/- flat
2
L/C Opening Commission when 100% cash security
a) Cash At Sight (Foreign)
@ 0.25% for each quarter b) Cash At Sight (Local)
c) Deferred/Usance (Foreign) d) Deferred/Usance (Local)
3 Back to Back L/C opening Comm. (Foreign) @ 0.40% for each quarter
4 Back to Back L/C opening Comm. (Inland/EPZ) @ 0.40% for each quarter 5
FCC (Foreign Correspondent Charge) for all types of Foreign L/Cs including Foreign BB L/C
a) If charges as on Beneficiary’s A/c
At actual b) If charges as on Applicant’s A/c
6 Cost of stationary in L/C opening (LCAF, IMP Form and others)
Tk.300/- plus cost of adhesive stamp.
7 Amendments of L/Cs
a) For value increase/Time extension against L/Cs Tk.750/- plus Commission as per L/C
opening rate for value increase b) For all amendments other than value increase
and time extension
Tk.750/- flat
8 Cancellation of L/C (Foreign)
a) Commission Nil b) Swift/Air mail charges At actual c) Foreign bank charges At actual
9 Cancellation of L/C (Local) Nil
payment (Local) 11
Acceptance Commission under deferred payment
(Foreign) @ 0.40% for each quarter 12 Endorsement charge for clearance of goods
against deposit of full value of documents
Nil
13
Third Bank confirmation
a) For sight LC on opener’s A/C Foreign bank charges at actual plus @
0.20%. b) For sight L/Cs on beneficiary A/C
c) For DP L/Cs including BB LC Up to 180 days of opener’s A/C d) LCs over 180 days deferred on opener’s A/C
e) For DP L/Cs including BB LC up to 180 days on beneficiary’s A/C Payment of Documents
14
Charges for discrepant import documents (Local and Foreign)
a) For documents value up to USD 10,000/- USD 40.00 b) For documents value above USD10,000/- USD 60.00
EXPORT 2 2 Advising of L/Cs a) Local/Foreign Tk.750/- flat b) Re-advising/2nd advising c) Advising of Pre-Advice LC d) Short Form/Pre-advice 2 3 Advising of L/Cs Amendments
a) Local/Foreign Tk.750/- Per Amendment
24 Transfer of L/Cs
a) Local/Foreign Tk.750/- flat
2 5
Adding confirmation to Foreign Bank L/Cs
a) Commission @ 0.20% per quarter
2 6
Foreign Documentary Collection/Negotiation under export LC/Contract
a) Where exchange earned through buying and selling on realization
Tk. 500/- b) Where no exchange earned on realization
i) Commission Commission @ 0.15% ii) Handling charge Nil
Overseas Banks
15 Reimbursement/Negotiation charges Foreign Bank charges at actual + our charges $20.00
(If charges are on Application’s A/C)
16
Settlement of L/C payment through
Tk.1000/- per instance
Payment Instruction/Reimbursement Authority/Payment Intimation
17
Charges for Inward Documentary Collection without LC
@ 0.15% plus SWIFT charge at actual for intimation of maturity etc.
(Applicable for DP/Import against LCAF
18
Payment charges against inward collection documents without L/C
a) For documents value up to USD5000/- USD15/- to be realized from Bill value.
b) For documents value above USD 5,000/- USD30/- to be realized from Bill value.
19 Issuance of Back to Back L/C Certificate Tk. 500/- per instance
20 Issuance of Import performance Certificate Tk. 500/- per instance
2 1
All other charges not mentioned above in At actual
iii) For documentary collection bill @ 0.15% plus postage charge at actual
27
Inland Bill Purchased
a) Commission @ 0.15% b) Handling charge Nil
28
Collection of Local Export bills
a) Commission @ 0.15% flat b) Handling charge Nil
29 Mailing of Export documents At actual
30
For Claiming reimbursement against export bills
a) By Mail At actual b) By SWIFT At actual
31 Service Charge on Export Credit @ 0.75% per quarter
32
Export Transaction:
a) Issuance of PRC Tk.500/- per certificate b) Cash incentive document chg. Tk.1,000/- per instance c) Back to Bank LC Certificate Tk.500/- per certificate d) Issuance of C&F Certificate Tk.500/- per certificate e) For other purpose Tk.500/- per certificate
3 3
Foreign remittance
a) Issuance of FDD/FTT drawn on overseas NOSTRO A/C
Tk.600 SWIFT-Tk.500 b) Issuance FC draft drawn on Bangladesh Bank
clearing
@0.10% minimum USD 5/- Max USD
50/- per FDD c) Issuance of Counter draft at the request of local
bank
USD 5 per FDD from the remitted fund
d) Issuance of duplicate FDD (Commission) Tk.200/-
SWIFT per message At actual minimum Tk.500/- Foreign Bank Charges At actual
e) Cancellation of FDD/TT/MT (cancellation fee) Tk.200/-
SWIFT per message At actual minimum Tk.500/- Foreign Bank Charges At actual
f) Sale of TC (Commission) Commission 1%
Endorsement fee per passport Tk.100 up to USD 500 and Tk.200 for more than USD 500.
g) Sale of FC in Cash Commission Nil
Endorsement fee per passport Tk.100 up to USD 500 and Tk.200 for more than USD 500.
h) Collection of refund warrant Nil
Draft
Tk.0.40 per EURO Tk.0.50 per GBP
All other currencies at USD rate Mailing Charge at actual minimum Tk.200/-
j) Encashment of / disbursement against any foreign remittance through TT/DD at our counter
In Taka nil
In FC Tk.100/- per TT k) Collection of proceeds from local banks for any
draft in FC which is not primarily collected through clearing
Tk.300/- per instrument
l) Collection of Foreign currency draft from abroad
Commission @ 0.10% minimum Tk.200/-, Mailing Charge at actual minimum Tk.100, Foreign Bank Charges at actual
m) Encashment / Refund of TC
Commission 0.10% minimum Tk.250/-, Mailing Charge at actual min. Tk.100, Foreign Bank Charges at actual.
n) Processing of application of remittance of profit/dividend
Tk.500/- o) Payment of indenting commission/ Technical
knowhow fees/Royalty etc.
Tk.500/- p) Opening of Student File in FC. Tk. 3000/- q) Bank Guarantee/Bid Bond/Standby LC:
i) Issuance of BG/Bid Bond/PG/Standby LC against counter guarantee of foreign correspondent (Inward)
1st quarter @ 0.50% subsequent quarter @ 0.25%, minimum US$ 150.00.
ii) Issuance of BG/Bid Bond/PG/Standby LC at the request of customer (Outward)
0.50% per quarter, minimum Tk.1000/- plus SWIFT charge at actual
iii) Advising of Guarantee to the beneficiary in original without engagement of bank.
Tk. 500/-
All other charges are to be calculated at actual cost.
VAT, Income Tax and other Govt. levies (Wherever applicable) are to be added with all of the above charges.
Authorized Dealer and Money Changer:
Bangladesh Bank issues licenses normally to scheduled banks to deal in foreign exchange if it is satisfied that the bank applying for this license has adequate manpower trained in foreign
exchange, there is prospect to attract reasonable volume of foreign exchange business in the desired location and the applicant bank carefully complies with the instructions of the
Bangladesh Bank especially with regard to submission of periodical returns. Bangladesh Bank may issue general licenses or licenses with authority to perform limited functions only.
Licenses with limited scope are also issued to persons or firms to exchange foreign currency notes, coins and travelers’ Checks in places where money-changing facilities are required. The authorizations are granted to persons or firms of adequate means and status who, in the opinion of the Bangladesh Bank, will be able to conduct their dealings strictly in accordance with the Foreign Exchange Regulations.
Applications for the grant of AD licenses should be made to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka.
Bangladesh Bank Transaction with ADS:
Bangladesh Bank’s purchases and sales from and to the ADs are in US Dollar only, on spot basis. All such transactions with Bangladesh Bank are required to be in multiples of US$ 10,000, subject to a minimum of US$ 50,000. ADs are free to quote their own rates, ready and forward, for transactions in the interbank market and with their customers.
The Central Banks of Bangladesh, India, Iran, Nepal, Pakistan, Sri Lanka, Bhutan and Myanmar have an Agreement to settle current transactions between these countries through the Asian Clearing Union (ACU) mechanism. All such payments to the ACU member countries excepting those covered by loan/ credit agreements are accordingly settled through the ACU mechanism in Asian Monetary Unit (AMU), also called ACU dollar which is defined as equivalent to the US dollar.
The ACU Agreement referred to above provides for settlement of the following types of payments:
• Payments from residents in the territory of one participating country to residents in the territory of another participating country.
• Payments permitted by the country in which the payer resides.
An AD needing to fund its ACU dollar Nostro account with a correspondent bank in an ACU member country shall do so through Bangladesh Bank against surrender of the required amount in US dollar, or of equivalent Taka at Bangladesh Bank’s selling rate. Bangladesh Bank will advise the central bank of the concerned ACU member country to make the amount available to the transferee bank in that country. After making the payment, the central bank of the recipient ACU member country shall advise the GM of the ACU secretariat to credit its account by debit to Bangladesh Bank’s account.
Bangladesh Bank on receipt of the advice shall make the fund available to the recipient AD and shall advise the GM of the ACU secretariat to credit its account by debit to the account of the central bank of the transferor ACU member country.
Bangladesh Bank operates a foreign currency clearing system enabling the AD banks to settle their mutual claims in US dollar, Pound Sterling, Euro and Japanese Yen arising from inter bank transactions; to economize the time and cost involved in settlements through correspondents abroad.
Forward Dealing in Foreign Exchange:
ADs, on their own, are free to buy and sell foreign currencies forward in accordance with tile internationally established practices however, in all cases the ADs must ensure that the cover is intended to neutralize the risks arising from definite and genuine transactions. Be it forward sale or purchase, ADs must cover their own risk within die shortest possible time.
All forward contracts should be treated as firm and should be closed out on expiry. In such cases the ADs should charge the difference between the contracted rate and the TT clean spot buying or TT spot selling rate, as the case may be, ruling on the date the contract is closed out. The forward contract should be closed without charging any difference if the rate moves in favor of the customer on the date of the closure. Similarly, no difference should be charged for closing out a forward sale contract if the TT clean spot buying rate on the date of closure is at par or higher than the booked rate.
No forward contract should be renewed at the old rate. All cases of renewal should be treated as new contracts and the rates as applicable for purchase-sale of forward contracts on the date of renewal should be applied.
Outward Remittances:
Most outward remittances are approved by the ADs, on behalf of the Bangladesh Bank following declaration of Taka as convertible for current accounts payments from March, 1994. Only a few remittances of special nature require Bangladesh Bank’s prior approval.
All remittances from Bangladesh to a foreign country or local currency credited to on resident Taka accounts of foreign banks or convertible Taka account constitutes outward remittances of foreign exchange. ADs must exercise greatest caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released; they should also
maintain proper records for submission of returns to Bangladesh Bank as also for the letters inspection from time to time.
It is most important that, once forms have been approved by or on behalf of the Bangladesh Bank, the ADs carry out the transactions only on behalf of the original applicants for whom the forms were approved.
Remittances made against permits or approval letters of Bangladesh Bank should be reported on TM form. The AD must state on the TM form the number of the permit against which the remittance has been made by him and must certify that the remittance has been endorsed by him on the permit. The remittance must be endorsed on the back of the permit giving the date of the remittance under the stamp and signature of the AD. When the permit is exhausted or no longer required, it should be returned to the Bangladesh Bank by the AD along with the TM form on which the last remittance is reported.
Original copies of all IMP forms, TM forms covering remittances affected by the ADs must be submitted to the Bangladesh Bank along with the appropriate Returns. In the event of any remittance, which has already been reported to the Bangladesh Bank on the prescribed return being subsequently cancelled either in full or in part, the ADs must report the cancellation of the outward remittance as an inward remittance. A letter giving the following particulars should support the return in which the reversal of the transaction is reported:
• The date of the return in which the outward remittance was reported.
• The name and address of the applicant.
• The amount of the sale effected originally.
• The amount cancelled.
• Reasons for cancellation.
The term “Inward Remittances” 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’ Checks.
The ADs may freely purchase foreign currencies or raise debits to non-resident Taka Accounts of the respective bank branches and correspondents. Remittances equivalent to US$ 2000 and above should be reported oil Form C attached to the appropriate schedule. However, declaration on Form C by the beneficiary is not required against remittances sent by Bangladesh nationals working abroad. The purpose of remittances should be clearly stated on the Form C. Where the country of origin of funds and currency in which remittances received are the same, the ADs may submit a consolidated Form C in respect of those remittances attaching therewith a separate list showing details of remittances comprising the amount reported on Form C. Remittances received against exports should be certified and reported on EXP Forms. In case of remittance received in advance for exports the AD should obtain a signed declaration from the beneficiary on the back of the “Advance Receipt Voucher” certifying the purpose of remittance.
There is no objection to the ADs obtaining reimbursement from non-resident banks in freely convertible foreign currency in respect of Taka bills and drafts purchased by them under instructions from such a non-resident bank whether under Letters of Credit or under other arrangements.
If an inward remittance already reported to the Bangladesh Bank is cancelled, either in full or in part, because of non-availability of beneficiary, the ADs must report the cancellation of the inward remittance as an outward remittance on TM form. The return in which the reversal of the transaction is reported should be supported by a letter giving the
• Reference of the return in which the inward remittance was reported
• Name and address of the beneficiary
• Amount and the reason for cancellation and
• Amount of the purchase as affected originally.
Foreign Investment:
Foreign Investors are free to make investment in Bangladesh in the industrial enterprises
excepting a few reserved sectors. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. Prior permission of the
Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against foreign investment in Bangladesh; general permission is accorded in this behalf subject to the following conditions:
• The industrial venture will have secured permission from the Board of Investment (BOI)/ Controller of Capital Issues, under the Capital Issues (Continuance of Control) Act 1947, about its capital issue. To avail of the facilities and institutional support provided by the Government, entrepreneurs/sponsors may secure registration with the Board of Investment;
• Before issue of shares against foreign investment in the form of capital machinery, the machinery will have to be cleared from the Bangladesh customs authorities at the port of entry;
• Foreign Investment and Inspection Department, Bangladesh Bank, head office should be informed about the issue and transfer of shares to non-residents pursuant to (a),(b) & (c) above, within 14 days of such issue/ transfer, along with the following documents/papers: (i)Attested copy of registration, if any, of the foreign investment in the industrial ventures accorded by the BOI;
(ii) Attested copy of the permission for the capital issue accorded by the BOI/Controller of Capital Issues:
(iii)Original certificate of encashment of foreign exchange in Taka in case of issue of shares against foreign exchange received from abroad through the banking channel; and
• Non-resident persons/institutions including non-resident Bangladesh nationals may buy Bangladeshi shares and securities in Bangladesh against freely convertible foreign
currency remitted from abroad through the banking channel. Transactions relating to such investments including repatriation of dividend/ interest earnings and sale proceeds shall be made through a Non-resident Investor’s Taka Account (NITA) according to the following procedure:
(i) The non-resident investor shall open a NITA with any AD in Bangladesh, with freely convertible foreign currency remitted from abroad through normal banking channel. (ii) Balances in the NITA may freely be used to buy Bangladeshi shares/securities. (iii)Relevant instructions contained in The Securities and Exchange Commission (SEC) Notifications regarding placements, allotments and issuance of right shares are to be carefully complied with.
• Incidental expenses related to sales and purchases of shares/ securities and to operation of the accounts may be debited to NITA.
• After the non-resident investor has purchased the shares/securities, the related certificates/scripts can be deposited /kept with any person/organization nominated by the investor. The investor can as well take them outside the country, if he so desires.
Operation in securities:
• Section 2 of the FER Act defines “security” as shares, stocks, bonds, debentures, debenture stock and Government securities, deposit receipts in respect of securities and units or subunits of unit trusts. A “foreign security” is defined as a security issued elsewhere than in Bangladesh and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in Bangladesh. “Security” also includes coupons or warrants representing dividends or interest and life or endowment insurance policies.
• Persons resident in Bangladesh who are or become owners of foreign securities are permitted to hold or retain such securities provided they have acquired them in a manner not involving a breach or violation of the foreign exchange regulations. Holders of
foreign securities who wish to sell, transfer or otherwise dispose of or deal in securities must, however, ensure that the proposed transactions do not contravene the provisions of the FER Act and the orders issued by the Government of Bangladesh and/or the Bangladesh Bank there under and must obtain prior permission of the Bangladesh Bank wherever necessary.
• Under the existing foreign exchange regulations all persons resident in Bangladesh who are or become the owners of any security in respect of which the principal, interest or dividend is or are payable in the currency of any foreign country or in respect of which the owner has the option to acquire the payment of principal, interest or dividend in such currencies, are required to submit a return to tile Bangladesh Bank within one month of their acquiring the securities giving certain particulars in respect of the said securities.
Introduction of foreign exchange department:
Foreign exchange department deals with foreign currency and the transaction of it. The major job of this department is listed below:
1. Letter of Credit (for Export and Import) 2. Dollar/Traveler’s Check (TC) Endorsement 3. Foreign Remittance
4. Foreign Currency Account
1) Letter of Credit (LC):
In case of any foreign trade requirement L/C is a must. As we know, there is no guaranteed relationship between import and export. As a result, they use a media to secure their goods and currency. So, Exporter and Importer use their respective bank as a media and L/C is a legal obligation between Exporter and Importer. In case of a single L/C, it is necessary to prepare six credit vouchers and one debit voucher. After preparing those vouchers it should be sent to the computer section for computer entry.
FIRST SECURITY ISLAMI BANK LTD. is an Authorized Dealer of American Express T/C. At the same time, they can buy and sell T/C and dollar. Every morning they get a telex from Head Office, Which carries the rate of the foreign currency transaction of the day. FIRST SECURITY ISLAMI BANK LTD. fixes the rate by them. At the end of the each month the branch uses to submit all supportive documents (all foreign transactions documents and balance of the foreign currency) to the Bangladesh Bank and their Head Office.
3) Foreign Remittance:
Foreign DD and paving or receiving any bill from foreign country is known as foreign
remittance. The amount of foreign remittance is very significant in FIRST SECURITY ISLAMI BANK LTD, Banani Branch.
4) Foreign Currency Account:
A Foreigner, a Wage Earner working in foreign country can open this account, but it is possible to open a foreign currency (Dollar) account in Banani branch. The account holder gets a Check book against the account and has to mention the amount in respective currency.
Letter of Credit (L/C):
Foreign trade financing is an integral part of banking business. Letter of credit is the key player in the foreign exchange business. The import section deals with L/C in the perspective of the exporters. In case of import, the importers are asked by the exporters to open letter of Credits so that their payment against goods is ensured.
Types of Letter of Credit:
The Letter of credit can be either revocable or irrevocably. It needs to be clearly indicated whether the L/C is Revocable or Irrevocable. In the absence of any indication, it will be deemed to be a Revocable Letter of Credit (UCPDC 1993 Revision, ICC No. 500).
A Revocable Letter of Credit is one which can be Amended or cancelled by the Issuing Bank at any moment without prior notice to the beneficiary
• Irrevocable L/C:
An Irrevocable credit is one, which cannot be cancelled or amended any time without the consent of each party. Through this L/C, the issuing Bank gives a definite, absolute and irrevocable undertaking to honor its obligations, provided the beneficiary complies with all the terms and conditions of the credit.
Foreign Exchange Operation of FIRST SECURITY ISLAMI BANK LTD.
Bank:
In FIRST SECURITY ISLAMI BANK LTD. bank limited foreign exchange is divided in to two parts according to the major activities:
• Import oriented foreign exchange activities.
• Export oriented foreign exchange activities.
Import section:
Import and Export (control) Act 1950 regulate the Import and Export trade of the country. There are a number of formalities, which on Importer has to fulfill before import goods. These
formalities are explained bellow — Import Registration Certificate (IRC)
The first thing one need to carry on a business of import is called Import Registration Certificate. But registration is not required for import goods, which do not involved remittance of foreign exchange like medicine; reading materials etc. can be imported without registration by the users within monetary limit. Documents to be required for Import Registration Certificate are as follows —
• Income Registration Certificate
• Nationality Certificate
• Certificate from Chambers of Commerce and Industry Registered Trade Association
• Bank Solvency Certificate
• Copy of Trade License
On receiving application, the respective CCI&E officer will scrutinize the documents and conduct physical verification and issue demand note to the prospective importers to furnish the following papers through their nominated Bank —
• Original copy of treasury deposited as IRC fees
• Assets Certificate
• Affidavit from 1st class Magistrate
• Rent receipt
• Two passport size photograph
• Partnership deed in case of partnership firms
• Certificate of Registration, Memorandum and Articles of Association in case of Limited Company.
After scrutinizing and verifying, the nominated Bank will forward the same to the respective CCI&E office with forwarding schedule in duplicate through Banks representative. CCI&E then issue Import Registration Certificate to the Applicant.
Function of Import section:
Import Form:
The form IMP contains the followings—
• Name and address of the Authorized dealers.
• Amount of remittance to be permitted (i.e. L/C amount)
• LCA form no. Date and value in Taka.
• Description of goods.
• Invoice value in foreign currency, (i.e. L/C amount)
• Port of shipment.
• Name of steamer / Airline (i.e. By road/ship/air)
• Port of importation.
• Indenter’s name and address.
• Indenter’s registration number with CCI & E and Bangladesh Bank.
• Full name and address of the applicant.
• Registration number of the applicant with CCI & E.
Import Procedures:
The procedures, which follows at the time of Import areas, follow —
• The buyer and the seller conclude a sale contract provided for payment by documentary credit.
• The buyer instructs his Bank (the issuing Bank) to issue a credit in favor of the seller / Exporter / Beneficiary.
• The Issuing Bank then send messages to another Bank (Advising Bank /Confirming Bank), usually situated in the country of seller, advice or confirms the Credit Issue.
• The Advising / confirming Bank then informs the seller through his Bank that the Credit has been issued.
• As soon as the seller receives the credit, if the credit satisfies him the he can reply that, he can meet its terms and conditions, he is in position to load the goods and dispatch them.
• The seller then sends the documents evidencing the shipment to the Bank where the Credit is available (nominated Bank). This can be the issuing Bank or Confirming Bank; Bank named in the Credit as the paying, accepting and
Export Section:
Literally, the term Export, we mean that carrying of anything from one country to another. On the other hand Banker’s define Export as sending of visible things outside the country for dale. Export Trade plays a vital role in the development process of an Economy. With the Export earning, we meet our Import Bills.
Export Registration Certificate (ERC)
Like any other business it needs Registration. The chief Controller of Import and Export (CCI&E) makes export registration. For Registration, prospective Exporters required to apply through Q.E.X.P from the CCI&E along with the following documents —
• Trade License 50
• Income Tax Clearance
• Nationality Certificate
• Bank’s Solvency Certificate
• Asset certificate
• Registered Partnership Deed Function of Export Section:
Export Form:
All Export of which the requirements of declaration vide para-1 of chapter XXI of Exchange Control Manual of Bangladesh Bank applies must be declared on the EXP forms by the customer, now issued by the Authorized Dealers.
Disposal of Exp. Form:
1. Original: From Custom Authority to Bangladesh Bank after shipment goods. 2. Duplicate: From Negotiating Bank to Bangladesh Bank after Negotiation.
3. Triplicate: From Negotiating Bank to Bangladesh Bank after realization of the proceeds of the Export Bill.
4. Quadruplicate: Retained by the Negotiating Bank as Office Copy. Export procedure:
A person desirous to export should make application to obtain ERC from CCLNE. Then the person should take step for export purpose into the bank for obtaining EXP form. He must submit following documents:
• Trade license
• ERC
After satisfaction on the documents the banker will issue EXP form to the exporter. Now exporter will be getting shipping and other documents from the shipment procedure. Exporter should submit all these documents along with letter of indemnity to his bank for negotiation.
Documentation for Export Purpose:
Following major documents are required for export purpose —
• Commercial invoice • Bill of lading • EXP. Form • Bill of Exchange • L/C copy • Packing List • Certificate of Origin
• Quality Control Certificate
• Weight List
• Inspection Certificate
• Other (if required)
Procedure for Collection of Export Bill:
There are two types of procedures regarding collection of Export Bill —
• Foreign Documentary Bill for Collection (FDBC)
• Foreign Documentary Bill for Purchase (FDBP)
Exporter can collect the bill through negotiating bank on the basis of collection. Exporter in this case, will submit alt the documents to the negotiating bank for collection of bill from importer. The exporter will get money only when the issuing bank gives payment.
In this connection bank will scrutinize all the documents as per terms and conditions mentioned in L/C.
Foreign Documentary Bill For Purchase (FDBP):
When exporter sale all the export documents to the negotiating bank is known as FDBP. In this case, the exporter will submit all the documents to the bank. The bank gives 60-80% amount to the exporter against total L/C value.
Foreign Exchange Risk
The foreign exchange transaction is associated with foreign currency fluctuation risk. Therefore the Investment Officer/RM must take care of for the Forex risk. The questions to be addressed are:
• Does the business involve foreign currency dealings? • What are trends of foreign currency fluctuation?
Chapter
5
SWOT analysis of The First Security Islami Bank Limited
Strength
Diversified ownership pattern Strong market share
Good Financial performance Good investment portfolio Comfortable Liquidity position Experienced management team Sound HR development programs Improvement in automation Wide branch network
Significant involvement in corporate social responsibility
Weakness:
Unmatched asset versus capital growth Limited delegation of power
Limited modern customer service facilities
Moderate recovery of rescheduled investments
High large investment exposures Initial stage of system based internal
control procedures
Opportunities:
Investment in SME and Agro based industry
Real time online banking Credit card in dual currency
Creation of Islamic Money market product
Introduce above 5 years Islamic bond
Threats:
Market pressure for increasing the SLR Overall liquidity crisis in money market Government pressure to reduce
investment rate
Chapter
6
Analysis and Findings:
In the quest of reducing the inherent risk on investments, the management of FSIBL practices a set of self developed policies and regulations. The management team of the bank developed a set of requirement guidelines which they follow before embarking upon any kind of financing. Moreover, the bank has also developed and follows some prudential regulations and specific regulations for each types of investment/credit it makes.
All the efforts taken by the bank mainly has one purpose: to maintain secured investments. In this chapter, I have taken the help of Six C’s of credit to analyze different guidelines and regulations followed by the bank. They are discussed below:
Six C’s:
CHARACTER (Credit Reputation): A person with a good character is one who willingly and
responsibly lives up to agreements. One distinctive sign of a good character is a responsible attitude toward paying bills and meeting obligations on time.
CAPACITY: The ability to repay a loan or make payments on merchandise with present income
is known as capacity. Creditors want to make certain that you will have enough money left over each month after other fixed expenses have been met to pay your credit debts.
CAPITAL: Property and other assets that total more than debts are known as capital. In other
words, when you add up all that you own (assets) and subtract all that you owe (liabilities), the difference (you’re net worth or capital) should be sufficient to ensure payment of another bill.
CONDITIONS: All other existing debts, stability of employment, personal factors, and other
factors that might affect a person’s ability or desire to meet financial obligations are important conditions to be considered. For example, a person who has moved six times during the past
year might not be considered a good risk because of living conditions that indicate some type of problem.
COLLATERAL: Property or possessions that can be mortgaged or used as security for payment
of a debt are known as collateral. If a debt is not paid as agreed, the collateral is repossessed and sold to pay the debt.
COMMON SENSE: A person’s inner ability to make wise decisions is often referred to as
common sense. A loan officer or credit manager would determine that you have good common sense based on how you answer questions (either orally or in writing). Good decisions are reflected in answers such as reasons for leaving employment, number and types of credit cards and balances outstanding, or references listed on an application.
Analysis:
Character: This point enlightens the borrower’s willingness to repay the loan. If we look on the
Product Program Guidelines (PPG) (Discussed in chapter 3, Section 3.3.5) the bank has a specific guideline for its loan officer to assess the customer’s character for integrity and willingness to repay the loan.
Capacity: As discussed above, this point tells about the ability of the borrower to repay the loan.
FSIBL has precise guideline (discussed in PPG section 3.3.5) that ensures an inspection on the customer’s ability to repay the loan. The bank also has regulation (under section 3.2) that tells the loan officer to make sure the customer as the ability to repay the loan.
Capital: This calls for the worthiness of the borrower or the evaluation of the total net worth of
the customer. FSIBL checks the customers’ net worth condition by doing credit evaluation process (Discussed in chapter 3, section 3.1.2)
Conditions: Here, a customer’s present conditions are examined. While applying for a loan, the
bank takes all necessary information that shows the condition of the customer.
Collateral: This point is self explanatory. FSIBL has precise regulation and policy on getting
proper collateral from the customer before sanctioning a loan. However, a customer is not always asked to provide a collateral security (In case issuing Credit Card etc.). Mainly collateral security is asked during processing of large loans.
Common Sense: In credit assessment process, a customer is also reviewed about his/her ability
to make wiser decisions.
MAJOR FINDINGS:
The major findings as revealed from the study are as under:
Banks are financial intermediaries linking the savers and the users of fund and the main income flow comes from lending activities. But this bank also follows to their rules as the ACT 1947. So that bank related financial exchange rate.
Bank foreign exchange policy provides directional guidelines to all concerned to improve financial management system and establish strongest security for managing upward increasing flow-chart.
FSIBL follows a minimum requirement policy for financial exchange rate. They follow certain guidelines before undertaking consumer financing.
The financial managing policy and securities of key responsibilities is standard to mitigate their average exchange rate whenever bank also followed it.
The bank has a highly experienced, well-educated, self-motivated and proactive financing motivating system.
The impact of change in the employee productivity on deposit and loans & advances was the largest contributor to the change in deposit and loans & advances.
