AB Bank

Internship Report

Internal Analysis of Foreign Exchange Operations

in AB Bank Ltd. [Mohakhali Branch]

Submitted to

Mr. Syed Kamrul Islam

Senior Lecturer

School Of Business

North South University

Submitted by

Fall 2010

North South University

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ACKNOWLEDGEMENT

While preparing the report lots of people helped me on various occasions. In this regard, I

would like to give special thanks to my Internship Supervisor Mr. Syed Kamrul Islam, He

always guided me to bring in something original for the internship report and encouraged

to work hard to produce a quality report on my three months internship program. Again I

thank him to allow me work on such a challenging report. After that I owe my special

thanks to my Internship Supervisor at AB Bank Ltd’s Mohakhali Branch, Branch Manager

Mr. Sayed Farhad Alam for being so understanding and helpful to complete my internship

and advices in this regard.

I am grateful Mr. Moyaz Khan (In-charge, Foreign Exchange department), Mr. Nasimul

Haque (senior officer, Import Division), Mr. Imran Mohammdullah (Officer, Import

Division) and Mr. Ashif Haque Khan (Officer, Export Division) for helping me with

relevant data and information. I also thank all the survey respondents for their valuable

feedback.

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04 January 2010

To

Mr. Syed Kamrul Islam

Senior Lecturer,

School of Business,

North South University.

Subject: Submission of BUS 498 Internship Report.

Dear Sir

In the following pages, I have presented BUS 498 Internship Report, which you had

authorized me to prepare as Internship Report.

This internship at AB Bank Ltd has given me an opportunity to get hands on

experience about the foreign exchange operations in AB Bank Ltd. Also it has

provided me the scopes to apply my learning of the theories in a corporate

environment. I am thankful to you and AB Bank Ltd for giving me this opportunity.

I enjoyed preparing the report though it was challenging to finish within the given

time. In preparing this report, I have tried my level best to include all the relevant

information and tried to identify different characteristic of AB Bank Mohakhali

Branch’s foreign exchange department.

Thank you.

Sincerely,

M Maruf Hossain

ID# 061 545 030

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Executive Summary

Foreign Exchange section of any bank deals directly with the international business

activities. Therefore as an International Business major I worked on creating this report as

an internal evaluation of Foreign Exchange department’s core processes. I have completed

my 3-month internship in AB Bank Ltd’s Mohakhali branch. This report gives a brief

overview and evaluation on the branch’s Foreign Exchange Department.

In this report I have covered the workflow of processing letter of credit. I have found out

that this particular branch almost perfectly completes the processes for each letter of credit.

In addition this report includes a survey that was conducted among the employees of this

department to find out their evaluation on the department’s various functional areas. Overall

the responses are positive, but I feel AB Bank top management still has some major things

to look into to ensure continuous performance growth.

Furthermore this report includes a brief analysis on foreign exchange department’s financial

performances over last couple of years. The analysis has demonstrated satisfactory

performance over this period.

Finally I have included my recommendation based on the findings from the researched areas

and my observation of 3 months.

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Table of Content

Title Page No.

1.0 Introduction

1.1 Origin of the Report

1.2 Objectives of the Study

1.3 Significance of the Study

1.4 Methodology

1.5 Scope and Limitations of the Study

1.6 Limitations of the Study

2.0 Company Profile

2.1 Background of the Company

2.2 Mission, Vision and Objectives

2.3 Organization Structure

2.3.1 Managerial Hierarchy in ABBL

2.3.2 Branch Organogram

2.4 ABBL’s Services and Various Functional Departments

2.5 ABBL’s Competitive Conditions in Banking Industry

2.5.1 Competitive Analysis Using Porter’s Model

2.5.2 SWOT Analysis

2.6 Future Directions

3.0 Performance Evaluation

3.1 Hypothesis

3.2 Methodology

3.3 Step-by-step L/C Processing Flow

3.3.1 Letters of Credit (L/C)

3.3.2 Parties to a Letter of Credit

3.3.3 Typical Flow of Commercial Letter of Credit Processing

3.3.4 ABBL’s role

3.3.5 Document and Information Preservation

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Title

3.3.6 Updating L/C database on Bangladesh Bank server

3.4 Internal Management Survey Analysis

3.5 Financial Performance Analysis

3.5.1 Earning from L/C

3.5.2 Budgeted Vs Actual Performance

3.5.3 Growth Rate Over Years

4. Recommendation

5. Conclusion

Appendix

Page No.

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Internal Analysis of Foreign Exchange Operations in AB Bank Ltd. [Mohakhali Branch] 1

1.0 Introduction

1.1 Origin of the report

This report is an Internship Report prepared as a requirement for the completion of the BBA

Program of School of Business, North South University.

I’ve completed working in foreign exchange department in AB Bank Mohakhali branch as an

intern. AB Bank Limited is one of the most reputed banks in Bangladesh. With nation-wide

active presence, it plays a significant role to mobilize commercial activities of the country. As

a second-generation bank it has been dealing with foreign transactions since beginning.

Foreign exchange section of any bank deals directly with the international business activities

(i.e. L/C is an essential part of export/import of a country]. Therefore as an International

business major it was a pleasure to get inside this core process. So in this report I have

analyzed the overall performance of foreign exchange department.

1.2 Objectives of the study:

Broad objective:

It will be an internal evaluation of the foreign exchange department of ABBL

Mohakhali Branch.

Specific objective:

• To see the difference between theoretical and practical aspects of the process

• To get the employees’ insight of the L/C process

• To measure the gap between expected and actual performance to meet goals

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1.3 Significance of the study

My analysis and findings will definitely help current management of AB Bank and all other

stakeholders in these particular ways:

They will have neutral evaluation of the working processes

They will get to know the employees’ evaluation on the management

1.4 Methodology

Data collection for the project basically depended on the primary data along with secondary

data sources as much as possible. In order to construct the theoretical part, the people working

in AB Bank, especially in the Foreign exchange department were consulted. Primary data was

collected through questionnaire surveys and some interviews as required.

For secondary information I researched relevant data and stats from the branch’s info section.

Also, I looked into published data sources.

1.5 Scopes of the study

Mohakhali branch of ABBL is actively serving people with all its major departments such as

Credit, Accounts, Cash and Foreign Exchange etc. Also, there are sub-divisions inside these

departments. As an intern, I have spent majority of my time particularly in Foreign Exchange

Department. So, I decided to focus on analyzing import and export L/C processing only. This

report does not include analysis on foreign remittance transfer.

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Also, the report just gives brief overviews of the services offered by other departments of the

branch. Detailed working processes or evaluation of these departments are not included.

1.6 Limitations of the study

Some limitations of this study which are discussed below:

Result that appear after conducting this study may not reflect the same situation for

all the other branches of ABBL as this study is only based on the opinions of

respondents of one particular branch

The survey may not reflect the true intention of the employees.

This research may not contain the actual scenario of the respected topic as the

sample size is not that large. The reason is that this department has only about 25

employees who are directly or indirectly involved with Foreign Exchange activities.

Due to time limitation many aspects could not be discussed in this study.

It was rather difficult to manage and convince the employees to take part in the

survey. It was often asked to take the data from the internal source of ABBL which

the management was reluctant to share stating it was confidential.

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2.0 Company Profile

2.1 Background of the company

AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st

December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from

April 12, 1982.

Bangladesh Government adopted a new policy in 1981 to allow private sectors’ initiative in

bank formations. A group of Bangladeshi entrepreneurs thus proceeded to establish the first

bank in the private sector with the assistance and support of renowned Dubai based Galadari

family. A Foundation was laid for the formation of a joint venture bank with Dubai Bank Ltd,

that’s major share holders were the Galadari Brothers. The new bank was named Arab

Bangladesh Bank Ltd. It was incorporated in Dhaka on 31 December 1981 and it commenced

its banking business from 12 April 1982. Mr. M. Matiul Islam was, made the first chairman of

the bank and Mr. Hafizul Islam was chosen as Managing Director.

In 1986, the Union Bank of the Middle East Ltd. (LIBMR) inherited the shared of Dubai Bank

Ltd. and continued as a shareholder till early part of 1987 when they decided to offload their

invest in Bangladesh and concentrate their activities in the U.A.E. With necessary approvals of

the relevant authorities including Bangladesh Bank, the share held by them in the company

were transferred to Bangladeshi shareholders.

During the last 28 years, AB Bank Limited has opened 77 Branches in different Business

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Centers of the country, one foreign Branch in Mumbai, India and also established a wholly

owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance

Limited. To facilitate cross border trade and payment related services, the Bank has

correspondent relationship with over 220 international banks of repute across 58 countries of

the World.

In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded

the 2008 financial year with good results. The Bank’s consolidated profit after taxes amounted

to Taka 230 cr which is 21% higher than that of 2007. The asset base of AB grew by 32% from

2007 to stand at over Tk 8,400 cr as at the end of 2008.

The Bank showed strong growth in loans and deposits. Deposit of the Bank rose by Tk. 1518

cr ie. 28.45% while the diversified Loan Portfolio grew by over 30% during the year and

recorded a Tk 1579 cr increase. Foreign Trade Business handled was Tk 9,898 cr indicating a

growth of over 40% in 2008.

The Bank maintained its sound credit rating in 2008 to that of the previous year. The Credit

Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an A1 rating in the long

term and ST-2 rating in the short Term.

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2.2 Mission, vision and objectives

Vision Statement

To be the trendsetter for innovative banking with excellence & perfection

Mission Statement

To be the best performing bank in the country

Objective

To exceed customer expectations through innovative financial products & services and

establish a strong presence to recognize shareholders' expectations and optimize their rewards

through dedicated workforce.

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2.3 Organization structure

2.3.1 Managerial hierarchy in ABBL

In general, the management hierarchy of ABBL is as following:

P

R

O

S

P

E

R

I

T

Y

Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Senior Assistant Vice President

Assistant Vice President

Senior Principal Officer

Principal Officer

Senior Officer

Officer

Trainee Officer

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2.3.2 Branch Organogram

Manager

General Banking

Clearing

Customer Service

Teller Operations

Accounts

Credit Department

Monitoring & Compliance

Credit Risk Management

Credit Administration

Credit Recovery

Foreign Exchange

Remittance

Import

Export

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2.4 ABBL’s Services and Various Functional Departments

Types of Banking Service:

ABBL is always ready to provide all types of banking as the different needs of different

clients. This bank provides all services through rules and regulations. The different categories

of banking that ABBL offers are as follows:

Retail Banking:

The retail banking comprises the domestic braches network with the specialized

customer credit, real estate finance. Retail banking deals with the banking service to the

individuals. ABBL’s retail banking strategy is aimed at keeping as closely in tune with

the customer’s needs as possible and further improving the quality of advisory services.

As a result, ABBL offers different product ranges to different target groups. In this

banking individuals may their personal accounts like Current Accounts, Savings

Accounts, FDR Accounts, and STD Accounts etc.

Institutional Banking:

ABBL offers various services to various organizations, shipping airlines, contractors,

schools, colleges Universities, doctors. The services include Deposit services, Current

accounts in both as foreign currencies, Local and Foreign Currency remittance etc.

Commercial Banking:

Being a commercial bank ABBL offers a wide variety of commercial banking service

to the respected clients as much as possible. Basically the services are like trade

financing, issuing import L/Cs, investment advice, project finance opportunities etc.

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Correspondent Banking:

The bank has already established Correspondent Banking arrangement with the leading

international banks covering important cities and countries.

International Banking:

ABBL is equipped with modern technology & provides following international banking

service:

Plays vital role in import, export and other foreign currency of the country.

Renders fastest service to the exporter importer through its SWIFT service.

Offers competitive price for exporter and importer.

Provides support to the exporter and importer.

Uploads its commitments in international payment.

Islami Banking

To provide the Islamic banking services in accordance with the principles of Islamic

Shariah, ABBL has established Islamic banking wing. The goals and objectives of

Islamic banking Wing are as follows:

To facilitate the Islamic banking system in the country

To create new entrepreneurs and to arrange required finance for them

To play effective role for socio economic development of the country

To give assistance in launching welfare oriented economic

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Deposit Services:

As a commercial bank the business philosophy of ABBL is to provide innovative banking. The

future growth of the banking industry and its profitability depends on customer satisfaction. So

if any financial institution can prove a satisfactory service success is indisputable. In this

connection services may be divided as followings:

Foreign Currency

Local Currency

Loan / Advances:

AB Bank is extending credit facilities in all sectors covering commercial credit lines to the

business community. In addition to that other facilities like consumer credit, student loan

scheme, PC loan, loan against DSC, supervisory credit to the farmers, weavers in the

agricultural sector etc. to be extended for development of the country.

In this area ABBL specially offers two types of schemes for different persons. Anybody can

not be the member with the bank. Everybody must be come through the official rules and

regulations to take loan. These are:

Consumer Credit Scheme

Personal Loan Scheme

Jewelry Loan Scheme

Education Loan Scheme

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Treasury and Dealing Room (service):

ABBL has got its independent treasury and dealing room with Reuters Dealing System that

does ensures following benefits:

Provides daily exchange rate buying and selling.

Forwards cover to competitive price.

Deals in foreign currency with Central Bank, Commercial Banks and other potential

clients

Enables to buy and sell third currency with all lending banks worldwide.

Covers exchange fluctuation risk by providing competitive premium.

Clearing and Collection Services:

The bank also provides clearing and collection service to the clients. It is the service that the

clients submit another bank’s cheque to collect money from that bank through first

clearinghouse. If any cheque is dishonored by any case it must be informed to the client

immediately. This service is two categories:

Inward Bills Collection

Outward Bills Collection

Fund Transfer Service:

There are four types of fund transfer service generally provided by PBL. They are:

Payment Order

Demand Order

Telex Transfer

Mail Transfer

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Embryonic

2.5 ABBL’s Competitive Conditions in Banking Industry

ABBL is a second-generation bank group in the country, following the first-generation

government-owned banks. Its appearance was in a shakeout environment, which is now

moving toward a matured environment (according to industry lifecycle)

Growth Shakeout

Starting point

Mature Declining

Current position

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2.5.1 Competitive Analysis Using Porter’s Model

Rivalry among Competing Banks

Rivalry among the banks is high. The banking sector in Bangladesh comprises four types of

scheduled banks. It is dominated by the four nationalized commercial banks followed by foreign

commercial banks and private commercial banks. All of the major rivals are offering very much

similar products. Banks of Bangladesh today are trying to provide best customer services, lowering

their service charges and trying to include new products and services in their product portfolio.

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Also some of the new private banks are snatching the total deposits and total advances belonging to

the nationalized commercial banks and each other by providing extra benefits. Everyone is moving

towards low cost and better services. Banking business is now more or less depending on personal

relationship of the bankers. Whenever a good banker changes the bank, he/she takes some of his

loyal employees with him/her to the new one where he is going to join. This is a common trend in

Bangladeshi banking industry. So, in terms of rivalry, ABBL has to be very cautious as

completion is intense.

Potential Entry of New Banks

The banking industry is a highly regulated industry and entry into this industry is not easy

because it requires huge capital and fulfillment of legal requirements. Bangladeshi financial

institutions are highly regulated by the Central Bank (Bangladesh Bank).

The potential entry barriers of this industry are paid up capital, competition, core deposit and

business. Considering all the facts we can say that the entry barrier in the banking industry is high

and ABBL has an advantage here.

The Bargaining Power of the Buyers

Once only the big business people were the main customers of the banks, but now people from

different classes are banking with different banks. The consumers credit schemes, personal

loans, credit cards, consumer loans etc. have been launched targeting the middle class and

lower-middle class.

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Most banks tend to maintain relationship banking, which carefully maintains vigorous

relationship with customers and try to provide more than what the customer wants. Switching

cost is also low, because a client can easily get similar credit facility from another bank with

better offers.

Bargaining power of buyers is high in this industry which is always a concern for ABBL,

just like other banks as well.

The Bargaining Power of the Suppliers

Depositors are considered the suppliers in the banking industry. Depositors are regarded as the

suppliers because they provide surplus or additional fund to banks and then the banks use these

fund to give loans and advances. It is the depositor’s surplus money that is transferred to those

who are in need of this money. The banks act as an intermediary here.

The power of supplier is not overwhelming but they can influence interest rate based on the

supply of the fund. People from all sorts of life have to deposit their money in any bank.

People are oblige to come to the bank if they want to keep their money in a risk less and safe

place, on the other hand the banks have to survive on their money so the power of supplier is

moderate in this industry.

Currently, however, the bargaining power of suppliers has increased and banks are often

suffering from liquidity crisis. So, for the time being, bargaining power of suppliers is

significant

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Substitute Products

Non-Banking Financial Institutions offer financial products and services that are similar to

what the banks offer. There are nowadays lots of financial institutions in the country that are

performing some of the activities similar to banks such as providing loans and leasing

facilities. These are leasing companies, co-operative banks, life insurance companies etc. In

Bangladesh there are 28 Non Banking Financial Institutions. Of them 12 are leasing

companies, 6 are investment finance companies, 2 are in housing loans and the rest carry out

other sort of activities.

Non-Banking Financial Institutions are expected primarily to fill in the gaps in the supply of

financial services that are not normally provided by the banking sector. The trend is that the

Non-Banking Financial Institutions would continue to progress and assume a significant role in

addressing the development strategies of the country by complementing directly with the

banking sector to meet financing requirements of the changing economy.

ABBL thus have to compete with these substitute options customers have.

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2.5.2 SWOT Analysis

Strengths

Accountable Corporate Governance:

Good Corporate Governance is an issue of vital importance to the Board and

Management of AB Bank. The Board of Directors, as the apex level of authority, is

responsible and accountable for the overall direction and is ultimately answerable to

regulatory authorities and shareholders for the activities, strategies and performance of

the company.

AB Bank board has a formal schedule of matters especially reserved for its decision

including corporate strategy, approval of budgets and balance sheet, annual financial

results, Director appointment, proposal for dividend, approval of major corporate

transactions and credit proposals beyond the delegated business power of the

management.

Environmental Scan

Internal Analysis External analysis

Strengths Weaknesses Opportunities

Threats

SWOT MATRIX

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Experienced Senior Management

The senior management of the bank is responsible for promoting the highest level of

business ethics and integrity. Their aim is to create and foster a culture throughout the bank

that emphasizes and demonstrates the importance of maintaining high business ethics and

close relationship with customers.

Quality Customer service

Customers are the focal point of all the banks activities. AB Bank is committed to its

customers for excellent, innovative and speedy solutions across all customer segments. The

bank provides a full range of banking services to small and medium size companies and

also to private individuals and entrepreneurs. They have expertise corporate banking, retail

banking and trade finance.

Compensation Package

AB Bank maintains an equal opportunity in recruitment, training and promotion of all

employees regardless of gender or ethnic origin. The bank tries to pay all its employees the

best compensation package. Accordingly, AB Bank’s salary structure is revised upward on

a regular basis. The bank also keeps employees informed about the progress of the business

and their part in it for their constant commitment to the bank. They also encourage the

development of the employee involvement in the bank through formal and informal

meetings.

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AB Bank Shares

Shares of AB Bank are one of the most actively traded stocks on the Dhaka Stock

Exchange (DSE) and Chittagong Stock Exchange (CSE). The continual improvement in the

bank’s underlying profitability is the reason for trust and confidence of investors on the

bank.

Social Welfare

AB Bank has fully commitment towards serving the communities in which it operates. The

bank believes that healthy economy and sound banking go together. A chunk of the bank’s

annual profit is being given to the AB Bank Foundation for social welfare. The main

objective of the foundation was to invest part of the bank’s profit in poverty alleviation and

community welfare.

Online Banking Services

AB Bank is among the few banks in Bangladesh, which provides the online banking

services to its customers. By using the modern banking services, AB Bank customer can

withdraw or deposit an amount of cash under the AB Bank account no matter in which

branch the actual account exist. This service gives its customer huge flexibility. More and

more urban customers are becoming attracted to this service day by day.

Training and Development

AB Bank has a personnel-training society with good resources. They give regular training

to the officer of both middle and lower levels. Again if there is any strategy or technology

change, there will be special training program arranged based on individual needs.

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Weaknesses

No feedback from bottom level employees

The bottom-level employees and even the mid-level managers at AB Bank don’t take part

in the decision-making process. So the information flow is mostly one way. Though AB

Bank has some unofficial way to collect information from the bottom level employees, but

it is not effective at all.

High emphasize on fixed deposits

AB Bank gives high emphasize on fixed deposits every year, which means that they always

end up paying high interest expense for their deposit mix. Certainly, this will decrease their

dealing spread and keeps them always in pressure. So, their cost of goods sold is very high

which is not very good for any company in this competitive market.

Problem with Attitude

The front desk employees are often found not to be too keen on taking care of their

customers. Though they have a long employee line in every branch, their loyalty to the

company and their ethics level are not very satisfactory. Many of the employees have been

found to limit thinking to their own interest only, which indicates that there is problem with

their attitude. Some of them create unofficial groups through which they solve each other’s

problem and support each other to achieve their personal goals, not too much concern

about their personal interest.

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Less emphasis on advertising through the electronic media

AB Bank does not promote their brand or products on a regular basis. They seem to be over

confident over their company’s publicity. They sometimes see it as an extra expenditure.

They also don’t do much electronic media advertising. On the other hand competitor’s like-

Dutch Bangla Bank, Brac Bank and many others do the opposite by frequently coming up

with creative ads in electronic media. This is a big weakness for AB Bank, which may

prove to be very big mistake in the future.

Extra large number of employees

AB Bank currently has quite a big number of employees compared to its capabilities. This

decreases the employee’s individual efficiency as well as effectiveness. In addition to that,

many of the employees are not too loyal and responsible as they are expected to be at each

level. There is a tendency that middle level managers want to avoid their responsibilities

and want it to be done by others.

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Opportunity

Goodwill

AB Bank has quite a strong market image as a second generation bank. Local people know

AB Bank as a center of trust and professional where local expertise use to serve. If they

expand their business and utilize this strength as more diversified business opportunities,

they can create even more stronger image in the country.

Mobile telephone bill collection

As telecommunication industry is expanding with an startling rate recently, AB Bank could

maintain good business relation with those telecommunication companies. They can look

forward to make some mutual agreement of responsibility of bill collections. This will give

them more liquid money, which would boost up their cash requirement.

Expanding the business area

AB Bank could also boost the number of branches to take advantage of increase demand

among the existing customer with better services and thus generate more net profit. In

recent years the bank has opened al lot of new branches, which is a good sign of

improvement and also a commendable strategy.

Premium Service Banking

AB Bank can improve its customer service by tailoring the individual business needs. This

service enhancement collectively will allow a customer to manage their business finances

and cash resources more efficiently and conveniently. The services like -

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Express payments

Foreign Exchange and Money market information

Auto Fax Report

Hotline (Your single point of contract)

Inward remittance information services

More efficient brokerage house

Globalize the Business

As the bank has a strong business brand image, it holds a great opportunities to globalize

their business more extensively. They can arrange more foreign correspondent banks or by

establishing more foreign branches as the foreign branches have better and big business

opportunities.

Upgrading the Online banking service

AB Bank’s online banking service is not up to the standard of the service compared to

multinational banks. They usually serve the service based on the historical data, not real

time basis. So, the bank should take initiative to add some additional services for their loyal

clients. This will give them better opportunity to acquire more market share.

Expanding its network outside Dhaka and Chittagong

The bank has not been effective in increasing the number of branches outside Dhaka and

Chittagong. Most of AB Bank’s branches are targeted at the city people only; they have not

concentrated of the rural people too much. That’s why the company could not capture a

large portion of the market as well as market share. The authority of the bank needs to take

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this into consideration not only for them but also for the poor rural people. After all there is

question of ethics come in every steps of business.

Government’s changing attitude towards Private Sector Development

The government is favoring private sector investment, which is good for the AB Bank, as

they can now expand their business with the favoring rules and regulations of Government

of Bangladesh. This kind of government support will lessen their problems. AB Bank is a

local private bank and it holds more diversified opportunities to do business on their own

interest. They always can expect positive feedback from government.

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Threats

Fierce Competition

As the banking industry of Bangladesh has promising prospects in, AB Bank is facing

strong competition the entrance of new potential competitors. The second-generation banks

like- Dhaka Bank, Dutch Bangla Bank and Southeast Bank re the main competitors for AB

Bank. Also foreign bank operations in Bangladesh are also taking a big portion of market

share. These foreign banks have successfully created better market image than those of

local banks in Bangladesh.

Political Interference and Government Regulations

AB Bank is facing political interference in big loan sanctioning and also there is to some

extent unethical recruitment of employees. Also there is 45% tax rate for all financial

institutions, which is very high and also a real threat for the growth of the company.

Highly Capital Reserve Requirement imposed by the Central Bank

If there is liquid money crisis the market, AB Bank will find it hard to manage its capital

reserve requirement. As Banking Law Act 1991, Bangladesh Bank is regulated the capital

requirement not less than 9%. And if for some reason the bank fails to meet the reserve

requirements then the consequences and sanctions will be severe.

Decreasing banking business area

Nowadays banking businesses are being narrowing down and its services and products are

also diversifying in other sector of the financial market. Few banking services are being

done by insurance companies, leasing firms, house building loan companies and so on. So,

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banks are now surviving by doing general banking, which is already threat and can be

bigger in future. AB Bank management should start to think about this issue more closely

and have to take necessary steps.

The Central Bank changing the interest rates

It is the Central Government who changes the interest rates. They either increase or

decrease it depending on the economy according to the policies they want to

implement. And whatever changes the Government makes the banks of Bangladesh

have to abide by it and the amount deposits received by banks was significantly

reduced as people were now investing in other non-banking financial institutions

and the stock market. Also people’s tendency to take loans increase as the interest

charge on loans was also reduced. But in the recent days, due to pressure from IMF

and World Bank the Central Bank is going to increase the interest rates.

It is not up to the banks to decide what interest rate they will offer on the deposits.

In fact it is the Central Government that makes that decision for them whether the

banks like it or not. Also if the Central Government comes up with additional

regulations that will mean more costs for the banks to maintain them.

Unstable political environment of the country

The political environment of Bangladesh is quite unstable and it affects the Industry from

performing efficiently. In Bangladesh where the political environment is absolutely

unpredictable the external forces constantly keep on changing. For instance, a sudden call

of Hartal or strike might end up with the cancellation of the events. Thus, there is an

enormous possibility of incurring a huge loss.

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2.6 Future direction

AB Bank plans to expand its operations in the investment banking in the following areas in

near future:

Business Area Status

Islamic Capital Market Products Processing

Islamic Capital Market Products Supporting infrastructure going to be

prepared

Asset Management / Mutual Fund They are planning to launch and manage

Mutual Fund in future.

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3.0 Performance Evaluation

3.1 Hypothesis

“The foreign exchange department of AB Bank Mohakhali Branch has a good management

and they are doing okay to meet targets.”

3.2 Methodology

I used 3 criteria for performance evaluation:

1. Step-by-step L/C processing flow

2. Survey analysis

3. Financial report evaluation

For survey, my samples were the all the employees of ABBL Mohakhali Branch’s foreign

exchange department employees who are directly or indirectly involved with the process. I got

total 24 people to participate in the survey.

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3.3 Step-by-step L/C Processing Flow

3.3.1 Letters of Credit (L/C)

Letter of credit is an instrument issued by a bank to a named party which substitutes the bank’s

creditworthiness for that of its customer. The letter of credit states the bank’s willingness to

guarantee its customer’s credit and the bank’s conditional obligation to pay the party named in

the letter of credit. In a letter of credit transaction, banks deal only with documents; they

have nothing to do with the goods.

Revocable or Irrevocable Letter of Credit

A revocable letter of credit is one that can be amended or canceled by the issuing or opening

bank at any time without prior notice to, or agreement of, the beneficiary. It is seldom used.

An irrevocable letter of credit is one that is a definite commitment by the issuing bank to pay,

provided the beneficiary complies with the terms and conditions of the letter of credit. An

irrevocable letter of credit cannot be amended or canceled without the consent of the issuing

bank, confirming bank (if the L/C is confirmed), and the beneficiary.

Commercial Letters of Credit

A commercial letter of credit is used as a payment method in conjunction with the movement

of goods.

A commercial letter of credit is an instrument that states the bank’s obligation to pay the

beneficiary upon presentation of conforming documents evidencing that goods have been

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shipped. ABBL only pays the beneficiary if the required documents presented are in

accordance with the terms and conditions of the letter of credit.

The same commercial letter of credit can be viewed as either an import or an export letter of

credit, depending on the customer’s role in the trade transaction. For the applicant (importer or

buyer), it is an import letter of credit; for the beneficiary (exporter or seller), it is an export

letter of credit.

3.3.2 Parties to a Letter of Credit

•The party that arranges for the letter of credit to be issued Applicant

•The party named in the letter of credit in whose favor the letter of credit is issued. Beneficiary

•Applicant’s bank that issues or opens the letter of credit in favor of the beneficiary and substitutes its creditworthiness for that of the applicant

Issuing or opening

bank

•An advising bank may be named in the letter of credit to advise the beneficiary that the letter of credit was issued.

Advising bank

•The bank nominated in the letter of credit that makes payment to the beneficiary without recourse, after determining that documents conform, and upon receipt of funds from the issuing bank or another intermediary bank nominated by the issuing bank.

Paying bank

•The bank which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the issuing bank’s commitment to pay.

Confirming bank

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3.3.3 Typical Flow of Commercial Letter of Credit Processing

9. The issuing bank releases the documents to the applicant.

8. The issuing bank debits the applicant’s account.

7. The paying (confirming) bank forwards the documents to the issuing bank. Upon receipt, the issuing bank reexamines the documents to ensure compliance with the terms and conditions of the letter of credit.

6. The paying (confirming) bank examines the documents to ensure compliance with the terms and conditions of the letter of credit. If the documents comply, the paying bank receives funds from the issuing

bank before releasing payment to the beneficiary.

5. The beneficiary forwards the documents required under the terms and conditions of the letter of credit to the paying (confirming) bank.

4. The beneficiary ships the goods.

3. The advising bank authenticates and presents the letter of credit to the beneficiary. If the issuing bank nominates the advising bank to be its paying agent, the advising bank may also become the paying bank. The issuing bank may also request that the advising bank add its confirmation to the

letter of credit.

2. The issuing bank (opening) issues the letter of credit and forwards it to the beneficiary directly or transmits it to the advising bank.

1. The applicant (buyer or importer) initiates the request for a letter of credit.

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The commercial letter of credit flow is illustrated here:

My observation on the workflow:

ABBL officials are very careful about the relevant papers and documents. They say the margin

of error is absolutely zero here as the deal with only the papers, not the actual products. So they

are not afraid to send discrepancy notice to the parties for even the slightest of errors in paper

or presented information.

Also officials are always busy making sure the payment is made or received in due time.

Application for LC

(1)

Documents (9)

Money

(8)

(4) Transportation of goods BENEFICIAR/ SELLER/ EXPORTER

ISSUING/ OPENING BANK

ADVISING BANK/PAYING (CONFIRMING) BANK

Advice of L/C

(3)

Documents (5)

Money (8)

APPLICANT/ BUYER/ IMPORTER

(7) Documents

(2) L/C

(6) Money

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3.3.4 ABBL’s role

A bank may take on more than one role in a single letter of credit transaction. At least two

banks are involved in most transactions — the bank in the applicant’s country and the bank in

the beneficiary’s country. However, it is not unusual to find three, and sometimes four,

different banks participating in one transaction. ABBL usually has single role [for its

Bangladeshi party] in any import or export.

However, as ABBL has presence in India and the UK, occasionally it may assume multiple

roles in a single transaction.

This L/C process presents a number of advantages and potential risks to the applicant and

beneficiary involved. Although advantages are so many, risks are often troublesome.

Advantages Potential Risk

APPLICANT

• Assurance that payment

will only be made upon

beneficiary’ s compliance with

L/C terms and conditions

• Merchandise not as

represented in

documentation

BENEFICIARY

• Mitigation of commercial

and country risks, if credit is

confirmed

• Currency conversion

approved before goods

shipped

• Non-compliance with L/C

terms and conditions

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• Collection time minimized

• Elimination of foreign

exchange risk for L/C issued

in currency of beneficiary’ s

country

AB Bank Ltd.

(Risks may vary

depending on

bank role)

• Fee-based revenues

• Cross-sell opportunities

• Issuing Bank – credit risk of

the applicant and operational

risks

• Advising Bank –operational

risks

• Paying Bank – operational

risks

• Confirming Bank – credit

risk of the issuing bank,

operational risks, and country

risk of the issuing bank’ s

country

• Negotiating Bank –

operational risks; credit risk

of the beneficiary

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3.3.5 Document and Information Preservation

In each step of the workflow, the BBL server is updated with latest status and figures. And

once the L/C is processed and all the payments are made, all the associated documents [hard

copies] are preserved in folders. These documents include:

1. L/C Opening Papers ☼

i. EXP Form [Date-wise] ☼

ii. Letter of Undertaking [4 copy] ☼

iii. LCA form ☼

iv. Application Agreement Form ☼

v. Insurance Money Receipt + Cover Note + Policy ☼

vi. Proforma Invoice / Indent ☼

vii. L/C Opening Application / Client Forwarding / Request Letter ☼

2. Credit Report

SWIFT – 799 / 999 Or D&B BIR

3. L/C ☼

i. Issue of Documentary Credit SWIFT copy ☼

ii. Debit Advice ☼

4. PSI Request [LC & for each amendment]

i. Application

ii. PSI Form [Prescribed]

iii. TIN certificate

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5. Amendments

i. SWIFT copy

ii. Client’s Request Letter

iii. Debit Advice / Advice of documentary credit

6. CRF [Clean Report Finding] of PSI report

7. Shipping Guarantee

i. Forwarding letter [In ABBL letter-head paper]

ii. Commercial Invoice, Packing List / Certificate of Origin / Bill of Lading / Airway

Bill /Truck Report / Courier Report /Delivery Challan / Others

8. Shipping Documents ☼

i. Foreign Bank’s forwarding / Cover letter / Remittance Letter ☼

ii. Bill of Exchange ☼

iii. Commercial Invoice ☼

iv. Packing List ☼

v. Bill of Lading / Airway Bill /Truck Report / Courier Report /Delivery Challan ☼

vi. Shipping Company’s Certificate ☼

vii. Certificate of Origin ☼

viii. Beneficiary’s Certificate

ix. Shipment Advice ☼

x. Pre-shipment / Inspection Certificate

xi. Certificate

xii. Request for Acceptance / Payment

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xiii. Installation Certificate

xiv. Clearance of Consignment

xv. Warranty and Guarantee Certificate

xvi. Covering Note

xvii. ‘Prottoyon Potro’ [If available]

9. Advice of Refusal / Discrepancy Notice [Acknowledgement and Hard Copy]

10. Arrival notice of Client/Applicant

11. Client Letter for Releasing Documents Or Request to Retire Shipping Documents

12. Advice of Acceptance

13. Debit Advice

14. Purchase of Foreign Currency

15. MT 202 [Acknowledgement + Draft] Or P.O/D.D and Payment Forwarding Or Payment

Instructions ☼

16. Loan Agreement

17. Advice of Letter of Credit Payment

18. Bill of Entry ☼

Note: All the listed document types may not be available. However, starred (☼) documents

must be presented.

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3.3.6 Updating L/C database on Bangladesh Bank server

ABBL also requires updating all the info of each L/C into Bangladesh Bank’s server. They do

it for each L/C after the payments from parties are received and processing is done. As an

intern, I was given the responsibility to perform this updating task. And here is what I have

observed:

Most of the updating task is performed by interns. To be more specific, the department

is so busy that they themselves can hardly manage time to do it by themselves.

Sometimes Bangladesh bank server remains down and non-responsive for hours that

greatly delays the updating process.

Bangladesh Bank server has a help manual for the updating process, but it does not go

in that detail. So, at times I had to ask someone experienced continuously to know what

to input.

Sometimes the information required by server database is not available in the L/C

documents; so I had to look for other ways (i.e. inputting placeholder data) as suggested

by officials there.

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3.4 Internal Management Survey Analysis

Number of clients

1. ABBL Mohakhali branch has limited number of clients in Foreign Exchange Department.

How do you see it?

2. How is it to deal with limited number of clients?

17%

83%

0%

We’re already running with full capacity; it’s fine what we have now.

We have the capacityto serve more clientsin current state

We’re already running beyond capacity; more clients would worsen the situation

It’s decided by the head

office, so we have

nothing to do with it,

2

Our clients are

big parties, so number of

clients doesn’t really

matter much, 12

It ensures that we can pay

more attention to specific

client needs for

better service, 8

It is bad, because

the clients has too much

bargaining power, 2

The very first thing that drew my attention while working with foreign exchange department was – there are only very limited number of clients (about 10) that they regularly deal with. Also, they did not seem to increase the number. So when asked how they thought about it, 20 out of 24 respondents (83%) said they can serve more clients.

However, 4 people thought these small numbers of clients are good enough to create full workloads; it was fine what they already had.

Client-targeting and sales forecast are actually decided by ABBL head office. So Branches do not usually have much to do with number of clients,

When asked about it, 12 out of 24 respondents (50%) further said that these were big parties, and that’s why number really didn’t matter that much.

8 people thought this was actually better as it was allowing them to pay more attention to client needs.

Only 2 people felt it was bad as it allowed clients too much bargaining power.

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Management:

3. How do you rate your skill as a member of Foreign Exchange Department?

4. How do you rate the whole Foreign Exchange team in terms of skill level?

Response to this question came out as a major surprise to me. 50% respondents rated their own skill as a foreign exchange official as ‘medium’, which should be a concern for the bank management.

However, 6 people were confident enough to rate themselves at least 8 (in a scale of 9)

Below ordinary

Medium Excellent

Although most employees rated their own skills with less confidence, they had high confidence on themselves as a team.

While 18 out of 24 respondents rated team skill 7 or above (in a scale of 9), 6 people had full trust on their team ability.

Nevertheless, 6 employees rated team skill level as ‘medium’ or below medium.

Below ordinary

Medium Excellent

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5. What do you think about the number of workers in the Foreign Exchange Department?

6. Co-operation between the team is…

17%

83%

0% We need more peopleto meet workload

Currently we haveenough people tomeet currentworkloadWe have too manypeople compared toworkload

My personal feeling was that workers in

the foreign exchange department needs

more people to work with as they have

to work extra hours everyday. But 83%

respondents reacted that they had

enough people to meet the current

workload.

Notably, no one felt that they had too

many people compared to workload.

As most people have shown

confidence in their team ability, they

have also rated their team co-operation

highly.

Nobody rated co-operation as ‘not so

good’ or ‘poor’. Rather 91% response

was that the team had excellent or

good co-operation level.

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7. Team managing [leading] is...

0 2 4 6 8 10 12 14 16

Inspiring

Good

Somewhat okay

Ordinary

De-motivating

With my 3-months experience in the department, I thought employees are not

too much happy with the team-leading. I have seen occasions when team leader

has openly blamed members which were not the most expected thing to

happen. Also, at times members have highly criticized leading method. It was

evident to me that there is a big communication gap between the leadership and

members.

However, survey responses did not at all reflect that. Team-leading was

considered ‘good’ by two-thirds of the total respondents which could be

pretty satisfactory from management perspective.

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8. Before starting a new deal/LC, does ABBL make sure all the documents are ready in

order?

9. How is the documents preserved?

Yes, we make sure

all the document

s are perfectly ready, 20

Most of the times we get it alright, 4

Unfortunately we

have too many

discrepancies even

after processing

, 0

We preserve all

the document info online and in hard

copy, 14

Some documents

are preserved

online, and some are preserved

only in hard copy,

8

Only online, 0

Only in hard copy,

2

Documents in order are in the core

requirements of L/C processing. 83%

of the respondents claimed that they

made sure the documents were

perfectly alright.

17% had to say that most of the times

they got it alright.

Ideally the department wants to have

all the relevant info available both in

hard copy and online. However 14

out of 24 people said they got it in

this expected fashion.

8 People claimed it was fine to have

only some info online and some in

hard copy.

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Technical Resources:

10. Do you think ABBL Foreign Exchange Department uses modern technical equipments

and facilities [optimized computers, SWIFT machines, phone etc] to ensure maximum

productivity?

Technological resources such as computer, network server, phone etc are essential part of today’s

banking. ABBL Mohakhali Branch is equipped with all these resources. When asked to evaluate

these resources’ performance, an overall positive feedback was received. Here is the feedback

analysis:

Software Interface: Everyone has to

deal with software while working.

Most of the people at Mohakhali

Branch Foreign Exchange department

felt the software they were using

was easy to work with. 17 out of 24

people said the interface was ‘Pretty

good’ or ‘Excellent’.

Computers: Survey reveals the

employees were highly satisfied

with their office computers. 15 said

computers were excellent while 7 said

those were pretty good.

Software

Computers

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SWIFT Machine

Printers

SWIFT Machine: SWIFT machine is

indispensable for foreign exchange

branches as all the international

messages come through it. The

SWIFT machine used in Mohakhali

branch did not look too charming to

me, anyway users found it to be

pretty handy. Almost 80% people [19

out of 20] rated it as ‘Pretty good’ or

‘Excellent’.

Printer: Survey reveals the printer

performances were satisfactory to

almost all the users. It is very good as

hassle-free printing saves a lot of time

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Phone service

Server & Network

Server & Network: ABBL has a

strong and stable server that connects

all its branches and ATM booths

throughout the country. Depending on

server quality the data is transferred

fast or slow. Employee responses

indicate that the server performance

was satisfactory and consistent. No

one at all did rate it bad or poor.

Phone Service: I myself found the

phone service in this particular branch

very irritating experience as there

were only 2 land-phone connections

for the whole branch which is very

inadequate. It wastes a lot of time.

Anyway, phone service overall got a

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3.5 Financial Performance Analysis

3.5.1 Earning from L/C

0

5000

10000

15000

20000

25000

30000

35000

FY 2007 FY 2008 FY 2009 FY 2010

In L

ac ta

ka

Earning from Import L/C

0

5000

10000

15000

20000

25000

30000

FY 2007 FY 2008 FY 2009 FY 2010

In L

ac T

aka

Earning from Export L/C

Earning from L/C [lac taka] FY

2007 FY

2008 FY

2009 FY 2010

[Projected] Import 9900 32145 26489 31711 Export 5526 16922 16800 29590

The graphics alongside show ABBL

Mohakhali Branch’s earning from L/C

processing over last 4 financial years

(including 2010’s projected earning)

We can see that earning from Import L/C

has been pretty consistent over the years.

This Branch has managed to generate over

2500 million taka for consecutive 3 years

now. Apart from financial year 2007, the

earning from import L/C has met the

target. In 2010 it has already met target

earning and now going to cross it as we

will see in the following page’s figurers.

Earning from export L/C has always

been lesser than import L/C. The reason

is that clients here are mainly importers in

this particular branch. However, Export

earning is increasing over the years as we

can see in the graph.

Notably, in financial year 2007 both

import and export experienced

significant low earning. It was because of

the unstable political condition that year.

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3.5.2 Budgeted Vs Actual Performance

0

5000

10000

15000

20000

25000

30000

35000

40000

BGT Jan-Nov 10 ACT Jan-Nov 10

Import

0

5000

10000

15000

20000

25000

30000

BGT Jan-Nov 10 ACT Jan-Nov 10

Export

Budgeted & actual Performance [lac taka]

BGT Jan-Nov 10

ACT Jan-Nov 10

Import 28460 37798 Export 26410 24587

The graphics beside show ABBL

Mohakhali Branch’s actual performance

compared to its management’s budgeted

performance.

It is evident that import section is

doing great this year (January to

November 2010). The target earning

was 28460 lac taka whereas the actual

earning is almost 33% more.

However, for export, the performance

has not been not so great. It is struggling

to meet the sales target and till

November it lags behind 1823 lac

taka. However the branch said it was

confident to make it up by December.

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3.5.3 Growth Rate Over Years

Growth Over Years (%)

07 vs. 08 08 vs. 09 09 vs. 10

Import 225 -18 20 Export 206 28 36

Due to severe disorder in political condition, 2007 had a downfall for all economic

activities including import and export. So the following year (2008) had significant

positive growth rate of over 200% compared to 2007.

However, that growth rate was again down following global economic recession in 2009.

In 2009 Import earning experienced negative growth while export earning managed to

have 28% positive growth.

In 2010, earning from both import and export are positive and growing.

0

50

100

150

200

250

-50

0

50

100

150

200

250

07 vs 08 08 vs 09 09 vs 10

Growth Over Years (%)

Import

Export

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4. Recommendation

With my 3-months experience of working in ABBL Mohakhali Branch Foreign Exchange

Department and analysis presented in this report, I would recommend following points:

Recruiting more people:

The workload is excessive and staffs in this department have to work extra 1-2

hours everyday. And for some reason if anyone is not available at any given day,

the workload is even more severe. Employees often complain that they do not even

get casual leaves when required. As days are passing, this thing is creating

dissatisfaction among the employees, which ultimately may lead to loss of

productivity. So I recommend recruiting more people in this department to reduce

workload to a reasonable level.

Change in leadership style:

In my observation, current way of leading and managing the team is not the getting

the most productive outputs from the team. Better leadership and guidance from

top managerial level would bring more out of the staffs. And more importantly it

would increase the job satisfaction level, which is currently not at desired level I

believe.

Dealing with more businesses:

Currently the branch deals with only 10-15 regular clients (businesses). I suggest

they expand the target market to more clients which will give the branch more

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bargaining power to deal with client requests, which are at times pretty

unreasonable. Expanding dealing with more number of smaller businesses would

also increase their earning.

Preserving the documents and information:

Not every document and information is backed up online by the foreign exchange

department. They often require old data and information in everyday tasks, and as

the information is not always available online, they have to spend considerable

amount of time to search in stored folders. So if all the information can be made

available on network, less time will be killed looking for it.

Incentives for staffs:

I have not observed any noteworthy incentives from management for employees

for their achievement. Even at times simple appreciation is missing. More incentive

would definitely boost motivation level of workers.

Reduce LC Margin:

Before opening an L/C a customer is required to pay the bank a certain percentage

of the total L/C value in advance, is called the margin. If AB Bank reduces the rate

of margin, then perhaps they can attract more customers. At the moment,

Companies with good relationship with the banks only benefits with lower margin

level over others.

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Reduce Rate of interest on LTR:

Payments for L/C’s could also made through pre arranged credit facilities that the

customer may have with the Bank. Usually, the rates of interest on these credits are

excessively high which actually discourages the customers. Reducing interest on

such credit facilities would actually induce the clients to do more global trade thus

increasing the banks profit as well as the well being of the country’s Economy.

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5. Conclusion

Throughout the last 3 months I have got a vast opportunity to observe the overall service

process of foreign exchange division of ABBL. I have also got the scope to interact with

clients directly and reveal their expectations and perceptions about the bank’s services.

Not to mention, working with the team was such a great experience.

I am sure the bank’s foreign exchange division will continue to perform satisfactorily like

recent years. ABBL management just has to make sure that they use their goodwill and

respond to the desired changes required by customers.

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Appendix

Items:

Internship Report Proposal

Survey Questionnaire

AB Bank Ltd. Budget Discussion Summary [Mohakhali Branch]

AB Bank Ltd. November 2010 Flash Report [Mohakhali Branch]

AB Bank Ltd. November 2010 Health Report [Mohakhali Branch]

AB Bank Ltd. 2009 Credit Report

AB Bank Ltd. Consolidated Balance Sheet 2009

AB Bank Ltd. Consolidated Income Statement 2009

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Bibliography

1. AB Bank Ltd. Annual Report 2009

2. AB Bank Ltd. 2009 Credit Report

3. AB Bank Ltd. Budget Discussion Summary [Mohakhali Branch]

4. AB Bank Ltd. November 2010 Flash Report [Mohakhali Branch]

5. AB Bank Ltd. November 2010 Health Report [Mohakhali Branch]

6. AB Bank Ltd. Official website http://www.abbank.com.bd

7. Bangladesh Bank website: http://www.bangladesh-bank.org/

8. Wikipedia website: http://wikipedia.com

9. “Risky business: Corruption, fraud, terrorism and other threats to global business” By

Stuart Poole-Robb, Alan Bailey

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AB Bank

Documents

challenging report

quality report

internship supervisor

month internship

ab bank ltds mohakhali

bank deals

months internship program

branch manager