Introduction:Bank is defined as a financial institution that
collects deposits from various individual and organizations and
provides loans to those who need it. But modern banks do not mean
only the means of collecting and disbursing money to various
entities. Rather it provides various services to various entities
which facilitate their business operations. A foreign exchange
operation of banks is one of those services that not only
facilitates the business of businessmen but also contributes to the
development of the economy as a whole. Foreign exchange is defined
as the mechanisms by which the currency of one country is converted
into the currency of another country. Foreign exchange is the means
and methods by which rights to wealth in a countrys currency are
converted into rights to wealth in another countrys currency.
Foreign exchange department of banks plays significant roles
through providing different services for the customers.1.1.
Background of the Mercantile Bank Limited (MBL):Mercantile Bank
Limited, incorporated on May 20, 1999 and commenced business on
June 02, 1999, is now one of the most important entity in the
banking industry of Bangladesh. With the passage of time it has
expanded its number of branches and variety of services along with
its core business of taking deposits and granting loans. Now MBL
has emerged as a new commercial bank to provide efficient banking
services and to contribute socio-economic development of the
country. Rising trend of the banks profitability over the last 8
years is also materialized. The MBL is committed to the delivery of
the superior shareholders value. Foreign Exchange Department of the
bank is one of the most important departments. Now it has become
the backbone of the bank. With the aim to be the Bank of choice, it
is operating in the industry with a team of devoted personnel to
excel both their own career and the banks future.1.2. Origin of the
study:This report is originated as the course requirement of the
BBA program under the business studies faculty of Stamford
University Bangladesh. Under this program students of every
department of this faculty must go through an internship program of
3(Three) months duration. As practical orientation is an integral
part of the BBA degree requirement, I was sent by the department of
Finance to take real life exposure of the activities of banking
financial institutions from July 16, 2009 to October 18, 2009.1.3.
Background of the Study:Mercantile Bank Limited (MBL) is one of the
risen Banks in Bangladesh. This year they have declared 40%
dividend to their shareholders. This Bank has already 42 branches
located in different places and also going to establish more
branches.The Internship program is an essential and mandatory of
the BBA Program of Stamford University Bangladesh. After completion
of four years theoretical training, I got the opportunity as a
practical exposure to business horizon through internship program.
Mercantile Bank Limited is one of the well- reputed private
commercial bank of Bangladesh with paid up capital of BDT 1,798.68
(in million, 2008). Banks strong capital base allows it to make
large chunk of advances to its corporate clients.My internship
supervisor and respected teacher Md. Ifte Kharul Alam, Assistant
Professor & HOD Finance, Department of Business Administration,
Stamford University Bangladesh, assigned me the topic A study on
the Foreign Exchange Operations of Mercantile Bank Limited. I hope
this report would able to portray the real picture of the operation
of foreign exchange department of Mercantile bank Ltd.1.4.
Rationale of the Study:This report is broadly organized into two
broad parts. The first part (first 3 chapters) is an overview of
the organization itself. The second part concentrates on the
assigned topic A study on the Foreign Exchange Operations of
Mercantile Bank Limited. Finally it includes the evaluation of
Foreign Exchange performance, findings, and recommendation to make
understood the scope of overall Foreign Exchange with its
constraints of MBL.1.5. Objective of the study:The objective of the
study is to obtain an understanding of the practical banking
activities and relate them with theoretical knowledge that I gained
through the theoretical training in the university and from various
documents of the bank. Beside this, the followings are the specific
objectives which I will try to cover in my report:1.5.1. Primary
objective:The primary objective of preparing this report is to
represent the Mercantile Bank Limited and to have a clear
conception about all of the essential parts of the internship
program.1.5.2. Secondary objective:1. To give an idea about the
evolution of the banking business.2. To give an idea about the
evolution of banking in Bangladesh.3. To give an overview of the
current Bangladesh economic scenario.4. To give an overview of the
MBL.5. To give some idea about the international trade, different
types of exchange rates, process of executing transactions relating
international trade, accounting of these transactions, etc.1.6.
Scope of the study:As I was sent to Mercantile Bank Limited, Main
Branch, the scope of the study is only limited to this branch. The
report covers its overall foreign exchange function. The report
covers import, export and remittance activities about MBL. Besides
it covers topic such as evolution of banking business, evolution
banking business in BD, Bangladesh economy scenario, background of
MBL has also been discussed.1.7. Internship at Mercantile Bank
Limited:My Three months at the Mercantile Bank Limited as an
internee had been the most enjoyable time of my life. Doing my
internship at one of the leading private commercial banks in
Bangladesh, I believe I have accumulated an experience unmatched to
any other.I was assigned to the project of A study on the foreign
exchange operations of Mercantile Bank Ltd. as my project report. I
am extremely happy to work in such a project. Though as a student
of finance it was a new situation to me.For the internship program
the contact person of the head office sent me to the Main branch of
the bank. My objective was to get a clear idea about the function
of the foreign exchange of the branch. But my host supervisor sent
me first to the Local Export department to have a preliminary idea
and to be acquainted with various types of local export bills and
related matters; I worked there for 60 days and learned the
procedure of issuance of pay order, demand draft (DD), and method
of maintaining books for the above mentioned activities. Then I was
sent to the clearing section, of worked there for 20 days and
learned how inward and outward checks are cleared, how transfer
delivery from one branch to another branch is made. After that, I
was sent to the IT department of this branch. I worked there for 5
days. Here I learn how to give bank statement, Tax purpose
statement. After that I was sent to the export section of the
foreign exchange department of this branch. I work there for the
rest of the period of my internship program. In the export section
I mainly observed the export procedures, files and documents of
different exporters, export proceed collection procedures and
compliance of export procedures with the set rules of export policy
and Bangladesh bank rules. Actually this period was my area of
concentration and activities of this period is mainly focused in my
report. I extended my best effort to collect as much information as
possible to prepare my report. The working environment of this
division of the Mercantile Bank Limited is conductive and friendly.
The staffs are specialized in their respective fields. Each of them
works on their own and there is supervision from the top. The
motivation of the staff, I believe comes from the very sense of
responsibility for his or her work.1.8.Limitations of the study:On
the way of the study, I have faced the problems that are given
below that may be terms as the limitation or shortcoming of the
study-Short Time Period:The first obstruct is time itself. Due to
the time limit, the scope and dimension of the study has been
curtailed. For an analytical purpose adequate time is required. But
I got a short time period to prepare the report.Data
Insufficiency:It was very difficult to collect data, because the
branch of Mercantile Bank Limited is very large. But the data is
very essential to prepare the report. All of the employees of this
branch are very busy. For the time limitation they could not able
to supply my topic related data.Lack of Records:Sufficient books,
publications, facts and figures narrowed the scope of accurate
analysis. If this limitation were not been there, the report would
have been more useful and attractive.Poor Library Facility:Most of
the commercial banks have its own modern, rich and wealthy
collection of huge and various types of banking related books,
journals, magazine, papers, case studies, term papers, assignment
etc. But the library of Mercantile Bank Limited is not well
ornamented and decorated.Lesser Experience:Experience makes a man
efficient. I do such kind of research activity for the first time.
Thats why inexperience creates obstacle to follow the systematic
and logical research methodology.1.9. Methodology of the study:The
study requires a systematic procedure from selection of the topic
to final report preparation. To perform the study the data sources
are to be identified and collected, they are to be classified,
analyzed, interpreted and presented in a systematic manner and key
points are to be found out. The over all process of methodology is
given in the following page in a form of flow chart that has been
followed in the study.A. Selection of the topic: The topic of the
study was assigned by our supervisor. Before assigning the topic it
was discussed with me so that a well organized internship report
can be prepared.B. Identifying data sources: Essential data sources
both primary and secondary are identified which will be needed to
complete and work out the study. To meet up the need of data
primary data are used and study also requires interviewing the
official and staffs were necessary. The report also required
secondary data. Information collected to furnish this report is
both from primary and secondary sources.i) The primary sources
are:Face to face conversation with the officers.Practical desk
work.Relevant files study as provided by the concerned officers.ii)
The Secondary sources are:Annual reports of MBL.Foreign exchange of
MBL.Periodic reports of MBL.Annual Reports of Bangladesh Bank
(BB).Publications of Bangladesh Bank (BB).Publications of
BIBM.Office circulars of MBL.Publicly published documents.Relevant
books, newspapers, journals, etc.MTO recruitment materials of
MBL.Information kept by branch manager, operations manager in their
own files.C. Collection of data: Primary data are collected by
using interviewing technique. The reports are an exploratory
research and for qualitative survey open ended question were ask to
the Bank official.D. Sampling:Population: All the Branches of MBL
located in everywhere in Bangladesh has been taken into
consideration as population.Sample: MBL, Main Branch, is the vital
sample.E. Classification, analysis, interpretations and
presentation of data: some arithmetic and graphical tools are used
in this report for analyzing the collected data and to classifying
those to interpret them clearly.F. Findings of the study: The
collected data were scrutinized very well and were pointed out and
shown as findings. Few recommendations are also made for
improvement of the current situation.G. Final report preparation:
On the basis of the suggestions of our honorable faculty advisor
some corrections were made to present the paper in this
form.CHAPTER- 2Evolution of Banking Business2.1. Evolution of
Banking Business:The word bank, which means a financial
intermediary that collects deposits from savers and disburses loans
to the fund seekers and acts as the principal medium of internal
resources mobilization of an economy, is not the result of a short
period. Instead, it has to pass through a very long period.In the
ancient age, people had to satisfy all of their needs by
themselves. At this stage, there was no surplus production. Hence
the concept of transaction was yet to be introduced. But, as the
division of work took place in the society, there was surplus as
well as deficit production in each society. This lead to the
introduction of BARTER SYSTEM in which commodities were exchanged
for commodities directly. But this transaction system could not
last for a long time for some problems such as,1) Double
coincidence of needs: this means the needs of two persons must meet
the surplus that they have. For example, one person has some
surplus rice and another person has some surplus cloths. If they
the person with rice has the need of cloths and the person with
cloth needs rice, only then the transaction will take place. But it
was difficult.2) Indivisibility of goods: all goods are not
divisible and not of same worth. This caused a big problem for
transaction. For example, a cow is not exchangeable for 1 meter
cloth, neither it can be dividable in smaller units.As a result,
people had to think for a mechanism that would solve these problems
and facilitate the transaction process. This resulted in the
introduction of money in the form of stone, metals, bones etc.After
the introduction of money, the volume of transactions increased to
a great extent. People with surplus money started to feel insecure
about their money. At that stage, goldsmiths, priests, businessmen
were the most honorable and trusted people in the society. People
started to keep their surplus money and jewelry deposited with
them. They lent this money without any charge to those who needed
money. This was the transaction of utmost faith. From here, the
history of bank counts.The previous discussion can be presented in
the following diagram:
Figure 2.1: Diagram of evolution of banking businessAfter some
time, businessmen started to charge some charges on those who took
loan from them. It was the goldsmiths who introduced the deposit
slips in the history. Day by day, volume and complexity of
transactions kept increasing, so as the concept of bank.The banking
systems of ancient age and the banking systems of modern age are
two distinctively separate entities. The situations and flaws that
resulted the banking systems in the present form are highlighted
below:As early as 2000 B.C., Babylonians had developed a system of
bank. In ancient Greece and Rome the practice of granting credit
was widely prevailed. Traces of Credit by compensation and by
transfer orders were found in Assyria, Phoenicia and Egypt before
the system attained full development in Greece and Rome. The book
of old Hindu saw giver, MANU, is full of regulations for governing
credit. He speaks of judicial proceedings credit instruments were
called for, interest on loans, on bankers, users and even of the
renewals of commercial papers.In Rome, bankers were called
Argentarii. Some banks carried business on their own account and
others were appointed by the Government to receive the taxes. Loan
banks which lent money to the poor without any interest on the
security of land for a period of 3 of 4 years were also common in
Rome.The Bank of Venice, established in 1157, is supposed to be the
most ancient bank. It was not a bank in the modern sense being
simply an office for the transfer of public debt.History shows the
existence of a Monte in the Florence in 1336 the meaning of Monte
is given in the Italian Dictionary 1959 as a standing bank or mount
of money, as they have in diverse cities of Italy. Banbrigge, an
English writer, speaks about the three banks of Venice meaning the
three public loans of Monte.The beginning of the English banking
may correctly be attributed to the London goldsmiths. They used to
receive their customers valuables and funds for safety custody and
issue receipts acknowledging the same. These notes, in the course
of time, became payable to bearer on demand and hence enjoyed
considerable circulation. In fact, the goldsmiths notes may be
considered as the precursor of the bank note. The business of the
goldsmiths got a rude shock by the ill treatment of the Government
of Charles II, under the Cabal ministry. In the words of Bagehot;
It had perpetrated one of those monstrous frauds which are likewise
gross blunders. The goldsmiths used to deposit their reserve of
treasure in the Exchequer with the sanction and under the care of
government. But Charles II shut down the Exchequer and paid nothing
to the goldsmiths. However, the ruin of goldsmiths marks a turning
point in the history of the English banking. It led to the growth
of private banking and the establishment of the Bank of England.In
the India, as early as Vedic period, banking existed in the crudest
form. The bloods of Manu contain references regarding deposits,
pledges and policy of loans and rates of interest. Truly, banking
in those days largely meant money lending and they did not know the
complicated mechanisms modern banking. This is true not only in
case of India but also in case of other countries. The evolution of
banking institutions became more and more organized as the time
passed. In various periods, different amendments were made in
different countries throughout the world. So, different countries
have different contributions to the banking institutions to appear
in the present form.
Figure 2.2: At a glance-Evaluation in Banking Institutions in
World According to Different Age2.1.1. List of some important
Ancient Banks:Name of the BankPlace of EstablishmentYear of
EstablishmentRemarks
Shansi BankChina600 B.C.1st Bank in the World
Bank of VeniceItaly11571st Government Bank
Bank of San GeorgioGeneva1178Jointly established by traders
Bank of BarcelonaItaly1401Established by Govt. incentive
Risk Bank of SwedenSweden16561st licensed Bank in World which
issued notes
Bank of EnglandU.K.16941st Central Bank in the World
Hindustan BankCalcutta17001st commercial Bank in Indian
subcontinent
Bank of PrussiaGermany17651st Bank in Germany
Bengal BankIndia1785Ancient Bank of Indian Continent
Central Bank of IndiaIndia1785Ancient Bank of Indian
Continent
Bank of FranceFrance1800Central Bank of France
Bank of CalcuttaCalcutta18061st Precedence Bank of India
Bank of NetherlandsNetherlands1814Central Bank of Owned by
private owners but controlled by Govt. members
Bank of NorwayNorway1817Central Bank of Owned by private owners
but controlled by Govt. law.
National Bank of DenmarkDenmark1818Central Bank of Owned by
private owners
Bank of BombayBombay18402nd Precedence Bank of India
Bank of MadrasMadras18433rd Precedence Bank of India
Reichs BankGermany1875Central Bank of Germany
Bank of JapanJapan1882Central Bank of Japan Owned by both
private and Government owners.
Bank of ItalyItaly1893Bank of establish in private ownership,
which gets right to issue note at 1926
Switch National BankSwitzerland1907Central Bank owned by both
private and Government owners.
Federal Reserve SystemU.S.A1913Central Bank of U.S.A
Impreial Bank of IndiaIndia1920Largest commercial Bank of India
in the period
Bank of ChinaChina1928Bank of establishment in private
ownership, which was nationalized in 1949
Bank of CanadaCanada1934Central Bank of Canada, which was
nationalized in 1949
Reserve Bank of IndiaIndia19351st central Bank in Indian
Subcontinent.
Habib Bank Ltd.Bombay19411st Muslim Bank in Indian
subcontinent.
The Ban coda BrazilBrazil1941Central Bank of Brazil owned by
both private and Government owners.
State Bank of PakistanPakistan19481st Central Bank of
Pakistan
National Bank of PakistanPakistan19491st Commercial and enlisted
Bank of Pakistan
Eastern Mercantile BankChittagong19591st Bank established in
Bengali Ownership.
Table 2.1: List of some important Ancient Banks2.2. Banking
System in Bangladesh:Bangladesh has a mixed banking system
comprises of nationalized, private and foreign commercial banks.
Bangladesh Bank (BB) has working as the central bank of the country
since the independence of the country. Its prime jobs include
issuing currencies, maintaining foreign exchange reserve and
providing transaction facilities of all public monetary mattes. BB
is responsible for planning and implementing the governments
monetary policy2.2.1. Banking Companies Ordinances:The Banking
Companies Ordinance was promulgated on the 7th June 1962. This has
been adopted in Bangladesh and is applicable to the banking
companies only. Nothing of this ordinance shall apply to a
co-operative bank registered under the co-operative Securities Act
(1912).Main forms of business of Banking Companieso Borrowing,
raising or taking up money.o The lending or advancing of money
either upon or without security.o Dealing in securities and
investment.o Other business as detailed in section 7.2.2.2.
Negotiable Instrument Act:The Negotiable Instrument Act, 1881 is
the legislative enactment of the Law relating to three classes of
Negotiable Instruments namely: Promissory Notes, Bills of Exchange
and Cheques, which are in common mercantile use in the monetary
instructions. It came into force on 1st March 1882.The law relating
to negotiable instruments is not the law of our country or of one
nation. It is the law of the mercantile world in general. It
consists of Certain principles of equity usages of trade, which
general convenience and commonsense of justice had established to
regulate the dealings in merchants and mariners in all the
commercial countries of the civilized world.2.2.3. Categories of
Banks:In our country, there are four types of banks exists. Such
as:1. Central Bank.2. Commercial Banks.a. Nationalized Commercial
Banks.b. Private Commercial Banks.c. Foreign Banks.3. Specialized
Banks / Development Banks and credit agencies.4. Bangladesh
Samabaya Bank.
Figure 2.3: Classification of Banks in Bangladesh2.3. Economic
Overview of Bangladesh:During FY08 (July 2007 June 2008), the
Bangladesh economy maintained a strong growth underpinned mainly by
robust growth in services and notable expansion in manufacturing
activities, despite facing high and volatile oil prices in the
international market. With a view to achieving higher economic
growth, the Government and the Bangladesh Bank continued to adopt
policies to support economic activities to the highest sustainable
level, while maintaining a moderate Consumer Price Index (CPI)
inflation. These policies contributed toward a strong real GDP
growth of 6.5 percent in FY07, slightly lower than 6.6 percent of
FY06. Economic growth was also aided by increased inflow of workers
remittances from abroad and reasonable growth in exports.In U.S.
dollar terms, export earnings recorded a moderate growth of 15.8
percent, while the growth of import payments remained to a
sustainable level at 16.6 percent. At the same time, remittances
from non-resident Bangladesh nationals increased substantially by
24.5 percent. The countrys external current account balance
continued to record a significant surplus with a substantial
increase in remittances more than offsetting trade deficit and
services deficit. A significant surplus in current account balance
and a sharp rise in financial account surplus led to a sizeable
surplus in the overall balance, which helped improve the
international reserve position. Inflation was on uptrend during
FY07 due mainly to rising import prices of fuel oil, metal, food
grain and some other essentials in the international market coupled
with problems in the domestic supply chains like political turmoil
in the first half of FY07; dislocation of market structure created
by anti-hoarding drive and crackdown on corrupt business houses;
and lower growth of crop production. Increasing domestic demand
induced by high monetary and credit growth added to the uptrend in
consumer prices. The annual average inflation increased to 7.20
percent in June 2007 from 7.16 percent in June 2006, while 12-month
consumer price inflation on point to point basis increased over the
same period to 9.20 percent. Total domestic credit grew by 14.5
percent, while credit to private sector increased by 15.1 percent
in FY07.In more recent period, the economic situation of Bangladesh
is like this:The IMF expects that the real GDP growth of Bangladesh
will be possible 5.5-6.0% in FY 08. The IMF has earlier projected
the countrys GDP growth at 5.0-5.5% due to natural disasters and
slowdown in economic activities due to factors like anti hording
drive and negative growth in export during the first half of the
fiscal year. Due to increase of export and strong Boro harvest,
real GDP growth expected to be higher than anticipated earlier. IMF
also suggested to improve the efficiency of the state owned
commercial banks.2.3.1. Exports: during July February, 2007-08
export increase by US$ 908.72 million or 11.33% to US$ 8932.59
million against US$ 8023.87 million during the same period of the
previous year.2.3.2. Import payments & Fresh opening of import
LCs: During July-February, 2007-08, import payments increased by
US$ 2327.20 or 21.04% to US$ 13387.90 million compared to US$
11060.70 million during July-February, 2006-07.Fresh opening of
import LCs during July-February, 2007-08 increased by US$ 3887.33
million or 34.70% to US$ 15089.56 million against US$ 11202.23
million during July-February, 2006-07.2.3.3. Remittances receipts:
During July-March, 2007-08 remittances increase by US$ 1288057
million or 29.55% to US$ 5649.90 million against US$ 4361.33
million during July-March, 2006-07.2.3.4. Gross foreign exchange
reserves: Gross foreign exchange reserves of Bangladesh Bank stood
lower at US$ 5302.46 million as of end March, 2008, against US$
5978.60 million as of end February, 2008 due o ACU payment of US$
733017 million on 6th March, 2008. However, this was higher than
the US$ 4199.52 million reserves as of end March, 2007.2.3.5.
Inflation: The annual average rate of inflation increased to 9.79
in February, 2008 from 9.56% of January, 2008. The rate of
inflation on point basis, however, decreased to 10.16% in February,
2008 from 11.43% of January, 2008.2.3.6. Macro-economic trend:This
is a chart of trend of gross domestic product of Bangladesh at
market prices estimated by the International Monetary Fund with
figures in millions of Bangladeshi Taka. However, this reflects
only the formal sector of the economy.YearGross Domestic ProductUS
Dollar ExchangeInflation Index(2000=100)Per Capita Income(as% of
USA)
19901,054,23435.79 Taka581.16
19951,594,21040.27 Taka781.12
20002,453,16052.14 Taka1000.97
20053,913,33463.92 Taka1260.95
20085,003,43868.65 Taka147-
Table2.2: Macro-economic trendFor purchasing power parity
comparisons, the US Dollar is exchanged at 12.86 Taka only. Average
wages in 2008 hover around $2-3 per day.2.3.7. Economic
target:World Bank predicted economic growth of 6.5% for current
year. Foreign aid has seen a decline of 10% over the last few
months but economists see this as a good sign for self-reliance.
There has been 18% growth in exports over the last 9 months and
remittance inflow has increased at a remarkable 25% rate. Export
was $10.5 billion in fiscal year 2005 exceeding the target export
of $10.4 billion. Target export for current year is $11.5 billion.
An estimated GDP growth of 6.7% was predicted for FY 2006.Fiscal
YearTotal ExportTotal ImportForeign Remittance Earnings
2007-2008$14.11b$25.205b$8.9b
2008-2009$15.56b$22.00b+$9.68b
2009-2010(Set Target)$17.6bN/A$10.87b
Table 2.3: Economic targetCHAPTER- 3Overview of Mercantile Bank
Limited 3.1. An Overview of Mercantile Bank Limited :Banking system
occupies an important place in a nations economy. A banking
institution is indispensable in modern society. It plays a
liberalization of economic policies in Bangladesh. Mercantile Bank
Limited emerged as a new commercial bank to provide efficient
banking services with a view to improving the socio-economic
development of the country.Mercantile Bank has been incorporated on
May 20, 1999 in Dhaka, Bangladesh as a limited company with the
permission of the Bangladesh Bank; MBL commenced formal commercial
banking operation from the June 2, 1999. The bank stood 15 branches
all over the country up to 2001. The Authorized Capital of the Bank
is 3000.00 million taka and the Paid-Up Capital is 1498.90 million
taka as on December 31, 2007.The Bank provides a broad range of
financial services to its customers and corporate clients. The
Board of Directors consists of eminent personalities from the realm
of commerce and industries of the country.There are thirty Sponsors
involved in creating MBL the Sponsors of the Bank have a long
heritage of trade, commerce and industry. They are highly regarded
for their entrepreneurial competence. The Sponsors happen to be
members of different professional groups among whom are also
renowned banking professionals having vast range of banking
knowledge. There are also members who are associated with other
financial institutions like insurance companies, leasing companys
etc.Mercantile bank Limited continued its expansion program during
the year ended as on December 31, 2007. Its core lending and
deposit taking business have increased significantly. Rising trend
of the banks profitability over the last 8 years is also
materialized. The MBL is committed to the delivery of the superior
shareholders value. With the aim to be the bank of choice, it is
operating in the industry with a team of personnel devoted to excel
both their own career and the banks future.3.2. Mission:Will become
most caring, focused for equitable growth based on diversified
deployment resources, and nevertheless would remain healthy and
gainfully profitable Bank. Mercantile Bank Limited aims to become
one of the leading banks in Bangladesh by prudence, flair and
quality of operations in their banking sector. The bank has some
mission to achieve the organizational goals. Some of them are as
follows as:Mercantile Bank Limited provide high quality financial
services to strengthen the well being and success of individual,
industries and business communities.Its aim to ensure their
competitive advantages by upgrading banking technology and
information system.MBL intends to play more important role in
economic development of Bangladesh and its financial relations with
the rest of the world by interlining both modernistic and
international operations.MBL encourages investors to boost up share
market.The bank creates wealth for the shareholders.The bank
believes in strong capitalization.It maintains high standard of
corporate and business ethics.Mercantile Bank Limited extend
highest quality of services, which attracts the customers to choose
them first.The bank creates wealth for the shareholders.The bank
maintains congenial atmosphere for which people are proud and eager
to word with Mercantile Bank Limited.Mercantile Bank Limited intend
to provide better benefits to their customers and good returns to
their shareholders.The bank intends to meet the needs of their
clients and enhance their profitability by creating corporate
culture.3.2.1 Vision:Would make finest corporate citizen. is the
main vision of MBL. MBL dreams to become the bank of choice of the
general public that includes both the consumer and the corporate
clients. It has created a cadre of young professionals in banking
profession which has helped boosting productivity in the
bank.3.2.2. Objectives:3.2.2.1. Strategic Objectives: To achieve
positive Economic Value Added (EVA) each year. To be market leader
in product innovation. To be one of the top three financial
institutions in Bangladesh in terms of cost efficiency. To be one
of the top five financial institutions in Bangladesh in terms of
market share in all significant market segments we serve.3.2.2.2.
Financial Objectives: To achieve a return on shareholders equity of
20% or more, on average.3.2.3. Core Values:3.2.3.1. For
customers:Providing with caring services by being innovative in the
development of new banking products and services.3.2.3.2. For
Shareholders:Maximizing wealth of the bank.3.2.3.3. For the
employees:Respecting worth and dignity of individual employees
devoting their earnings for the progress of the bank.3.2.3.4. For
the community:Strengthening the corporate values and taking
environment and social risks and reward into account.3.2.4.
Business Philosophy of MBL:The philosophy of MBL is not to Carry
coal to the new castle.3.2.5. Nature of business:Mercantile Bank
Limited offer services for all banking needs of the customers,
which include deposits, making loans and advances, discounting
bills, conducting money transfer and foreign exchange transactions
and performing other related services such as safe keeping,
collections, issuing guarantees, acceptances and letters of
credit.3.2.6. Features of Mercantile Bank Limited:There are so many
reasons behind the better performance of Mercantile Bank Limited
than any other newly established banks:Mercantile Bank Limited has
established a core Research & Planning Division comprising
skilled person from the very inception of the bank.Highly qualified
and efficient professionals manage the bank.The inner environments
of the all branches of Mercantile Bank Limited are well
decorated.Banking operations of the all branches of Mercantile Bank
Limited have been computerized to provide the promptly &
frequently customers service.The bank has established correspondent
relationship with 102 of foreign banks.The bank has launched some
financial products, which is not available in any other banks, like
Ajebon Pension Scheme.Mercantile Bank Limited provides attractive
interest rate than the other financial institutions.The bank
provides loan to the customers at lower interest with easy &
flexible condition than the other do.The bank frequent arranges
customers meeting to achieve their valuable suggestions.Letter of
Credit (L/C) commissions and other charges are very lower than the
other banks.Profit earning is not the main aim of the MBL. The bank
is responsible to maintain the social duties.The bank is committed
to provide the cherub amount within 30 seconds of submission the
cherub.3.2.7. Corporate information at a glance:Name of the
BankMercantile Bank Limited
StatusPublic Limited Company
Date of IncorporationMay20, 1999
Date of CommencementJune 02, 1999.
Subscription for SharesOctober 21-22, 2003
Listed in Dhaka Stock ExchangeFebruary 16, 2004
Listed in Citation Stock ExchangeFebruary 26, 2004
Head Office61, Dilute Commercial Area, Dhaka- 1000
Phone+880-2-9559333, 01711-535960
[email protected]
Websitewww.mblbd.com
ChairmanMd. Abdul Jail
Managing DirectorDean Manipur Raman
Number of Employees1104
Number of Branches42
Table 3.1: General Information of MBLSOURCE: www.mblbd.com3.3.
Ownership Structure:The Board of Directors consists of eminent
personalities from commerce and industry of the country. Mr. Md.
Abdul Jail, the founder Chairman of the Board of Directors, is a
businessman besides being an eminent personality of the country.
The last Government had been pleased to induct him as a Senior
Cabinet Minister with the portfolio of Commerce.The Bank is manned
and managed by highly qualified and efficient professionals. The
chief Executive officer of the Bank is Mr. M. Taheruddin who has
rich experience of managing both the nationalized and the private
sector banks as Managing Director.Mr. Lutfar Rahman Sarkar who born
in 1935, initiated his banking carrier from Habib Bank Limited as a
provisionary officer. Then he served as Managing Director in Agrani
Bank, Sonali Bank, Islami Bank Bangladesh Limited and Prime Bank
Limited. The Chief Adviser of the Bank is the former Governor of
the Central Bank of Bangladesh. He brings with him a wealth of
experience of managing both the public and private sector
banks.3.3.1. Board Committees of MBL:Board of Directors who also
decides the composition of each committee determines the
responsibilities of each committee.3.3.2. Executives Committees of
MBL:All routine matters beyond delegated powers of management are
decided by or routed through the Executives Committee, subject to
rectification by the Board of Directors.3.4. Composition of the
board:Board of Directors, the apex body of the Bank, formulates
policy guidelines, provides strategic planning and supervises
business and performance of management while the Board remains
accountable to the company and its shareholders. The Board is
assisted by the Executive Committee and Audit Committee.
Figure 3.1: Composition of the boardSOURCE: Adapted from MBLs
Annual Report 20083.5. Capital & Reserves: 3.5.1.
Capital:3.5.1.1. Authorized Capital: The authorized capital of the
bank was BDT 3,000.00 million of 30,000,000 ordinary shares of BDT
100 each as of December 31, 2008.YearTaka(BDT in million)
20061200.00
20073000.00
20083000.00
Table 3.2: Authorized CapitalSource: Audited annual report of
MBL, 2008.3.5.1.2. Paid up Capital:Paid-up Capital of the bank was
BDT 1498.90 million of 14,988,983 ordinary shares of BDT 100 each
as of December 31, 2008.YearTaka(BDT in million)
20061199.12
20071498.90
20081,798.68
Table3.3: Paid-up CapitalSource: Audited annual report of MBL,
2008.3.5.2. Reserve:YearTaka(BDT in million)
2007726,729,402
2008966,496,902
3.5.2.1 Statutory Reserve:Table 3.4: Statutory ReserveSource:
Audited annual report of MBL, 2008.3.5.2.2. Other
Reserve:YearTaka(BDT in million)
200724,864,349
2008161,038,249
Table3.5: Other ReserveSource: Audited annual report of MBL,
2008.3.6. Milestones in the development of the organization:
Figure 3.2: Milestones in the development of the
organizationSOURCE: Adapted from MBLs Annual Report 20083.7.
Management Structure of MBL:Organization Chart of Mercantile Bank
Limited
Figure 3.3 : Management HierarchySOURCE: Adapted from MBLs
Annual Report 20083.8. Risk Management:3.8.1. Credit Risk:Credit
risk is the potential that the borrower may not repay or fails to
repay his/her debt obligation. They are exposed to credit risk
through traditional lending activities and transactions involving
settlements between their counterparts. Objectives[[Maintain a
well-diversified asset portfolio within approved risk tolerance
levels and earn a return appropriate to the risk profile of the
portfolio. ApproachSkill appraisal officers first evaluate credit
transactions for commercial and corporate loans. Credit Management
Committee provides and independent assessment of all significant
transactions, and a concurrence form this function is usually
required to make a lending commitment to a customer. Their Audit
and Inspection Division also reviews management processes in order
to ensure that establish credit policies are followed. In addition,
Credit Management Committee performs periodic reviews of
significant and higher risk transactions.3.8.2. Market Risk::Market
risk is the potential for loss from changes in the value of
financial instruments. The value of a financial instrument can be
affected by changes in interest rates, foreign exchange rates and
equity and commodity prices. They are exposed to market risk when
they enter into the following transactions: Loans and Advances
(LDOs) Deposit with other Banks- Investment- Treasury Bills- Bond-
Shares Foreign Exchange Positioning ObjectiveIdentify, measure,
monitor and report all market risk-taking activities, ensuring that
exposures remain within approved risk tolerance levels and that the
return from market risk activities is acceptable. ApproachThey have
established Asset Liability Committee (ALCO) to monitor their
market risk activities. The primary risk measurement methodology is
Repricing Gap and its sensitivity to interest rate changes.
Reprising Gap over 12-month period stood at positive BDT 4251.76
million as at Dec 31, 2008. Reprising Gap as percentage of total
assets stood at 14.72%, which is within the international standard
of 20%. In the position, the Net Interest Income (NII) of the Bank
may increase by BDT 42.52 million in case of 100 basis point
increase in interest rate. However, in case of 100 basis point
decease in interest rate, the NII of the Bank will go down by BDT
42.52 million.ParticularsVolume
Rate Sensitive Assets (RSA)17656.56
Rate Sensitive Liabilities (RSL)13404.80
Repricing Gap (RSA-RSL)4251.76
Repricing Gap as % of Total Assets14.72%
For 100 basis point increase in interest rate42.52
For 100 basis point decrease in interest rate(42.52)
Table 3.6: Repricing Gap: 20083.8.2. Liquidity Risk:Liquidity
risk is the risk that the Bank may fail to meet is obligation due
to short of cash and/or cash equivalent assets. This situation may
arise in the case of withdrawal of deposits, debt maturities and
commitment to provide credit. ObjectiveMain sufficient liquid
assets* and finding capacity to meet their financial commitments,
under all circumstances, without having to raise funds at
unreasonable prices or sell assets on forced basis. ApproachTheir
approach to liquidity management is to project liquidity
requirements based on expected and stressed economic, market,
political and enterprise-specific event. This enables them to
ensure that they have sufficient funds available to meet their
financial commitments even in times of crisis. Funds encompass both
liquid assets on hand and capability to raise additional
funds.Their large based of scheme deposits form individuals and
strong capital positions provide a long-term stable source of
funding. The primary risk measurement methodology is to monitor
liquid asset ratios, deposits mix, core deposits as percentage of
total deposits and net liquidity gap.Figure 3.4: Liquidity
RiskSource: Annual report 2008 Mercantile Bank Limited. Liquid
Assets =Cash + Balance with Bangladesh Bank + Deposit with other
Banks+ Money at Call and Short Notice + Investments.3.8.3.
Operational Risk:Operational risk is the risk of loss resulting
form inadequate or failed internal processes, people and systems or
from external events. ObjectiveOperational risk is inherent in all
business activities, and the management of these risks is important
to the achievement of organizational goals. While operational risks
can never be eliminated, these can be managed, mitigated and in
some cases insured against to preserve and create value.
ApproachOperational risk is managed through the establishment of
effective infrastructure and controls. To this end, we have
established a well-formulated framework that uses the strengths and
specialized knowledge of our lines of business. Our strategy is to
maximize our ability to manage and measure operational risk through
implementation of a framework that takes advantages of the best
practices in the industry.3.8.5. Credit Rating Report on MBL by
CRISL:Mercantile Bank Limited has been rated by Credit Rating and
Information Services Limited (CRISL) on the basis of Financial
Statements as on December 31, 2007. The summary of the rating is
presented below:Credit Rating and Information Services Limited
(CRISL) has upgraded the rating of Mercantile Bank Limited to A
(pronounced as single A) from A- (pronounced as single A minus) in
the Long Term and ST-2 for the Short Term from ST-3. CRISL has
disclosed the said rating on March 9, 2008. The up gradation has
been done in consideration with its financials such as improvement
in asset quality, capital adequacy, stable source of fund,
diversified product lines etc. Financial institutions rated in this
category are adjudged to offer adequate safety for timely repayment
of financial obligations.The short-term rating indicates high
certainty of timely payment, strong liquidity factors, good company
fundamentals, easy access to capital market and risk factors are
very minimal. The long-term rating is valid for only one year and
short-term rating is for six months.3.9. Human Resources
Development:In todays competitive business environment, the quality
of human resources makes the difference. The Banks commitment to
attract high quality persons to work for it is reflected in the
efforts of the Bank. In the face of todays globalization, the Bank
envisages to develop highly motivated workforce and equip them with
latest skills and technologies. The Bank evolves human resources
development strategy with a view to ensuring good working
environment, a high level of loyalty and commitment, devotion and
dedication on the part of the employees.3.9.1 Mercantile Bank
Foundation:The Bank has set up Mercantile Bank Foundation for
extending benevolent services to the society. The Bank contributes
1% of operating profit or Tk.4.00 million; whichever is higher, to
Mercantile Bank Foundation every year. The Foundation has been
established with following objectives: Mercantile Bank Prize to
8(eight) eminent personalities of the country for the outstanding
contribution in the fields of Economics and Economic Research,
Bengali Language and Literature, Science and Technology, Education
and Culture, Journalism, Sports, Research on Liberation War and
Industry and Commerce. Interest free education loan for the
meritorious but poor students To conduct research on Bengali
language and literature. Book purchase and Distribution Policy to
encourage writers and publishers of the country. Interest free Loan
to the unemployed educated people. Donation for handicapped
artists, literature and distressed people. Project for the
development of shelter-less children.3.10. Branch expansion:The
Bank commenced its business on June 02, 1999. The First branch was
opened at Dilkhusha Commercial Area in Dhaka on the inauguration
day of the Bank. The Second Branch was opened at Dhanmondi
Residential Area, Dhaka on August 04, 1999. The Third Branch was
opened at Kawran Bazar, Dhaka on September 06, 1999. The Fourth
Branch was opened at Agrabad, Citation on November 06, 1999. Now,
the total number of branches stood at 42 at the end August of the
year 2009.
Figure 3.5: Branch Network of Mercantile Bank Limited3.10.1.
Head Office and Branch Network:Head Office61, Dilute Commercial
AreaDhaka-1000, BangladeshTel: +880-2-9559333, 01711535960Fax:
+880-2-9561213Telex: 642509 MBLID BJE-mail:
[email protected]: www.mblbd.comBranch
NetworkNameAddress
01.Main BranchDhaka
02.Dhanmondi branchDhaka
03.Kawran Bazar BranchDhaka
04.Agrabad BranchCitation
05.Joypara BranchDhaka
06.Banani BranchDhaka
07.Rajshahi BranchRajshahi
08.Naogaon BranchNaogaon
09.Sylhet BranchSylhet
10.Board Bazar BranchGazipur
11.Nayabazar BranchDhaka
12.Khatungong BranchCitation
13.Mohakhali BranchDhaka
14.Mirpur BranchDhaka
15.Ashulia BranchSavar
16.Uttara BranchDhaka
17.Jubilee Road BranchCitation
18.Elephant Road BranchDhaka
19.Motijheel BranchDhaka
20.Madam Bibir Hat BranchCitation
21.Khulna BrachKhulna
22.Rangpur BranchRangpur
23.Satmasjid Road BranchDhaka
24.Jhilongja BrachCoxs Bazar
25.O R Nizam Road BranchCitation
26.Bogra BranchBogra
27.Chowmuhani BranchNoakhali
28.Konabari BranchGazipur
29.Gulshan BranchDhaka
30.Feny BranchFeny
31.Moulobhi BazarSylhet
32.BijoynagarDhaka
33.Mogbazar BranchDhaka
34.Sataharnagar BranchNaogaon
35.Hemayetpur BranchDhaka
36.Sapahar BranchNaogaon
37.Beanibazar BranchBeanibazar
38.Barisal BranchBarisal
39.Bhojeshwarbazar BranchShariatpur
40.Comilla BranchComilla
41.Green Road BranchDhaka
42.Sheikh Mujib Road BranchCitation
Table 3.7: Branch NetworkSOURCE: Adapted from MBLs Annual Report
20083.11. An Overview of Main branch:The main branch of Mercantile
Bank Limited is located in the Motijheel commercial area. The total
manpower of this branch is 118.The total number of the senior vice
president is 10.As it is the main branch of the bank, the customer
appearance in the bank is very high.In the Mercantile Bank Limited,
Main Branch, the people are mostly courteous, friendly in nature
and eager to help despite the tremendous workload. Manpower is
sufficient in the branch but there is no information booth for
customer information. So as a new private bank, Mercantile Bank
Limited is running steadily.3.11.1. Department of Main Branch:
General Banking Division Credit Division Foreign Exchange
Division3.12. Divisions of MBL:1. General Banking & Deposit
Management2. Credit Department3. Foreign Exchange DepartmentGeneral
Banking & Deposit Management:1. Account opening and KYC
procedures.2. Issuance of DD/TT/PO/FDR.3. Interbank Transaction,
OBC/IBC.4. Account section.5. Clearing Section.6. IT Section.Credit
Department:1. Credit Proposals Processing Procedures.2.
Documentation and Loan Disbursement Procedures.3. Overview on all
returns.Foreign Exchange Department:1. I. Cash L/C1. Opening of
L/C.2. Lodgment of Import Bill.3. Payment against Import Bill.4.
B/E Matching.5. IMP Reporting.1. II. BTB L/C1. Export L/C
Checking.2. Opening of BTB L/C (Local/ Foreign/ EDF/ EPZ).3.
Lodgment and confirmation of maturity date.4. Allowing of PC.5.
Payment against realization of Export Proceeds/ Forced Loan.6. B/E
Matching.7. Reporting.8. III. Export1. Scrutinizing/ Negotiation/
Send on Collection.2. Follow-up.3. Realization.4. Reporting.1. IV.
Foreign RemittanceInwardFDD.1. FTT.2. Others.Outward1. Endorsement
of Traveling.2. Education/ Treatment/ Others.3. Cash Rebate.4. FC
issuing.5. FDD/ FTT etc.3.13. Services Offered by MBL:The Bank does
believe that it has differentiated itself from other banks through
its products and services. It is banking for the people to fulfill
their needs conceptualizing product and services to meet their
aspiration and expectations. The bank is proud to have exemplified
the true concept as Banglar Bank. The Bank launched several
financial products and services since its inception. Among them
are:3.13.1. Deposit Schemesa) Family Maintenance Deposit
(FMD):Objectives: Help the retired persons for investing their
retirement benefits. Create investment opportunities for
Non-Resident Bangladeshi. Explore investment opportunities for
school, college, university etc. Give investment opportunities for
Trust; Foundation etc.Mode: Deposit a fixed amount of money for 05
(Five) years. Depositor will get a certain sum of money in each
month proportion to his/her deposit during the entire
tenure.Benefits: Tenure of deposit is 05 (Five) years. Minimum
amount of required deposit is TK.50, 000.00 or its
multiple.DepositMonthly Benefit (Amount in TK.)
1,00,0001,000
2,00,0002,000
3,00,0003,000
Table3.8: Deposit under Family Maintenance Deposit (FMD)
schemeB) Monthly Savings Scheme:Objectives: Build up habit of
savings. Attract small savers. Saving for rainy days.Mode: Monthly
installments of various sizes.Benefits:Amount in TKPeriodMonthly
Installment
2505001,000
Benefits
5 Years20,62541,25082,500
8 Years40,37580,7501,61,500
10 Years57,5001,15,0002,30,000
PeriodMonthly Installment
150025005,000
Benefits
5 Years1,23,7502,06,2504,12,500
8 Years2,42,2504,03,7508,07,500
10 Years3,45,0005,75,00011,50,000
Table3.9: Deposit under Monthly savings schemec) Pension &
Family Support Deposit (PFSD):Condition: Provides monthly income
for retired person. Helps to meet monthly expenses after certain
period of time. One person can deposit a certain sum in every month
for certain tenure and after that period he/she can get monthly
income.Monthly Installment10 Years15 Years
Pension per monthOne timePensionOne time
50062580,0001,1501,35,000
1,0001,2501,60,0002,3002,70,000
2,5003,1254,00,0005,7506,75,000
5,0006,2508,00,00011,50013,50,000
Table3.10: Monthly Installment of Pension & Family Support
Deposit (PFSD)d) Monthly Benefit Scheme:Under this Scheme; customer
has to deposit a fixed amount of money for five years and in return
he will receive benefits on monthly basis. Benefits start right
from the first month of opening an account under Scheme and will
continue up to five years when the depositor will get refund of his
deposit.e) Quarterly Benefit Deposit Scheme:The Quarterly Benefit
Deposit Scheme will be maintained for a period of 3 (three) years
and the minimum amount of deposit is BDT 50,000.00 (fifty thousand)
or its multiples.ExampleInitial Deposit (BDT)TermQuarterly Benefit
Payable (BDT)
50,0003 Years1,500
100,0003 Years3,000
200,0003 Years6,000
Table3.11: Initial Deposit under Quarterly Benefit Deposit
Schemef) 1.5 Times Benefit Deposit Scheme:Under the 1.5 Times
Benefit Deposit Scheme a deposit of minimum BDT 50,000.00 (fifty
thousand) or its multiples will be received for a period of 42
months (3.5 years). On maturity after 42 months, 1.5 times of the
deposited amount will be paid back to the account holder as per
example given below:ExampleInitial Deposit
(BDT)50,000.001,00,000.005,00,000.00
Return after 42 months (BDT) with
benefits75,000.001,50,000.007,50,000.00
Table3.12: Deposit under 1.5 Times Benefit Deposit Schemeg)
Double Benefit Deposit Scheme:Objectives: Give maximum benefit.
Help in meeting specific needs like education, marriage etc.
Deposit becomes double in six years.Mode: Tenure of the deposit is
06(Six) years.Amount of DepositPeriodAmount Payable
1,00,0006 Years2,00,000
Table 3.13: Deposit under Double Benefit Deposit Schemeh)
Special Savings Scheme:Under this Scheme, depositors money will be
more than three times in ten-year period. The main attraction of
this Scheme is depositor can get his money back after one year and
onwards with attractive benefits.Objectives: Help in meeting
specific needs like education, marriage etc.Mode: Deposit a fixed
amount of money for any period up to 15 (Fifteen) years.Benefits:
Triple of the amount deposited after 15 years. Minimum deposit
shall be Tk.50, 000.00 or its multiple.DepositPeriodAmount Payable
at Maturity
1,00,00015 Years3,00,000
Table 3.14: Deposit under Special Savings Scheme3.13.2. Credit
Schemes:a) Consumer Credit Scheme:Consumer Credit is a relatively
new field of collateral-free finance of the Bank. People with
limited income can avail this credit facility to buy household
goods including car, computer and other consumer
durable.Objectives: Help fixed-income people for buying household
durable. For the amount up to Tk. 1,00,000 the period is two years.
Interest rate will be charged quarterly rest.Terms &
Conditions: Interest Rate 16.00% Risk Fund 1.00% Supervision Charge
(per year on outstanding balances) 0.25% Application FeeBDT
200.00Special Feature: The loan amount is directly credited to the
customers account.b) Small Loan Scheme:This Scheme has been evolved
especially for small shopkeepers who need credit facility for their
business and cannot provide tangible securities. The present
maximum range of loan under the Scheme is Tk. 2,00,000.Objectives:
Extend credit facility to small shopkeepers. Give collateral-free
credit.Mode: Maximum amount of loan Tk. 2,00,000. Interest Rate
16.00% Risk Fund 1.00% Service Charge 0.25% per year on outstanding
balances Application Fee BDT 200.00 Loan Limit BDT 2.50 Lac
Repayment period 3 years Interest rate will be charged at quarterly
ratec) Lease Finance:This has been designed to assist and encourage
the genuine and capable entrepreneurs and professionals for
acquiring capital machinery, medical equipment, computers and other
items, which may help them to be economically self-reliant. Terms
and conditions of this credit have been made easier than before in
order to help the potential entrepreneurs to acquire equipment of
production and services and repay the liability gradually from
earnings on the basis of Pay as you earn.Objectives:Assist and
encourage entrepreneurs for acquiring capital machinery, medical
equipment, automobiles etc.Terms & Conditions: Lease period 3
to 7 years Lease rent @ 16.00% Risk Fund 1.00% Service Charge 0.25%
per year on outstanding balances.Security: Primary: Ownership of
fixed items. Collateral: Landed property, Bank Guarantee, ICB Unit
Certificate etc.d) Doctors Credit Scheme:Doctors Credit Scheme is
designed to provide financing facilities to doctors, clinics and
hospitals on easy terms.Objectives: Help new F.C.P.S. or
post-graduate doctors for setting up chambers and buying medical
equipment. Help experienced doctors for refurbishing chambers and
buying medical equipment. Assist private clinics for acquiring
modern medical equipment. Interest rate will be charged quarterly
rest.Terms & Conditions: Equity1. For new doctor10%2. For
experience ddoctor15%3. For Hospital, Clinic and Diagnostic Center
20% Interest Rate 16.00% Risk Fund Tk. 1.00% Repayment period 5
years..e) Rural Development Scheme:Rural Development Scheme has
been evolved for the rural people of the country to make them
self-employed through various incomes generating activities. This
Scheme is operated through the rural branches of the
Bank.Objectives: Raise the standard of living of rural people.
Initiative to break the vicious cycle of poverty. Enhance the
purchasing power of rural people. Terms & Conditions: Group
Formation1. 30 people in a group2. 1 group leader3. 6 sub-groups
consisting 5 person each in a group4. 1 sub-group leader in each
sub-groupf) Women Entrepreneurs Development Scheme:Women
Entrepreneurs Development Scheme has been introduced to encourage
women in doing business. Under this Scheme, the Bank finances the
small and cottage industry projects sponsored by women.g) Ajibon
Pension Scheme:Ajibon Pension Scheme has been designed mainly for
providing income after retirement Under this Scheme one can get
life long benefit if he deposits specific amount per month for a
period of 10,15,20 or 25 years. The Scheme can also be opened in
the name of minors.h) SME Financing Scheme:Small and Medium
Enterprise (SME) Financing Scheme has been introduced to assist new
or experienced entrepreneurs to invest in small and medium scale
industries.I) Car Loan Scheme:Car Loan Scheme has been introduced
to enable middle-income people to purchase
Cars/SUVs/Jeeps.Objectives: Help fixed-income people for buying car
Interest rate will be charged quarterly rest.Terms &
Conditions: Maximum loan amount is BDT 25,00,000 Tenure of loan is
05 (Five) years Interest Rate 16.00% Risk Fund 1.00% Supervision
Charge (per year on outstanding balances) 0.25% Application FeeBDT
200.00 Tenure of loan is 05 (Five) yearsj) Personal Loan
Scheme:Objectives: Help fixed-income people for buying house hold
Durable For the amount up to Tk. 3,00,000 the period is 03 (Three)
years Interest rate will be charged quarterly rest.Mode: Interest
Rate 16.00% Risk Fund 1.00% Supervision Charge (per year on
outstanding balances)1.00% Application Fee BDT 200.003.14.
Functions of Mercantile Bank Limited:The functions of commercial
banks are now wide and varied. However, the functions of Commercial
Banks may broadly be classified under the following two
categories:A. Primary Functions:The primary functions of MBL are
same as other Commercial Banks. These functions include: Accept
Deposit. Lends Money. Create Credit. Creates medium of exchange.B.
Secondary Functions:Modern Commercial Banks like MBL, besides
performing the primary functions, cover a wide range of financial
and on financial services to meet the growing needs of the time.
Some of these services are available only to the customers while
others are available to the public in general. The subsidiary
services provided by a modern banker may be classified into the
following three groups:1. Agency Service.2. Generally Utility
Services.3. Foreign Exchange Business. Operations of MBL:
Deposit:The Bank mobilized total deposits of BDT 49,538.36 million
as of December 31, 2008 as compared to BDT 39,348.00 million in
2007. Competitive interest rates, attractive deposit products,
deposit mobilization efforts of the Bank and confidence reposed by
the customers in the Bank contributed to the notable growth in
deposits. The Bank introduced a number of attractive deposit
schemes to cater to the requirement of small and medium savers.
This improved not only the quantum of deposits; it also brought
about qualitative changes in the deposits structure.Figure 3.8:
Trend of Deposits in MBL3.15.2. Advances:The Bank has formulated
its policy to give priority to small and medium enterprises while
financing large-scale enterprises through consortium of banks.
Total loans and advances of the Bank stood at BDT 41,993.95 million
as of December 31, 2008 as compared to BDT 31,877.86 million in
2007.The Bank has formulated its policy to give priority to small
and medium businessmen while financing large-scale enterprises
through consortium of banks. Total loans and advances of the Bank
stood at BDT 31,877.86 million as of December 31, 2008 as compared
to BDT 26,842.14 million in 2007. Trade and commerce, garments
industry, large and medium scale industries and construction are
major sectors in which the Bank extended credit.3.15.4. Import
Trade:Mercantile Bank Limited opted quality financing while
facilitating import trade in 2008. This year the Bank executed a
total of 20,321 letters of credits amounting to BDT 56,528.80
million. The principal items were capital machineries, garments
& accessories, rice, wheat, sugar, CDSO, vegetable oil, cement
clinkers, hot roll steel, raw cotton, ships-breaking etc.The Bank
is very much supportive in export financing since its inception. As
an outcome of its positive attitude in export performance it is
holding the top position among leading banks of new generation. A
total of 17,581 export bills were handled worth BDT 43,108.50
million in 2008. the main export items of the bank were readymade
garments, jute & jute goods, leather, handicrafts, tea frozen
food, fish products etc.3.15.6. Syndication and Structured
Finance:The Bank sanctioned BDT 6986.99 million as funded and
non-funded facilities in Syndication and Structured Finance. The
Bank worked as lead arranger in syndication financing as well as
the participating financial institution. The project in which the
Bank participated in Syndication and Structured Finance included:
Grameen Phone Bangladesh Limited, TM International Limited, Pacific
Bangladesh Telecom Limited, Nasir Glass Industries Limited, Partex
Sugar Mills Limited, United Sugar Mills Limited, PHP Float Glass
Industries Limited, AM Energy Limited, Dhaka Telephone Limited,
Rising Spinning Mills Limited, Karim Spinning Mills Limited, BRAC,
Rural Power Company Limited and KYCR Coil Industries
Limited.3.15.7. Card Business:MBL cardholder can enjoy the
following benefits and much more:No Cash Withdrawal Fee: For
withdrawals of cash from MBL ATM by MBL cardholders no cash advance
fee is necessary and from any other Q-cash ATM the fee is Tk.10
only. MBL is the only bank offering such unique facility. Moreover,
our VISA Cardholders can also withdraw cash from any Visa logo ATM
locally and internationally.Acceptability: International/Dual card
is accepted all over the world at millions of outlets and ATMs. A
Dual card is also accepted in most of the big cities like Dhaka,
Citation, Khulna, Rajshahi, and Sylhet at more than 10,000 outlets
including 4500 POS. It covers various kinds of merchants like
hospital, hotel, restaurant, department store and the card has
accessibility to any outlet having VISA logo.Credit Facility:
Mercantile Bank Ltd. Visa Credit card offers maximum 45 days credit
facilities free of interest and minimum payment is 5% of
outstanding billing payment for easy repayment and convenience of
the customers.Supplementary Card: A Principal cardholder (local)
may apply for more than one supplementary card where one
supplementary card is free. Expenses made by supplementary card
will be charged to the principle card.Advance against Credit card:
MBL cardholder can take advance as term loan up to 50% of the card
limit to be repaid on the monthly installment basis. Any POS
transaction over TK. 20000 but not exceeding 50% of the credit
limit is convertible to Personal loan/CCS and to be repaid on
monthly installment basis. Repayment period of such loan may be
from 6 months to 36 months.Overdraft Facilities: Overdraft
facilities up to 80% of the credit card limit may also be allowed
for payment of the installment of scheme deposit with our
Bank.Payment of Utility Bill: Payment of utility bills like
telephone bills, gas bills, electric bills, water bills, may be
settled by card.Dual Card (two in one): Single Card with double
benefits. No hassle to carry two cards (local and international). A
single credit card can be used both locally and internationally to
withdraw cash from ATM for POS transaction. This is the special
feature of MBL Visa card.Debit Card: Visa debit card is mainly
tagged with deposit account (CD/SB/STD) that is automatically
debited from the A/C having available balance. Debit card can also
be used for purchasing goods, services, payment of utility bills
etc as well as withdrawal of cash from ATM.Pre-Paid Card: Those who
have no account with MBL may avail Pre-Paid card facilities. The
Pre-Paid cardholders pay first buy later. Pre-Paid card offers the
convenience and security of electronic payment in situations where
one might otherwise use cash, such as birthday gift or a monthly
allowance for a young adult. Examples include gift cards and salary
payment etc.Cash advance fee:a) MBL card to MBL ATM: No fee.b) MBL
card to other Q-Cash ATM: Tk.10 per transaction.c) MBL card to
other ATM: 2% of transaction amount or Tk.125 whichever is
higher.d) For international card: USD 3 or 2% of transaction amount
whichever is higher.3.15.8. Foreign Exchange Business:From the very
beginning a Commercial Bank like MBL is involved in financing
foreign trade apart from financing internal credit requirements in
the economy. This involves handling of import business through
opening Letter of Credit and Handling of export business. As
banking has become very keenly competitive, banks find it
convenient to involve in foreign exchange business as lucrative
sources of earning income and profit.Apart from financing foreign
trade, Commercial Banks also provide guarantees of various types to
their clients. While these facilities clients to undertake jobs
assigned to them by various Corporations and Organizations, this
enables the Bank to earn commission, which is becoming gradually
major source of earning of Commercial Bank.3.15.9. Online
Banking:Online Banking has so far been activated with 41 Branches
of the Bank from January 01, 2006. Online service is now available
for all customers Both Cash depositand withdrawals, Cherub Deposits
and Transfer in CD, SB, STD, Loan accounts (Cherub Bearing within
limit) and Monthly Savings Scheme (MSS).3.16. Financial
Performance:CHAPTER- 4Introduction to Foreign Exchange4.1. Foreign
Exchange- its meaning and definition:Foreign exchange refers to the
process or mechanism by which the currency of one country is
converted into the currency of another country. Foreign exchange is
the means and methods by which rights to wealth in a countrys
currency are converted into rights to wealth in another countrys
currency. In banks when we talk of foreign exchange, we refer to
the general mechanism by which a bank converts currency of one
country into that of another. Foreign Trade gives rise to foreign
exchange. Modern banks facilitate trade and commerce by rendering
valuable services to the business community. Apart from providing
appropriate mechanism for making payments arising out of trade
transactions, the banks gear the machinery of commerce, specially
in case of international commerce, by acting as a useful link
between the buyer and the seller, who are often too far away from
and too unfamiliar with each other.According to Foreign Exchange
Regulation Act (FERA) 1947, Any thing that conveys the right to
wealth in another country is foreign exchange. Foreign exchange
means and includes all deposits, credits and balances payable in
foreign currency as well as foreign currency instruments such as
drafts, TCs. Bill of Exchange, promissory Notes and Letters of
Credit payable in any foreign currency. .This definition implies
that all business activities relating to Import, Export, Outward
& Inward Remittances, buying & selling of foreign
commissions, etc. come under the purview of foreign exchange
business. Foreign exchange department of banks plays significant
roles through providing different services for the customers.4.2.
Foreign Exchange Market and BangladeshForeign Exchange Market
allows currencies to be exchanged to facilitate international trade
and financial transactions. Evolution of the market in Bangladesh
is closely linked with the exchange rate regime of the country. It
had virtually no foreign exchange market up to 1993. BANGLADESH
BANK, as agent of the government, was the sole purveyor of foreign
currency among users. It tried to equilibrate the demand for and
supply of foreign exchange at an officially determined exchange
rate, which, however, ceased to exist with introduction of current
account convertibility. Immediately after liberation, the
Bangladesh currency taka was pegged with pound sterling but was
brought at par with the Indian rupee. Within a short time, the
value of taka experienced a rapid decline against foreign
currencies and in May 1975, it was substantially devalued. In 1976,
Bangladesh adopted a regime of managed float, which continued up to
August 1979, when a currency-weighted basket method of exchange
rate was introduced. The exchange rate management policy was again
replaced in 1983 by the trade-weighted basket method and US the
dollar was chosen as intervention currency. By this time a
secondary exchange market (SEM) was allowed to grow parallel to the
official exchange rate.Up to 1990, multiple exchange rates were
allowed under different names of export benefit schemes such as,
Export Bonus Scheme, XPL, XPB, EFAS, IECS, and Home Remittances
Scheme. This led to a wide divergence between the official rate and
the SEM rate. The situation also gradually gave rise to a number of
conflicting regulations, poor risk management, and various types of
implicit or explicit government guarantees to the users of foreign
exchange. This resulted in a number of macro-economic imbalances
prompting the government to adjust the official rate in phases.4.3
Functions of Foreign exchange department:Following are the
functions that Foreign exchange department performs to facilitate
the transaction of foreign exchange: Facilitating import and export
trades. Providing funded and non-funded credit facility. Providing
non-commercial remittance. Maintaining foreign currency accounts.
Selling foreign currency bond. Preparing and submitting statements
relating to foreign currency.4.4. Exchange Rate Policy:The exchange
rate policy of Bangladesh Bank aims at maintaining the
competitiveness of Bangladeshi products in the international
markets, encouraging inflow of wage earners remittances,
maintaining internal price stability, and maintaining a viable
external account position. Prior to the inception of floating
exchange rate regime, adjustments in exchange rates were made while
keeping in view the trends of Real Effective Exchange Rate (REER)
index based on a trade weighted basket of currencies of major
trading partners of Bangladesh and the trends of other important
internal and external sector indicators. However, the interbank
foreign exchange market sets the exchange rates for customer
transactions and interbank transactions based on demand-supply
interplay; while the exchange rates for the Bangladesh Banks spot
purchase and sales transactions of US Dollars with ADs is decided
on a case to case basis. Bangladesh Bank does not undertake any
forward transaction with ADs. The ADs are free to quote their own
spot and forward exchange rates for interbank transactions and for
transactions with non-bank customers.4.5. Different Foreign
Exchange rates in Bangladesh:The exchange rates of Taka for
inter-bank and customer transactions are set by the dealer banks
themselves, based on demand-supply interaction. The Bangladesh Bank
is not present in the market on a day-to-day basis and undertakes
purchase or sale transactions with the dealer banks only as needed
to maintain orderly market conditions. The exchange rates are used
as reference rates to purchase or sale transactions for Bangladesh
Bank with Government or different International Organization. But
USD/BDT buying and selling rates represent previous day interbank
markets highest and lowest exchange rates.Recent Reference Exchange
Rates:CurrencyBuyingSelling
15th October, 2009
A. USD/BDT Rates (based on interbank transaction)
USD69.0869.09
B. Cross Rate
SEK10.0010.00
JPY0.770.77
GBP110.35110.39
EUR103.07103.12
CAD67.3367.38
AUD63.1563.19
Table 4.1: Recent Reference Exchange RatesSOURCE:
www.exchangerates.org.The graph below shows historical exchange
rates between the Bangladeshi Taka (BDT) and the US Dollar (USD)
between 4/20/2009 and 10/16/2009.\Figure 4.1 Different Exchange
rates in BangladeshSOURCE: www.exchangerates.org.4.6. Movements of
monthly averages of USD/BDT Exchange Rate:Figure 4.2 charts the
monthly average nominal exchange rates against the US Dollar for
the currencies of Bangladesh and some of its major Asian trading
partners over a 12-month period beginning January 2008, taking that
month as the base. Bangladesh Taka has remained fairly steady over
2008 without any major fluctuations. However, that cannot be said
for other currencies in Asia which have experienced sharp
fluctuations, partly as a result of the ongoing global economic
crisis. The Indian Rupee depreciated by about 25 percent over the
year as inflows of foreign capital to India fell sharply along with
withdrawals of foreign portfolio investments, also resulting in a
sharp decline in the stock market. A similar pattern of events
occurred in Thailand, though to a lesser extent. As Bangladesh
imports a considerable amount of food items from both India and
Thailand, the cost of these imports should be considerably cheaper
as a result of the depreciation of their currencies. This, along
with the sharp fall in global food, oil and commodity prices, has
resulted in a significant fall in average inflation rates in
Bangladesh. However, such a stable exchange rate of the Taka
against the US$ might have some important negative implications for
export competitiveness.Figure 4.2: Monthly Average Nominal Exchange
Rates vs. US$ in 2008SOURCE: Reserve Bank of respective
countries4.7. Recent Forex outlook of Bangladesh:Fiscal year 2008
has so far been marked by robust growth in Bangladeshs exports.
During July-November 2008, total exports receipts were about US$
6.54 billion as compared to $5.18 billion over the same period of
FY2007, an increase of over 23.36 percent. A sharp upturn occurred
after October. Export receipts in October were $867.69 million,
while in November they amounted to$1297.47 million, a rise of over
49.5 percent in one month. This brought November 08 export earnings
to a level higher (about 13.4 percent) than the same month of the
previous year, as seen in Figure 4.3.Figure 4.3: Exports Jul-Nov 07
vs. 08SOURCE: Bangladesh Bank, December 2008Further, from Figure
4.4 and 4.5 we see that robust remittance inflow and satisfactory
export performance and a reasonably stable trade balance in recent
years have contributed much to maintain a stable exchange rate
against US$.Figure 4.4: Remittance Inflow in BangladeshSOURCE:
Bangladesh BankFigure 4.5: Export and Import for BangladeshSOURCE:
Bangladesh BankIt is also observed in Figure 4.6 that Bangladesh
maintained much lower ratio of international reserves to imports
compared to other Asian countries which gave Bangladesh Bank enough
flexibility to inject sufficient amount of dollar into the foreign
exchange market over the periods under consideration.Figure 4.6:
Ratio of International Reserves to Imports: The case of Some Asian
CountriesSOURCE: World Development Indicators, 2008 (World
Bank)4.8. Types of Foreign Trades:There are mainly three types of
transactions which lead to foreign exchange. These are:a) Importb)
Exportc) Foreign RemittanceFigure 4.7: Types of Foreign
TradesSOURCE: www.mblbd.com4.9. Regulations for Foreign
Exchange:4.9.1. Local regulations: our foreign exchange
transactions are being controlled by the following local
regulations:4.9.2. Foreign Exchange Regulation Act: Foreign
Exchange Regulation (FERA) Act. 1947 enacted on 11th March 1947 in
the then British India, provides the legal basis for regulation the
foreign exchange. This act was adapted in Pakistan and lastly in
Bangladesh.4.9.3. Guidelines for Foreign Exchange Transaction: This
publication issued by Bangladesh Bank in the year 1996 in two
volumes. This is a compilation of the instructions to be followed
by the Authorized Dealers in transactions relating to foreign
exchange.4.9.4. F.E. Circular: Bangladesh Bank issues F.E. circular
from time to time to control the export import business and
remittance that is to control the foreign exchange.,4.9.5.
Export-Import Policy: Ministry of commerce issues Export Policy and
Import Policy giving basic formalities for Import and Export
Business.4.9.6. Public Notice: Some times CCI &E issues public
notice for any kind of change in Foreign Exchange
Transaction.4.9.7. Instructions from different ministry: Different
ministries of the Govt. sometimes instruct the authorized dealer
directly or through Bangladesh Bank to follow something required
for the government.4.9.8. International Regulations: There are also
some international organizations influencing our Foreign Exchange
transactions. Few of them are discussed bellow:4.9.8.1. ICC:
International Chamber of Commerce is a world wide Non-governmental
Organization of thousands of companies. It was founded in 1919. ICC
National committees throughout the world present ICC views to their
Governments and alert Paris Headquarters about national business
concerns. ICC has issued some publications like UCPDC, URC and URR
etc., which are being followed by all the member countries. There
is also an international Court of Arbitration to solve the
international business disputes.4.9.8.2. WTO: World Trade
Organization is another International Trade Organization
established on 1st January 1995. GATT (General Agreement on Tariff
& Trade) was established on 1st January 1948. After completion
of its 8th round, the organization has been abolished and replaced
by WTO. This organization has vital role in international trade
through its 124 member countries.4.10. Letter of credit:A Letter of
credit is a letter issued by a bank (know as the opening or the
issuing bank) at the instance of its customer (known as the opener)
addressed to a person (known as beneficiary) undertaking that the
bills drawn by the beneficiary will be duly honored by it (opening
bank) provided certain conditions mentioned in the letter gave been
complied with.4.10.1. Classification of Letter of Credit:In
different considerations there are many kinds of L/Cs. Some of them
are discussed bellow:4.10.1.1. Irrevocable L/C: Irrevocable L/C
cannot be amended or cancelled without the consent of the
beneficiary or any other interested parties. Banks commonly open
this type of L/C.4.10.1.2. Revocable L/C: This kind of L/C can be
amended or cancelled by the Issuing Bank, without the consent of
the beneficiary or any other interested parties. If it is not
indicated in the L/C, whether it is Revocable or Irrevocable, then
the L/C to be treated as Irrevocable.4.10.1.3. Add-confirmed L/C:
When a third bank provide guarantee to the beneficiary to make
payment, if Issuing Bank fail to make payment, the L/C is called
Add-Confirmed L/C. In case of a confirmed L/C a third bank adds
their confirmation to the beneficiary, to make payment, in addition
to that of Issuing Bank. Confirmed L/C gives the beneficiary a
double assurance of payment.4.10.1.4. Clean Claused: It is a normal
claused L/C without third banks confirmation.4.10.1.5. Revolving
L/C: It is an L/C where the original amount restores after it has
been utilized. How many times and how long, the amount will restore
must be specified in the L/C. For example, an L/C opened for USD
1000 and shipment effected for USD 500, now the L/C restored for
full value i.e. There is scope to effect further shipment of USD
1000 revolving L/C may be opened to avoid difficulties of opening
new L/C. This L/C is not allowed in our present import
policy.4.10.1.6. Transferable L/C: If the word Transferable
incorporated in an L/C, then the L/C is transferable. The 1st
beneficiary can transfer transferable L/C to the 2nd beneficiary.
But 2nd beneficiary cannot transfer it further to another
beneficiary. Transfer may be done to more than one beneficiary,
partially, if not prohibited in the L/C.4.10.1.7. Restricted L/C:
If advising and/or negotiation of an L/C are restricted to a
particular bank, the L/C is called a restricted L/C.4.10.1.8. Green
Clause L/C: It is an L/C, where the Issuing Bank authorizes the
Negotiating Bank to grant storage facilities to the beneficiary.
The special clause was originally written in Green-ink, so the L/C
is called Green Clause. In both the case of Red Clause and Green
Clause L/C, if the exporter fails to ship the goods the financing
bank has the right to demand repayment from the Issuing Bank and
that bank would have a similar right of recourse against the
applicant.4.10.1.9. Clean Letter of Credit: This is a commercial
letter of Credit, wherein the Issuing Bank does not ask any
documents as evidence of execution of the deal under the L/C. Under
the said L/C only bill of exchange may be negotiated or may be paid
without any supporting documents. Clean Letter of //Credit is not
permissible in our import policy.4.10.1.10. Documentary Letter of
Credit: All the commercial letter of credits, where export related
documents such as invoice, B/L etc. are required to present with
the bill of exchange, is called Documentary Credit. Under this L/C,
Bill of Exchange will not be honored without other required
documents.4.10.1.11. Straight Documentary Credit: Under the
irrevocable straight documentary credit, the obligation of the
Issuing Bank is extended only to the beneficiary, in honoring
draft(s)/ documents and usually expires at the counter of the
Issuing bank. This L/C. does not authorize any body to negotiate,
purchase the documents. This L/C. is available for payment only at
the Issuing Banks counter, not available for negotiation.4.10.1.12.
Irrevocable Negotiation Documentary Credit: This L/C. is available
for negotiation by a nominated bank/any bank and expiring for
presentation of document at the offices of Negotiating bank. The
Issuing Bank is bound to reimburse the Negotiating Bank, if it
negotiates the documents complying with the credit terms.4.10.1.13.
With Recourse and Without Recourse to Drawers: These terms are
related with Bill of Exchange. If the L/C allow a Bill of Exchange
with recourse to the drawer, that means the Negotiating Bank has
the right to claim the amount back, from the drawer, if the B/E is
dishonored by, the drawee. And in case of without recourse, the
Negotiating Bank has no right to claim the amount back.L/C can be
classified according to source of fund:A) Back-to-Back L/C: Back to
Back import L/C is backed by another export L/C. where import of
the goods to be made to execute the export L/C and payment of Back
to Back bills to be made normally from related export process, the
import L/C is called Back to Back L/C. A Back-to-Back L/C is opened
against an irrevocable L/C. The L/C is lien marked with the
back-to-back L/C issuing branch. Back to Back L/C may be opened up
to 75% of export L/C, (FOB value) and up to 80% where export price
is more than USD 60/- per dozen in case of garments industries.B)
Cash L/C: Where payment of import bills under L/C is being made
from (i) Foreign Currency reserve in Bangladesh Bank or (ii) F.C.
account with authorized Dealer, the L/C is called Cash L/C.C)
Barter L/C: Where final settlements are being made through
commodity exchange between the nations, the L/C is called Barter
L/C.According to Payment terms, there are mainly three types of
L/Cs such as:a) Sight Credit:b) Accepted Credit:c) Deferred Payment
Credit:4.11. Documents used in LC operation:The most commonly used
documents in foreign exchange are4.11.1. Bill of Exchange4.11.2.
Bill of Lading4.11.3. Commercial of invoice4.11.4. Certificate of
origin4.11.5. Inspection certificate4.11.6. Packing list4.11.7.
Insurance document4.11.8. Pro Forma Invoice (PI)/Indent4.11.1. Bill
of Exchange:Bill of Exchange is one of the important negotiable
instruments in the mercantile world and used as a vital document
facilitating settlement of payments between buyer/importer and
seller/exporter at home and abroad. A bill who accepted by the
drawer, gives evidence of the claim as made by the drawer as well
as testimony to the acceptance the debt by drawer. The payment is
done either in accordance with the terms of sale contract or under
a L/C opened by the buyer/importer in favor of the
seller/exporter.4.11.2. Bill of Lading:A bill of lading is a
document that is usually stipulated in a credit when the goods are
dispatched by sea. It evidence of a contract of carriage, is a
receipt for the goods, and is a document of title to the goods. It
also constitutes a document that is, or may be, needed to support
an insurance claim. The details on the bill of lading include: A
description of the goods in general terms not inconsistent with
that in the credit. Identifying marks and numbers. The name of the
carrying vessel. Evidence that the goods have been loaded on board.
The ports of shipment and discharge. The names of shipper,
consignee and name ad address of notifying party. Whether freight
has been paid or is payable at destination. The number of original
bills of lading issued. The date of issuance A bill of lading
specifically stating that goods are loaded for ultimate destination
specifically mentioned in the credit.4.11.3. Commercial of
invoice:A Commercial invoice is the accounting document by which
the seller charges the goods to the buyer. A commercial invoice
normally includes the following information. Date Name and address
of buyer and seller Order or contract number, quantity and
description of the goods, unit price and the total Price Weight of
the goods, number of packages, and shipping marks and numbers Terms
of delivery and payment Shipment details4.11.4. Certificate of
origin:A certificate of origin is a singed statement providing
evidence of the origin of the goods.4.11.5. Inspection
certificate:This is usually issued by an independent inspection
company located in the exporting country certifying describing the
quality, specification or other aspects of the goods, as called for
in the contract and/or the L/C. The buyer who also indicates the
type of inspection he wishes the company to undertake usually
nominates the inspection company.4.11.6. Packing list :This is
unique document and not combined with other document. This is a
listing of the contents of each package cartoon etc. and other
relevant information.4.11.7. Insurance document:Insurance is a
contract whereby the insurer is undertaking to indemnify the
assured to the agreed manner and extend against fortuitous losses.
Insurance document generally contains the following information:
The name of the insurer or his agent The name of the ship/carrier
The name of assured The subject matter of insurance The peril(s)
insured against The date and subscription The valuation4.11.8. Pro
Forma Invoice (PI)/Indent:Pro Forma Invoice / Indent is the sale
contract between seller and buyer in import-export business. There
is slight difference between indent and Pro forma invoice. The
sales contract, which is direct correspondence between importer and
exporter, is called Pro forma invoice. There is no intermediary
between them. On the other hand, the may be an agent of exporter in
importers country. In this regard, if the sale contract is occurred
between the agent of exporter and importer then it is called
indent. Pro Forma Invoice is a form of quotation to a potential
buyer, inviting him to buy the goods on stated terms. The should be
clearly stated that it is pro forma and if it is accepted the
details are normally transferred to a commercial invoice.4.12.
Different accounts related to foreign exchange transaction:In L/C
operation different accounts are maintained which are needed for
foreign exchange transaction. These are:4.12.1. Nostro
account:Nostro account means our account with you. A Nostro account
is a foreign currency account of a bank maintained its foreign
correspondents abroad. For example, US Dollar Account of MBL
maintained with Citibank, N.A, New York, USA is a Nostro account of
MBL.4.12.2. Vostro account:Vostro account means your account with
us. The account maintained with foreign c