Analysis of Foreign Exchange Banking Services

An Internship Report

On

“Analysis of Foreign Exchange Banking Services

Of

The BASIC Bank Limited”

Submitted by

WWW.ASSIGNMENTPOINT.COM

Now a day, education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, an opportunity is offered by Stamford University-Bangladesh, for its potential business graduates to get three months practical experience, which is known is as “Internship Program”. For the competition of this internship program, the author of the study was placed in a bank namely, “The BASIC Bank Limited”. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience.

This paper is titled “Analysis of Foreign Exchange Banking Services of The BASIC Bank Limited” originated from the fulfillment of the BBA program under Stamford University-Bangladesh. For the internship program, each student is attached with an organization. I have prepared this report on BASIC Bank Limited [Uttara Branch] and their modern banking operation with foreign exchange procedure where I have worked from 27 May 2009 During my internship, I had to prepare this report under the supervision of Ms. Farhana Rahman Lecturer, Stamford University-Bangladesh.

1.2# OBJECTIVES OF THE STUDY

(i) Main Objectives:

·  The main objective of the study is to highlight on the major documents used by BASIC Bank Ltd. While dealings with foreign exchange banking to understand how the services are rendered.

(ii) Specific Objectives:

·  To identify the documents used in foreign trade of BASIC Bank Ltd.

·  To appraise export, import & remittance of the same bank.

·  To identify problems of foreign exchange banking of the selected bank.

·  To suggest suggestions for improvement of foreign banking of the given bank.

1.3# METHODOLOGY OF THE STUDY:

a.  Primary Data ware collected by the following ways:

·  Direct communication with bank officials & clients;

·  Exposure on different desk of the bank;

·  Observing various organizational procedures.

b.  The Main Secondary Sources from Which Data were Accumulated are as follows:

·  Annual Report of BASIC Bank Ltd;

·  Periodicals published by the Bangladesh Bank;

·  Different publications regarding foreign exchange operation;

·  From Newspapers and Internet.

·  Different Official Records of BASIC Bank Limited.

I have covered both head office and UTTARA branch of BASIC Bank. But the body of the report is prepared in the light of the branch. Only International Department (ID) part is covered in the Head office.

1.4 # LIMITATIONS OF THE STUDY:

Despite all out co-ordination from the bank officials, I faced some limitations. The main problem I faced in preparing the paper was the inadequacy and lack of availability of required data. This report is an overall view of Foreign Exchange Operations of The BASIC Bank Ltd. But there is some limitation for preparing this report. These barriers, which hinder my work, are as follows:

v  Difficulty in accessing latest data of internal operations.

v  Learning & gathering experience of all the banking functions was really tough.

v  Another limitation of this report is Bank’s policy is not disclosing some data and information for obvious reason, which could be very much useful.

v  Large-scale research was not possible due to time constraints.

v  Non-availability of some preceding and latest data in a systematic way..

v  I was placed to this department for only 3 months of time and working like a regular employee hindered the opportunity to put the better effort for the study.

With all of this limitation I tried my best to make this report as best as possible. So readers are requested to consider these limitations while reading and justifying any part of my study.

2.1# Background Of The BASIC Bank:

The BASIC Bank Limited (Bangladesh Small Industries & Commerce Limited) registered under the Companies Act 1913 on the 2nd of August 1988, started its operations from the 21st of January 1989. It is governed by the Banking Companies Act 1991. In 2001 the bank has changed its earlier name Bank of Small Industries and Commerce Bangladesh Limited and the changed name has been registered with the Register of Joint Stock Companies.

At the outset, the Bank started as a joint venture enterprise of the Bangladesh Credit Commerce (BCC) foundation with 70 percent shares and Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being non functional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the Bank on 4th June 1992. Thus the bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. The bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing Small scale Industries (SSI).

BASIC is unique in its objectives. It is a blend of development and Commercial Banks. The memorandum and Articles of Association of the Band stipulate that 50% of Loan able funds shall be invested in Small and Cottage industries Sector.

2.2 # CAPITAL POSITION:

Authorized capital : Tk. 2,000 million

Paid up capital : Tk. 945 million

Total Reserve and Surplus : Tk. 1,294.00 million

up to 31.12.2006

The Bank is requested to transfer 20 percent of its net profit before tax to Capital Fund as per the Banking Companies Act 1991.

2.3 # Functions:

The Bank offers:

a. Term loans to industries especially to small-scale enterprise.

b. Full-fledged commercial banking services including collection of deposit, short-term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade.

c. Technical support to Small Scale Industries (SSIs) I order to enable them to run their enterprise successfully.

d. Micro-credit to the urban poor linkage with Non-Government Organizations (NGOs) ith view facilitating their access to the formal financial market for mobilization of funds.

In order to perform the above tasks, BASIC works closely with the clients, the regularly authorities the shareholders (GOB), banks and other financial institution.

2.4 # Organizational Structure:

To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The management looks after the day-to-day operation of the Bank.

A. BOARD OF DIRECTORS:

As stated earlier the government holds 100 percent ownership of the Bank. The Government of Bangladesh appoints all the Directors of the Board. The secretary of the Ministry of Industries is the Chairman of the Bank. Other Directors of the Bank are high Government and central Bank executives. The Managing Director is an ex-officio member of the Board of Directors. There are at present 7 Directors including the Managing Director.

B. MANAGEMENT:

The management is headed by the Managing Director. He is assisted by the Deputy Managing Director, General Managers and Departmental Heads in the Head office. BASIC is different in respect of hierarchical structure from other banks in that it is much more vertically integrated as far as reporting to the Chief executive is concerned. The Branch Managers of the Bank report direct to the Managing Director and, for functional purpose, to the Heads of Departments. Consequently, quick decision making in disposal of assess is ensured.

At a Glance of BASIC Bank Limited

Name / BASIC Bank Limited
Date of incorporation / August 2, 1988
Date of inauguration of operation / January 21, 1989
Registered office / Bana Shilpa Bhaban
73, Motijeel Commercial Area
Dhaka-1000, Bangladesh.
Head Office / Sena Kalyan Bhaban(6th floor)
195, , Motijeel Commercial Area
Dhaka-1000, Bangladesh.
Logo /
Name of the chairman of the Board / Mr.Dewan Zakir Hussain
Name of Managing Director / Mr. AKM. Sajedur Rahman
Number of Branches / 015
Services provided / Deposit scheme, Credit facility and Foreign exchange services
Paid up capital / Taka 1247.40 million
Profit after tax and provision / Taka 282.96 million
Ownership / Government of Bangladesh
Banking software used / CASTLETM
Technology used / Member of SWIFT
Earnings per share / 22.68(2007)
E-Mail /
Website / www.basicbanklimited.com
SWIFT / BKSIBDDHA015
Number of Authorized Dealer / 15

Table:1 At a Glance of BASIC Bank Limited

2.5 # ORGANOGRAM:

CHAIRMAN

Figure:1

2.6 # Activities:

a. Industrial Credit:

The industrial loan reflected a significant growth of 13.54 percent in the year 2007 over 2006. Total outstanding industrial loans including term and working capital stood at Taka 13,901.40 million at the end of 2007 compared to Taka 12,243.56 million of 2006. Total outstanding term loan stood at Taka 5,055.58 million as on December 31, 2007 compared to Taka 3,897.12 million in 2006 reflecting a growth of 29.72 percent. The outstanding working capital finance extended to industrial units stood at Taka 9,525.98 million at the end of the reporting period compared to Taka 8,346.44 million in 2006. Growth rate here was 14.13 percent. BASIC Bank’s exposure to small and medium industries sector accounted for 56.73 percent of the total loans and advances. During the year, a total of 187 projects were sanctioned term loan out of which 69 were new. As on 31 December 2007, 712 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging; and other non-metallic goods, leather and jute products. Recovery rate of project loan was 89 percent.

(source: Annual Report 2007, BASIC Bank Ltd.)

Figure 2: Trend of Industrial Credit

b. Commercial Credit:

The bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December 31, 2007 total outstanding commercial loans stood at Taka 7,681.74 million compared to Taka 6,397.21 million in 2006.

(source: Annual Report 2007, BASIC Bank Ltd.)

Figure 3: Trend of Commercial Credit

c.  Micro Credit:

BASIC bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery. These are:

1.Lending to the NGOs who lend to theirmembers.At present there are 15 suchNGOs.

2. Lending direct to the target groups or ultimate borrowers under the Bank’s own management.

3.Lending direct to the member-borrowers and NGOs providing non-financial services like group formation and monitoring and supervision on exchange for a supervision fee.

At the end of 2007, total amount of Taka 680.13 million remained outstanding as against Taka 359.24 million in 2006. Recovery rate during this period remained at a satisfactory level of 100.00 percent.

(source: Annual Report 2007, BASIC Bank Ltd.)

Figure 4: Trend of Micro Credit

d. Foreign Trade:

The bank achieved substantial growth in both import and export in 2007. The bank handled total import business of Taka 21,266.53 million and export business of Taka 16,794.96 million in 2007. The import and export business grew by 19.45 percent and 8.61 percent respectively. Major items of exports were ready made knit & woven garments, sweater, jute & jute products, leather and leather goods, handicrafts etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, raw cotton, electronic consumer goods, chemicals, tires and tubes, reconditioned vehicles, bicycle spare parts, food items such as rice, wheat, garlic, onion, sugar, chilly and other essential commodities. (source: Annual Report 2007, BASIC Bank Ltd.)

Figure 5: Growth of Import & Export

The Bank become a proud member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade business and fund transfer.

e. Other Activities:

The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc. Then also provides funds to investment and leasing companies. Then Bank has recently created a venture capital fund for equity support to innovative but risky projects.

2.7# Performance at a Glance of UTTARA Branch :

i) Performance of UTTARA Branch at a glance as on January 31, 2008

Table: 2

Key Areas / Amount in Lac Tk.
Total Asset / 4891.00
Total Deposit / 4352.16
Total Advance / 2716.36
Import / 85.32
Export / 74.51
Remittance inward / 51.05
Remittance outward / 45.59
Total Income / 35.67
Total Expenditure / 35.06
Gross profit / 0.61

Source: Uttara Branch, BASIC Bank Ltd.

ii) Deposit of UTTARA Branch as on January 31, 2008 Table: 3

Type of Accounts / Amount in LacTk. / % of Total Deposits
Current Deposit / 174.95 / 4.02%
Short Term Deposit (STD) / 11.40 / 0.26%
Sundry Deposit / 37.80 / 0.87%
Term Deposit / 3927.72 / 90.25%
Savings Bank Deposits / 200.29 / 4.60%
Total Deposits / 4352.16 / 100.00%

Source: Uttara Branch, BASIC Bank Ltd.

iii) Branch’s Foreign Exchange position as on January 31, 2008 Table: 4

Key Areas / Amount in Lac Tk. / % of total Business
Import / 8885.32 / D 53.38%
Export / D74.51 / 46.62%
Remittance / 0.00
Total / 159.83 / 100.00%

Source: Uttara Branch, BASIC Bank Ltd.

2.8# SWOT Analysis :

The SWOT analysis comprises of the organization’s internal strengths and weaknesses and external opportunities and threats. SWOT analysis helps to identify the current position of the organization. A SWOT analysis of BASIC Bank Ltd. has been done below:

Strengths
§  First-class management
§  Initially being a specialized bank, it caters to the needs of an entire target market
§  Low customer base ensures dedicated attention to each customer
§  Low service charges with no hidden cost
§  Strong internal co-ordination
§  Friendly environment
Weaknesses
§  Heavily dependent on head office for decision making
§  No foreign branches
§  Most of the branches are situated in urban areas
§  Low rate of interest on deposits
§  Very few ATM Booths
§  Small range of offerings
§  Not enough promotional activities
Threats
§  Increased competition by foreign and local banks
§  Political involvement in decision making
§  Forecast of low growth in national economy due to adverse world economic situation and recession
Opportunities
§  Enlarging business by opening new branches in rural areas
§  Innovation of new services
§  Increasing demand for import, export and L/C through proper promotional activities
§  Fully utilizing incentives provided to government banks

Figure 6: SWOT Analysis of BASIC Bank Ltd.