An Internship Report On Foreign Exchange Operations of Mercantile Bank Limited

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 studyShort 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- 2
Evolution of Banking Business
2.1. 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 business

After 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 Age

2.1.1. List of some important Ancient Banks:
Name of the Bank
Place of
Year of
Establishmen Establishmen
t
t
Shansi Bank
Remarks
1st Bank in the World

China
600 B.C.
Bank of Venice
1st Government Bank

Italy
1157
Bank of San Georgio
Jointly established by traders

Geneva
1178
Bank of Barcelona
Established by Govt. incentive

Italy
1401
Risk Bank of Sweden

Sweden
1656
U.K.
1694
Calcutta
1700
Bank of England
1st Central Bank in the World
Hindustan Bank
Bank of Prussia
1st commercial Bank in Indian

subcontinent
1st Bank in Germany
Germany
1765
Bengal Bank
Ancient Bank of Indian Continent

India
1785
Central Bank of India
Ancient Bank of Indian Continent

India
1785
France
1800
Calcutta
1806
Bank of France
Central Bank of France
Bank of Calcutta
1st Precedence Bank of India
Bank of Netherlands
Netherlands
1814
Norway
1817
Central Bank of Owned by private

owners but controlled by Govt.
members
owners but controlled by Govt. law.
Denmark
1818

owners
Bombay
1840
Bank of Norway
National Bank of
Denmark
1st licensed Bank in World which

issued notes
Bank of Bombay
2nd Precedence Bank of India
Bank of Madras
3rd Precedence Bank of India

Madras
1843
Reichs Bank
Central Bank of Germany

Germany
1875
Bank of Japan
Japan
1882
Italy
1893
Switzerland
1907
Bank of Italy
Switch National Bank
Federal Reserve
System
Central Bank of U.S.A

U.S.A
1913
Impreial Bank of India

India
1920
Bank of China
Largest commercial Bank of India

in the period
China
1928
Canada
1934
Bank of establishment in private

ownership, which was nationalized
in 1949
Central Bank of Canada, which was
nationalized in 1949
India
1935
1st central Bank in Indian

Subcontinent.
1941
1st Muslim Bank in Indian

subcontinent.
Bank of Canada
Reserve Bank of India
Habib Bank Ltd.

Bombay
The Ban coda Brazil
Brazil
1941
Pakistan
1948
Pakistan
1949
State Bank of Pakistan
National Bank of
Pakistan
Central Bank of Japan Owned by

both private and Government
owners.
Bank of establish in private
ownership, which gets right to issue
note at 1926
Central Bank owned by both private
and Government owners.
Central Bank of Brazil owned by

both private and Government
owners.
1st Central Bank of Pakistan
1st Commercial and enlisted Bank

of Pakistan
Eastern Mercantile
Bank
Chittagong
1959
1st Bank established in Bengali

Ownership.
Table 2.1: List of some important Ancient Banks

2.2. 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 policy
2.2.1. 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 Companies
o 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 Bangladesh

2.3. 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, 200607.
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.
Year Gross Domestic Product US Dollar Exchange
1990
1,054,234
35.79 Taka
Inflation Index Per Capita Income

(2000=100)
(as % of USA)
58
1.16
1995
1,594,210
40.27 Taka
78
1.12
2000
2,453,160
52.14 Taka
100
0.97
2005
3,913,334
63.92 Taka
126
0.95
2008
5,003,438
68.65 Taka
147
Table2.2: Macro-economic trend

For 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 Year
Total Export
Total Import
Foreign Remittance Earnings
2007-2008
$14.11b
$25.205b
$8.9b
2008-2009
$15.56b
$22.00b+
$9.68b
2009-2010(Set Target)
$17.6b
N/A
$10.87b
Table 2.3: Economic target

CHAPTER- 3
Overview 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 Bank
Status
Date of Incorporation
Date of Commencement
Subscription for Shares
Listed in Dhaka Stock Exchange
Listed in Citation Stock Exchange
Head Office
Phone
E-mail
Website
Chairman
Managing Director
Number of Employees
Mercantile Bank Limited

Public Limited Company
May20, 1999
June 02, 1999.
October 21-22, 2003
February 16, 2004
February 26, 2004
61, Dilute Commercial Area, Dhaka- 1000
+880-2-9559333, 01711-535960
mbl@bol-online.com
www.mblbd.com
Md. Abdul Jail
Dean Manipur Raman
1104
Number of Branches
42
Table 3.1: General Information of MBL

SOURCE: www.mblbd.com
3.3. 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 board

SOURCE: Adapted from MBLs Annual Report 2008
3.5. 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.
Year
Taka(BDT in million)
2006
1200.00
2007
3000.00
2008
3000.00
Table
3.2:
Authorized Capital
Source: 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.
Year
2006
1199.12
2007
1498.90
2008
1,798.68
Table3.3: Paid-up Capital
3.5.2. Reserve:
3.5.2.1
Year
2007
726,729,402
2008
966,496,902
Statutory Reserve:
Table 3.4: Statutory Reserve
3.5.2.2. Other Reserve:
Year
2007
24,864,349
2008
161,038,249
Table3.5: Other Reserve
3.6. Milestones in the development of the organization:
Figure 3.2: Milestones in the development of the organization

3.7. Management Structure of MBL:

Organization Chart of Mercantile Bank Limited
Figure 3.3 : Management Hierarchy

3.8. 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.
Approach
Skill 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
Objective
Identify, 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.
Approach
They 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.
Particulars
Rate Sensitive Assets (RSA)
Rate Sensitive Liabilities (RSL)
Repricing Gap (RSA-RSL)
Repricing Gap as % of Total Assets
For 100 basis point increase in interest rate
Volume
17656.56
13404.80
4251.76
14.72%
42.52
For 100 basis point decrease in interest rate
(42.52)
Table 3.6: Repricing Gap: 2008
3.8.2.
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.
Objective
Main 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.
Approach
Their 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 Risk

Source: 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.
Objective
Operational 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.
Approach
Operational 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 Limited

3.10.1. Head Office and Branch Network:
Head Office
61, Dilute Commercial Area
Dhaka-1000, Bangladesh
Tel: +880-2-9559333, 01711535960
Fax: +880-2-9561213
Telex: 642509 MBLID BJ
E-mail: mbl@bol-online.com
Website: www.mblbd.com
Branch Network
Name
01.
02.
03.
04.
05.
06.
07.
08.
09.
Main Branch
Dhanmondi branch
Kawran Bazar Branch
Agrabad Branch
Joypara Branch
Banani Branch
Rajshahi Branch
Naogaon Branch
Sylhet Branch
Address
Dhaka
Dhaka
Dhaka
Citation
Dhaka
Dhaka
Rajshahi
Naogaon
Sylhet
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
Board Bazar Branch

Nayabazar Branch
Khatungong Branch
Mohakhali Branch
Mirpur Branch
Ashulia Branch
Uttara Branch
Jubilee Road Branch
Elephant Road Branch
Motijheel Branch
Madam Bibir Hat Branch
Khulna Brach
Rangpur Branch
Satmasjid Road Branch
Jhilongja Brach
O R Nizam Road Branch
Bogra Branch
Chowmuhani Branch
Konabari Branch
Gulshan Branch
Feny Branch
Moulobhi Bazar
Bijoynagar
Mogbazar Branch
Sataharnagar Branch
Hemayetpur Branch
Sapahar Branch
Beanibazar Branch
Barisal Branch
Bhojeshwarbazar Branch
Comilla Branch
Green Road Branch
Sheikh Mujib Road Branch
Gazipur
Dhaka
Citation
Dhaka
Dhaka
Savar
Dhaka
Citation
Dhaka
Dhaka
Citation
Khulna
Rangpur
Dhaka
Coxs Bazar
Citation
Bogra
Noakhali
Gazipur
Dhaka
Feny
Sylhet
Dhaka
Dhaka
Naogaon
Dhaka
Naogaon
Beanibazar
Barisal
Shariatpur
Comilla
Dhaka
Citation
Table 3.7: Branch Network

3.11. 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 Division
3.12. Divisions of MBL:

1. General Banking & Deposit Management
2. Credit Department
3. Foreign Exchange Department
General 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/C
1. 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/C
1. 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.
Export
1. Scrutinizing/ Negotiation/ Send on Collection.

2. Follow-up.
3. Realization.
4. Reporting.
1. IV.
Foreign Remittance
Inward
FDD.
1. FTT.
2. Others.
Outward
1. 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 Schemes
a) 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.

Deposit
1,00,000
2,00,000
3,00,000
Monthly Benefit (Amount in TK.)

1,000
2,000
3,000
Table3.8: Deposit under Family Maintenance Deposit (FMD) scheme

B) 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 TK
Period
Monthly Installment
250
500
Benefits
1,000
5 Years
8 Years
10 Years
20,625
41,250
40,375
80,750
57,500
1,15,000
Monthly Installment
1500
2500
Benefits
1,23,750
2,06,250
2,42,250
4,03,750
3,45,000
5,75,000
Period
5 Years
8 Years
10 Years
82,500
1,61,500
2,30,000
5,000
4,12,500
8,07,500
11,50,000
Table3.9: Deposit under Monthly savings scheme

c) 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
Installment
500
1,000
2,500
5,000
15 Years
10 Years
Pension per month

625
1,250
3,125
6,250
One time
80,000
1,60,000
4,00,000
8,00,000
Pension
1,150
2,300
5,750
11,500
One time
1,35,000
2,70,000
6,75,000
13,50,000
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.
Example
Initial Deposit (BDT)
50,000
100,000
200,000
Term
3 Years
3 Years
3 Years
Quarterly Benefit Payable (BDT)

1,500
3,000
6,000
Table3.11: Initial Deposit under Quarterly Benefit Deposit Scheme

f) 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:
Example
Initial Deposit (BDT)
50,000.00 1,00,000.00 5,00,000.00
Return after 42 months (BDT) with benefits 75,000.00 1,50,000.00 7,50,000.00
Table3.12: Deposit under 1.5 Times Benefit Deposit Scheme
g) 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 Deposit
1,00,000
Period
6 Years
Amount Payable
2,00,000
Table 3.13: Deposit under Double Benefit Deposit Scheme

h) 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.

Deposit
1,00,000
Period
15 Years
Amount Payable at Maturity

3,00,000
Table 3.14: Deposit under Special Savings Scheme
3.13.2. 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 Fee BDT 200.00
Special 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.
Risk Fund 1.00%
Service Charge 0.25% per year on outstanding balances
Loan Limit BDT 2.50 Lac
Repayment period 3 years
Interest rate will be charged at quarterly rate
c) 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.
Terms & Conditions:
Equity
1. For new doctor10%

2. For experience ddoctor15%
3. For Hospital, Clinic and Diagnostic Center 20%
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 Formation
1. 30 people in a group
2. 1 group leader
3. 6 sub-groups consisting 5 person each in a group
4. 1 sub-group leader in each sub-group
f) 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
Terms & Conditions:
Maximum loan amount is BDT 25,00,000
Tenure of loan is 05 (Five) years
Risk Fund 1.00%
Tenure of loan is 05 (Five) years
j) 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
Mode:
Risk Fund 1.00%
3.14. 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 MBL
3.15.2. 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 deposit and 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- 4
Introduction to Foreign Exchange
4.1. 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 Bangladesh
Foreign 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:
Currency
Buying
15th October, 2009
A. USD/BDT Rates (based on interbank transaction)
USD
69.08
B. Cross Rate
SEK
10.00
JPY
0.77
GBP
110.35
EUR
103.07
CAD
67.33
AUD
63.15
Selling
69.09
10.00
0.77
110.39
103.12
67.38
63.19
Table 4.1: Recent Reference Exchange Rates

SOURCE: 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 Bangladesh
SOURCE: 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 2008
SOURCE: Reserve Bank of respective countries
4.7. Recent Forex outlook of Bangladesh:
Fiscal year 2008 has so far been marked by robust growth in Bangladeshs exports. During JulyNovember 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$1297.47 million, a rise of over 49.5 percent in one month. This brought November 08 export
earnings to a level higher (about 13.4 percent) than the same month of the previous year, as seen
in Figure 4.3.
Figure 4.3: Exports Jul-Nov 07 vs. 08
SOURCE: Bangladesh Bank, December 2008
Further, from Figure 4.4 and 4.5 we see that robust remittance inflow and satisfactory export
performance and a reasonably stable trade balance in recent years have contributed much to
maintain a stable exchange rate against US$.
Figure 4.4: Remittance Inflow in Bangladesh
SOURCE: Bangladesh Bank
Figure 4.5: Export and Import for Bangladesh
SOURCE: Bangladesh Bank
It 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 Countries
SOURCE: 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) Import
b) Export
c) Foreign Remittance
Figure 4.7: Types of Foreign Trades
SOURCE: www.mblbd.com
4.9. 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-toBack 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 are
4.11.1. Bill of Exchange
4.11.2. Bill of Lading
4.11.3. Commercial of invoice
4.11.4. Certificate of origin
4.11.5. Inspection certificate
4.11.6. Packing list
4.11.7. Insurance document
4.11.8. Pro Forma Invoice (PI)/Indent
4.11.1. 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 details
4.11.4. 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 valuation
4.11.8. 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
correspondent in a bank of a particular country is known as Vostro account. What is the nostro
account for a bank in a particular country is a vostro account for the bank abroad maintaining the
account thus the account of MBL with Citi Bank N.A, New York is regarded as its nostro
account held with Citi Bank, while Citi Bank N.A, New York regards it as a its vostro account
held for MBL.
4.12.3. LORO Account:
Loro account means their account with you. Account maintained by third party is known as
loro account; suppose MBL is maintaining an account with Citi Bank N.A, New York and at the
same time Janata Bank is also maintaining a nostro account with Citi Bank N.A, New York.
From the point of view of MBL Janata Banks account maintained with Citi Bank N.A New York
is the loro account.
4.13. Different parties involved Foreign exchange transaction:
Normally the following parties are involved to a documentary credit:
4.13.1. Importer:
The buyer or the importer is he who initiates the credit. He applies to bank for issue foreign a
documentary credit. The obligations between the importer and the issuing bank are governed by
the application-cum-agreement submitted by the importer to the bank. He is bound to reimburse
the bank, which effects payment or incurred a deferred payment undertaking or has accepted or
negotiated under the credit as per terms, and to take up the documents.
4.13.2. Opening Bank:
The issuing or opening bank is the importers bank and it issues a letter of credit normally
pursuant to the terms of sales contract as set out in the application for the credit by the importer.
The issuing bank should nominate the bank, which is authorized to pay or to accept drafts or to
negotiate, unless the credit allows negotiation by any bank.
4.13.3. Exporter:
The seller or exporter is the beneficiary of the credit. The letter of credit is opened in his favor
and addressed to him-. The beneficiary has the obligation to make export as per the contract and
produce the documents as required by the credit.
4.13.4. The Advising Bank:
It is the bank in the exporters country (normally the exporters bank), which is usually the
foreign correspondent of importers bank through which the L/C is advised to the supplier. If the
intermediary bank simply advises/notifies the L/C to the exporter part, it is called Advising
Bank.
4.13.5. The Confirming Bank:
If the advising bank also adds its own undertaking to honor the credit while advising the same to
the beneficiary, he becomes the confirming bank. In addition, becomes liable to pay for
documents in conformity with the L/Cs terms and conditions. The liability of the confirming
bank is the primary liability and it is not contingent on the fulfillment of the obligation by the
issuing bank.
4.13.6. The Accepting Bank:
Accepting bank is the bank nominated in the letter of credit to accept usance bills drawn under
the credit. If the bank so nominated accepts the nomination, its responsibility to the beneficiary is
not only to accept the drafts drawn but also to make payment on their due dates.
4.13.7. The Paying Bank:
Paying bank is a bank in the beneficiarys country nominated in the letter of credit to make
payment against documents to be tendered under the credit. Paying Bank must examine all
documents with reasonable care to ascertain that these are drawn in accordance with the terms
and conditions of the credit.
Figure 4.8: Different banks involved in Foreign exchange transaction
4.13.8. Reimbursing Bank:
The issuing bank may indicate in the credit the name of a bank. From whom the
paying/negotiating bank can obtain reimbursement. The documents are sent to the issuing bank.
The negotiating/paying bank simultaneously makes a claim with the reimbursing bank for the
payment effected. Normally the reimbursing bank would be the bank with which the issuing
bank maintains an account.
4.13.9. The Transferring Bank:
If the L/C is transferable, then the 1st beneficiary of the L/C may transfer the L/C to the 2nd
beneficiary, through a bank nominated by the Issuing Bank. This bank is called the Transferring
Bank.
The international trade can be illustrated by the following diagram:
Figure 4.9: A process of international trade
CHAPTER- 5
Import
5. Import:
Import trade in Bangladesh is controlled under the Import and Export control Act 1950.
Authorized Dealer Banks will import the goods into Bangladesh following the import policy,
public notice, F.E. circular and other instructions from competent authorities from time to time.
The import functions of the branch as far I have understood are discussed bellow:
5.1. Legal Requirements:

Import of merchandise into in Bangladesh is related by the Import Policy Order (IPO) announced
by the Ministry of Commerce and/or Notifications/Public Notices issued by the Ministry of
Commerce and /or C.C.I.&E and Bangladesh Bank.
Before entering into an import transaction countrys legal and economic framework to be
considered. These include:
Restrictive governmental policies
Exchange regulations
Tariffs and transaction
Reporting to the controlling authorities
It is important to have a general understanding of some of the basic legal and economic
terminology internationally, within which such trade takes place. Following ICC Publications
framework of such terminology & rules governing international trade.
UCPDC, ICC PUB-500
URR, ICC PUB-525
URC,ICC PUB-522
Incoterms 2000 ICC PUB-460 (Revised)
5.2. Import procedure followed by MBL:
As an Authorized Dealer, MBL, Main Branch is always committed to facilitate import of
different goods into Bangladesh from the foreign countries. Import Section, which is under
Foreign Exchange Department of the branch, is assigned to perform this job. And to serve its
clients demand to import goods, it always maintains required formalities that are collectively
termed as The Import Procedure.
1. At first, the importer must obtain Import Registration Certificate (IRC) from the CCI&E
submitting the following papers:
Up to date Trade License.
Nationality and Asset Certificate.
Tax Indification Number
VAT Registration Number
In case of company, Memorandum & Articles of Association and Certificate of Incorporation.
Bank Solvency Certificate etc.
2. Then the importer has to contact with the seller outside the country to obtain the Pro forma
Invoice. Usually an indenter, local agent of the seller or foreign agent of the buyer makes this
communication. Other sources are:
Trade fair.
Chamber of Commerce.
Foreign Missions in Bangladesh.
Journals etc.
3. When the importer accepts the Pro forma Invoice, he/she makes a purchase contract with the
exporter detailing the terms and conditions of the import.
4. After making the purchase contract, importer settles the means of payment with the seller. And
import procedure differs with different means of payment. The possible means are Cash in
Advance, Open Account, Collection Method and Documentary Letter of Credit. In most cases,
the Documentary Letter of Credit in our country makes import payment. Purchase Contract
contains which payment procedure has to be applied. Different Means of Payment:
a) Cash in advance: Importer pays full, partial or progressive payment by a foreign DD, MT or
TT. After receiving payment, exporter will send the goods and the transport receipt to the
importer. Importer will take delivery of the goods from the transport company.
b) Open Account: Exporter ships the goods and sends transport receipt to the importer. Importer
will take delivery of the goods and makes payment by foreign DD, MT, or TT at some specified
date.
c) Collection Method: Collection methods are either clean collection or documentary collection.
Again, Documentary Collection may be Document against Payment(D/P) or Document against
Acceptance(D/A). The collection procedure is that the exporter ships the goods and draws a
draft/ bill on the buyer. The exporter submits the draft/bill (only or with documents) to the
remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the
draft/bill (with or without documents) and a collection instruction letter to the collecting bank.
Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of
the draft. The title of goods is released to the importer upon full payment or acceptance of the
draft/bill.
d) Letter of credit: Letter of credit is the well accepted and most commonly used means of
payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon
submission of some stipulated documents and fulfilling the terms and conditions mentioned in
the letter of credit.
5. Requesting the concerned bank (importers bank /issuing bank) to open a L/C(irrevocable) on
behalf of importer favoring the exporter/seller. Import section deals with L/C opening and post
import financing i.e. LIM & LTR. Now the procedure from opening L/C to disbursement against
L/C is given below:
5.2.1. Application for opening L/C:
At first, an importer will request banker to open L/C along with the following documents.
An application
Indent or Pro forma Invoice
Import Registration Certificate (IRC)
Taxpayers Identification Number (TIN)
Insurance cover note with money receipt
A bank account in MBL, Main Branch
Membership of chamber of commerce
5.2.2. Delivered forms by banker to importer:
After scrutinizing above-mentioned documents carefully, officer delivers the following forms to
be filled up by importer and the banker should check:
a) Whether the goods to be imported is permissible or not.
b) Whether the goods to be imported is demanding or not.
The forms are:

5.2.2.1. L/C Application Form (LCAF):
L/C Application Form is a sort of an agreement between customer and bank on the basis of
which letter of credit is opened. MBL, Main Branch provides a printed form for opening of L/C
to the importer. Special adhesive stamp of value Tk.150.00 is affixed on the form in accordance
with Stamp Act. Usually the importer gives the following information
Full name and address of the importer.
Full name and address of the beneficiary.
Draft amount.
Availability of the credit by sight payment/acceptance/negotiation/deferred payment.
Time bar within which the documents should be presented.
Sales type (CIF/FOB/C&F).
Brief specification of commodities, price, quantity, indent no. etc.
Country of origin.
Bangladesh Bank registration number.
Import License/LCAF number.
IRC number.
Account number.
Documents number.
Insurance Cover Note / Policy number, date, amount.
Name and address of Insurance Company.
Whether the partial shipment is allowed or not.
Whether the transshipment is allowed or not.
Last date of shipment.
Last date of negotiation.
Other terms and conditions (if any).
The L/C application must be completed/filled in properly and signed by the authorized person
of the importer before it is submitted to the issuing bank.
5.2.2.2. L/C Authorization Form (LCAF):
The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of
opening letter of credit/payment against import and used in lieu of import license. The authorized
dealers are empowered to issue LCA Forms to the importers as per basis of licensing of the
Import Policy Order in force to allow import into Bangladesh. The LCA Forms available with
authorized dealers are issued in set of five (05) copies each. First Copy is exchange control copy,
which is used for opening of L/C and effecting remittance. Second Copy is the custom purpose
copy, which is used for clearance of imported goods from custom authority. Triplicate and
Quadruplicate Copy of LCAF are to be sent to concerned area of CCI&E office by authorized
dealer/Registration Unit of Bangladesh Bank. Quadruplicate Copy is kept as office copy by
authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF) contains
the followings
Name and address of the importer.

IRC number and year of renewal.
Amount of L/C applied for (both in figure and in word).
Description of item(s) to be imported.
HS Code number.
Signature of the importer with seal.
List of goods to be imported.
5.2.2.3. Import permit form (IMP):
L/C authorization form number.
Date.
Value in Taka.
Registration of LCAF.
Quantity of goods.
Invoice value.
Country of origin.
Port of shipment.
Name of the steamer.
Indentors address.
5.2.3. Preparation of L/C by banker:
Banks officer prepares L/C when above-mentioned forms are to be submitted by customer or
importer. Before preparing L/C MBL officer scrutinizes the application in the following manner:
1. The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange
Control & Import Trade Regulation.
2. Eligibility of the goods to be imported.
3. The L/C must not be opened in favor of the importer.
4. Radioactivity report in case of food item.
Survey reports or certificate in case of old machinery is required. Bank of the importer is called
L/C Issuing Bank. Then issuing bank inform its corresponding bank, called Advising Bank or
Confirming Bank located in exporters country to advise and credit forward to the exporter and
simultaneously officer makes L/C opening vouchers.
5.2.3.1. Desk work:
One debit voucher to be passed. Corresponding credit vouchers to be passed. (margin,
commission, postage, stamp, F.F.C. and others.) Liability voucher to be passed.
5.2.3.2. Accounting treatment:
5.2.4. The L/C confirming process:
5.2.5. Forwarding documentary credit by advising or confirming bank:

There are usually two banks involved in a documentary credit operation. The issuing bank and
the advising bank which is usually a bank in the sellers country. The issuing bank asks another
bank to advise or confirm the credit. If the 2nd bank is simply advising the credit, it will
mention that when it forwards the credit to seller, such a bank is under no commitment or
obligation to pay the seller. If the advising bank is also confirming the credit, this mention that
the confirming bank, regardless of any other consideration, must pay accept or negotiate without
recourse to seller. Then the bank is called confirming bank also.
5.2.6. Submission of necessary documents by exporter to the negotiating bank:
As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and
conditions, he is in position to load the goods and dispatch them. The seller then sends the
documents evidencing the shipment to the bank. Exporter will submit those documents in
accordance with the terms and conditions as mentioned in L/C. Generally the documents
observed in the foreign exchange department are:
Bill of exchange
Commercial invoice
Bill of lading
Certificate of origin
Packing list
Clean Report of Finding (CRF)
Weight list
Insurance cover note
Pre-shipment certificate
5.2.7. The documents sent to the issuing bank through the negotiating bank:
The negotiating bank carefully checks the documents provided by the exporter against the credit,
and if the documents meet all the requirement of the credit, the bank will pay, accept, or
negotiate in accordance with the terms and conditions of the credit. Then the bank sends the
documents to the L/C opening bank.
Figure5.2: Sending L/C Documents to L/C Issuing Bank
5.2.8. Making the payment of foreign bill through the reimbursing bank:
The L/C issuing bank getting the documents checks immediately and if they are in order and
meet the credit requirements; it will arrange to make payment against L/C through
reimbursement bank and will send the importer the document arrival notice.
5.2.9. Scrutiny of the documents:
First of all it must be ensured that full set of documents as mentioned in the L/C has been
received.
Documents have been negotiated within the negotiation period.
The Bill of Lading/Air-Way Bill/ Railway receipt is not dated later than the last date of
shipment mentioned in the L/C.
The L/C has not been amended or subjected to any special instructions, which might alter the
value of L/C.
Import bills include following documents, which are to be scrutinized
Bill of Exchange
Commercial Invoice
Bill of Lading
Certificate of Origin
Others
A) Bill of Exchange:
It has to be verified that the bill of exchange has been properly drawn and signed by the
beneficiary according to the terms and conditions of L/C.
The amount in the bill is identical with that mentioned in the invoice.
The amount drawn does not exceed the amount mentioned in the L/C.
The amount in words and figures should be same.
The bill of exchange should be properly endorsed.
B) Commercial Invoice:
It has to be verified that the commercial invoice has been properly drawn and signed by the
beneficiary according to the terms and conditions of L/C.
The beneficiary should properly invoice the merchandise.
The merchandise is invoiced to the importer on whose account the L/C is opened.
The description of merchandise and the unit price correspond with that given in the L/C.
The import license or IRC number of the importer, indenters registration number and number
of Letter of Credit Authorization number are incorporated in the Invoice.
C) Bill of Lading:
First of all it has to be cleared that the Bill of Lading is showing Shipped on Board and it has
to be properly endorsed to the bank.
The B/L should include the description of the merchandise according to invoice.
The port of shipment and destination, date of shipment and the name of the consignee are in
agreement with those mentioned in the L/C.
The shipping company or their authorized agents properly sign the B/L.
The date on the B/L is not stale which means it is not dated in unreasonably long time prior to
negotiation.
C) Certificate of Origin:
The Merchandise described in the Certificate is in accordance with the L/C.
D) Others:
There are some other documents, which are also attached, with the shipping documents like
packing list, pre-shipment inspection certificate etc. These documents are also verified carefully
before lodgment.
5.2.10. Disposal of Discrepant Documents:
If the importer refuses to accept the documents because of discrepancies advised to him, the
branch should immediately advise the same to the negotiating bank by telex/cable and
dishonored documents will then be handled, according to the instruction of the negotiating bank.
If no reply is received regarding disposal of the document, the bank will return the full sets of
documents to the presenter by courier service/Registered postal Mail. The branch should cancel
the Reimbursement Authorization provided to the Reimbursing Bank while the opening branch
of the L/C and/or claim refund of reimbursement with interest from the remitting bank, of any
reimbursement which has been made to the negotiating bank. The branch shall reverse the contra
liability which has been passed at the time of opening and recover/realize postal and other
charges incurred by the bank on his behalf.
5.2.11. Lodgment & Retirement of shipping documents:
After scrutinizing the import negotiating document, if no discrepancy are found then it is treated
to be accepted after the end of seven banking days following the day of receipt of the document
under Article 1(b) of UCPDC 500. If any discrepancy is found then the banker inform it to
the importer that whether he accept the bills with discrepancies or not. If the importer does not
accept, the banker (PBL) informs it to the negotiating bank within seven banking days from the
date of receipt of the documents, otherwise it is treated to be accepted and the opening bank
(MBL) must bound to pay against the bill and no complain against the bill will be accepted more
than 4 banking days following the date of receipt of the documents under article number K1 (d)
& article number 14 (c) of the UCPDC-500.
5.2.12. Accounting treatment:
The office passes the following vouchers after negotiation.
PAD (Payment Against Document) Account Dr.
H.O. International Division Account Cr.
Reverse entry is given.

Bankers liability Account Dr.
Customers liability Account Cr.
The shipping documents then stamped with PAD number and entered in the PAD register. As
soon as the above formalities are completed, the importer is served with PAD bill intimations for
retirement of concerned import documents. On intimation the importer calls on the banks
counter requesting retirement of the shipping documents against payment to the debit of their
account by the bill amount and other charges payable. Bank prepares cost memo in printed form
on account of the concerned party giving detailed read of charges payable.
Vouchers passed in retiring documents:
L/C margin Account Dr.
Party Account Dr.
PAD Account Cr.
Income Account interest on PAD Cr.
Commission on PAD Cr.
Miscellaneous earning Cr.
After the vouchers are passed, endorsement is made on the back of the bill of exchange as
Received Payment & bill of leading is endorsed to the effect that Please deliver to the order of
M/S under two authorized signatures of the bank officials of MBL. Then the documents are
delivered to the L/C applicant (importer).But if there is any discrepancy in the documents, the
L/C issuing bank send message to the negotiating bank to rectify it under its risks and
responsibilities. The certification should be as follows:
1. On the Invoice Certified that the invoice has been drawn under L/C NO.:
For USD..
Authorized Signature
2. On the Bill of Exchange Received Payment
3. On the Transport Document Please Deliver to the order of
M/s.
Figure 5.3: Endorsement certificate
SOURCE: Desk work of MBL
SELLER 1.Contract BUYER
5. Goods
ADVISING/CONFIRMING BANK ISSUING BANK

Figure5.4: Flow chart of L/C Operation
5.2.13. Cancellation of L/Cs:
An Irrevocable L/C can not be cancelled without the agreement of the beneficiary and the
confirming bank, if any. The branch, at the request of the importer, may approach the L/C
advising bank for cancellation of the L/C and such cancellation will only be effective upon
consent of the beneficiary advised to the branch through the L/C advising bank. However, the
branch may cancel the L/C without the consent of the beneficiary, advising bank and confirming
bank, if any, if the L/C expires and the brand, receives no shipping documents within 15 days
of expiry of the L/C. The branch should send a message to the concerned bank advising; such
cancellation and closure of L/C file due to expiry of the same. The branch will then cancel the
Reimbursement Authorisation which has been provided to the Reimbursing Bank while opening
the L/C. The branch will reverse L/C contra liabilities, refund margin and recover charges from
the L/C applicant as per schedule of charges.
5.2.14. Post-import financing:
If there is no available cash in importers hand, he can request the bank to grant loan against the
documents for the purpose of post import finance. There is one form of post import finance
available in MBL Main Branch.
LTR (Loan against Trust Receipt).
5.2.14.1. LTR:
On the arrival of goods and lodgment of import documents, importer may request the bank for
clearance of goods from the port (custom). Proper sanction from the competent authority is to be
obtained before clearance of consignment. For giving these types of loan, officer makes loan
proposal and sends it to H/O for approval. After getting approval from H/O, bank grants loan in
the form of LTR. Its needless to say that bank only deals with the documents, not with goods &
services in case of foreign exchange business.
5.3. Back to back L/Cs:
The branch may open back to back import L/C against export L/C received by export oriented
industrial unit operating under the bonded warehouse system, subject to observance of domestic
value addition requirement prescribed by the NBR/Ministry of Commerce from time to time. The
following instructions should be complied with while opening Back to Back Import L/C:
(i) The unit requesting for this facility should possess valid IRC, ERC and valid bonded
warehouse license.
(ii) The branch shall hold the Master Export L/C affixing Banks lien stamp thereon and keep in
safe for security purpose.
(iii) The Master Export L/C should have validity period adequate to cover the time needed for
importing inputs, manufacture of merchandise and shipment to consignee.
(iv) The Back to Back L/C value shall not exceed the admissible percentage of net FOB value of
the relative Master Export L/C (as per prescribed value addition requirement). For computation
of net FOB value of a master export L/C, the freight charge, insurance cost and commission if
payable by the exporter shall be deducted from the L/C value. If the freight element is not shown
separately, freight certificate from the shipping company or agent should be asked for,
(v) The Back to Back import L/C shall be opened on up to 180 days usance (DA) basis, except in
case of those opened against Export Development Fund, administered by Bangladesh Bank, in
which case the back to back L/C will be opened on sight (DP) basis,
(vi) Interest for the usance period shall not exceed LIBOR or the equivalent interest rate in the
currency of settlement,
(vii) All amendments of the master export L/C should be noted down carefully to rule out
chances of excess obligation under the back to back import L/C.
(viii) Back to Back L/C can either be local or foreign. Inland BTB L/C denominated in foreign
exchange may be opened in favour of local supplier/ manufacturer of inputs against master
export L/C and BTB L/C may, in turn, be opened for import of inputs against inland BTB L/C in
favour of local supplier/manufacturer under bonded warehouse system up to value limits
applicable as per prescribed value addition requirement.
5.3.1. Vouching Procedure:
(a) Creation of L/C liability
Dr. Customers liability on BTB L/C
Cr. Bankers liability on BTB L/C (Applicable rate: B.C Selling rate)
(b) Commission & others charges
Dr. Customers A/c: Commission for 180 days + FCC + Postal/ Telex Recoveries + Misc. Cr.
Income A/c: Commission on L/C foreign.
Cr. Income A/c: Postal/ Telex Recoveries.
Cr. Income A/c: Miscellaneous earnings (Handling charges, stationery, etc.)
Cr. Sundry Deposit A/c: FCC
Cr. Other Assets A/c: Stamps in Hand
c) Amendment charges
i) If the L/C value is increased
Dr. Customers liability on BTB L/C (for increased amount)
Cr. Bankers liability on BTB L/C
Dr. Customers A/c: Commission for increased amount + other charges
Cr. Income A/c: Postal /Telex Recoveries
Cr. Income A/c: Miscellaneous earnings (Handling charges if any)
Cr. Sundry Deposit A/c: FCC
ii) If L/C expiry time is extended beyond 180 days
Dr. Customers A/c: Commission for further one quarter
Cr. Income A/c: Commission on L/C (Foreign) & other vouchers
5.3.2. Acceptance & Lodgment of BTB Import Bill:
On receipt of import documents against the L/C, the documents should be subjected to usual
scrutiny. If found in order, the customer should be asked to accept the usance bill of exchange.
When the bill of exchange is returned by the drawee (i.e. importer) after duly accepted by him,
the maturity date of the bill is to be worked out and noted in the PAD register and also in Due
Date Diary (MBFx-16). The date of maturity of tie Bill of Exchange is communicated to the
negotiating or collecting bank by telex/ fax. Simultaneously the documents are lodged under
ABP (Accepted Bills for Payment).
Vouchers to be passed:
i) Reversal of L/C liability
Dr. Bankers liability on BTB L/C
Cr. Customers liability on BTB L/C
ii) Creation of Acceptance liability
Dr. Customers liability on BTB Bills
From: Mercantile Bank Limited
Cr. Bankers liability on BTB Bills (Applicable rate: B.C Selling rate)
(iii) Vouchers for charges such as Telex/ Postal charges for advising maturity date and others
Dr. Partys Account
Cr. Income A/c: Postal/ Telex Recoveries of Back to Back L/C
Payment of BTB L/C shall be made at maturity, out of export proceeds. The required foreign
exchange, out of repatriated export proceeds, will be set aside in a separate foreign currency
account called FC held for BTB L/C. The branch will pay BTB bills according to their maturity
within 3 working days from the date of realization of export proceeds. If export proceeds are not
available, the ABP liability should be liquidated by grant of SOD (Export).
Voucher to be passed:
(i) Reversal of acceptance liability
Dr. Bankers liability on BTB bills
Cr. Customers liability on BTB bills
(ii) Out of export proceeds settlement in FC
Dr. Exporters F.C held A/c: Bill value with usance interest @ prevailing O.D sight (export)
Cr. MBL General A/c: On Nostro A/c @ prevailing OD sight (export)
(iii) Out of Export Proceeds settlement in B.D Taka
Dr. Experts F.C held A/c
Cr. MBL General A/c: On Nostro A/c
Dr. MBL General A/c: F.C amount on Nostro Account
Cr. Income A/c: Exchange gain on FC
Cr. Bills payable A/c: Payment Order
Dr. Income A/c: Commission on Pay Order
Cr. Income A/c: Postage recoveries
(iv) If export proceeds arc not available settlement in FC
Dr. SOD (export) A/c
Cr. MBL General A/cCr. Income A/c: Exchange gain on FC
(v) If export proceeds are not available settlement in BD Taka
Dr. SOD (export) A/c:
Cr. Bills Payable A/c
Cr. Income; A/c: Commission on Pay Order

(vi) If export proceeds are not adequate to cover BTB Bill settlement in FC
Dr. Exporters FC held A/c
Cr. MBL General A/c
Dr. SOD (export) A/c
Cr. MBL General A/c
(vii) If export proceeds are not adequate to cover BTB bill settlement of BD Taka
Dr. Exporters F.C held A/c
Cr. MBL General A/c
Dr. MBL General A/c
Dr. SOD (export) A/c:
Cr. Bills payable A/c (export) less PO commission & Postal charges
Cr. Income A/c: Commission on Pay Order
CHAPTER- 6
Export
6. Export:
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. Bangladesh exports a large quantity
of goods and services to foreign households. Readymade textile garments (both knitted and
woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi
exporters exports to foreign countries.
Garments sector is the largest sector that exports the lion share of the countrys export.
Bangladesh exports most of its readymade garments products to U.S.A and European
Community (EC) countries. Bangladesh exports about 40% of its readymade garments products
to U.S.A.
Most of the exporters who export through MBL are readymade garments exporters. They open
export L/Cs here to export their goods, which they open against the import L/Cs opened by their
foreign importers. Export L/C operation is just reverse of the import L/C operation. For
exporting goods by the local exporter, bank may act as advising banks and collecting bank
(negotiable bank) for the exporter.
6.1. Export policy:
Export policies formulated by the Ministry of Commerce, which provide the overall guideline
and incentives for promotion of exports in Bangladesh. Export policies also set out commoditywise annual target. It has been decided to formulate these policies to cover a five-year period to
make them contemporaneous with the five-year plans and to provide the policy regime. The
export-oriented private sector, through their representative bodies and chambers are consulted in
the formulation of export policies and are also represented in the various export promotion
bodies set up by the government.

6.2. Export incentives:
Encouraging export oriented industries is one of the major objectives of the Industrial Policy,
1991 and as such government ensures all support and co-operation on priority basis as per export
policy. Some of the facilities and incentives offered are as follows:
a) Financial Incentives:
Restructuring of Export Credit Guarantee Scheme;& convertibility of Taka in current account.
Exporters can deposit 40% of FOB value of their export earnings in own accounts in dollar and
pound sterling.
Expansion of export credit period from 180 days to 270 days;50% tax rebate on export
earnings; Duty draw back.
Bonded warehouse facilities to 100% export oriented firms.
Duty free import of capital equipment for 100% export oriented firms.
b) General incentives:
National Export Trophy to successful exporters; training course on external trade.
Arrangement of international trade fairs, commodity-based exhibitions in the country and
participation in foreign trade fairs.
Tax exemption on capital gains from the transfer of shares by the investing company.
Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements.
No restriction in issuing work permits to foreign nationals in Bangladesh.
Facilities for repatriation of invested capital, profits and dividends.
Provision for transfer of shares held by foreign shareholders to the local shareholders/investor
with the permission of the BOI and the Exchange Control Department of the Bangladesh Bank.
Treatment of repatriable dividends as new foreign investment.
Allowing long term loan and working capital loan to foreign investors from local commercial
banks.
Permanent residentship to a foreign citizen investing a minimum of US$ 75,000 or equivalent
amount (non.repatriable) ; similarly citi~hip to any foreign citizen investing US$ ~,000 or
transferring US$ 1,000,000 to any recognized Bangladeshi financing institution (nonrepatriable).
c) Additional Incentives for Export Oriented/Linkage Industries
Facilities such as special bonded warehouse against back-to-back letter of credit or national
import duty and payment of value added tax (VAT) facilities are available.
The system of duty drawback is being simplified and streamlined. Back loan up to percent of
the value against irrevocable and confirmed letters of credit/sales agreements available.
With a view to ensuring backward linkages, export oriented industries including export oriented
readymade garment industries using indigenous raw materials instead of imported ones, are
given additional facilities and benefits at prescribed rates. Similar incentives are extended to the
suppliers of raw materials to export oriented industries.
The expert oriented industries are allocated foreign exchange for publicity campaigns and for
opening offices abroad.
The entire export earning from handicrafts and cottage industries is exempt from income tax. In
case of all other industries, proportional income tax rebate on export earnings is given between
30 and 100 percent. Those industries which export 100 percent of their products are given tax
exemption up to 100 percent.
For manufacturing exportable commodities, import of raw materials under the Control List is
allowed.
The import of specified quantities of duty free samples for manufacturing exportable products
is allowed. The quantity and value of samples an determined jointly by the concerned sponsoring
agency and the National Board of Revenue;
The local products supplied to local projects against Foreign exchange international tender are
treated as indirect exports and the producer is entitled to all export facilities.
Export oriented industries producing toys, luggage and fashion articles, electronic goods,
leather goods, diamond cutting and polishing, jewellery, stationery goods, silk cloth, gift items,
cut and artificial flowers and orchid vegetable processing .Aces are 3dentiiied by the government
thrust sectors and provided with special facilities through cash incentives, venture capital and
other facilities.
d) Other incentives:
Assistance in improvement of quality and packaging of exportable items.
Simplification of export procedures etc.
e) Remittance Facilities:
Remittance of profits of branches of foreign firms/companies, dividends/capital gains, salaries
and savings by expatriates, royalty and technical fees, training and consultancy fees, receivables
collected by shipping companies and an lines towards freight and passage can be effected
through authorized dealers without prior approval of the Bangladesh bank.
6.3. Export procedures followed by MBL:
The import and export trade in our country are regulated by the Import and Export (Control) Act,
1950. Under the export policy of Bangladesh the exporter has to get valid Export registration
Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to
renew every year. The ERC number is to incorporate on EXP forms and other papers connected
with exports.
6.3.1. Registration of exporter:
For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint
Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Citation/
Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed
form along with the following documents:
Nationality and Assets Certificate.
Memorandum and Article of Association and Certificate of Incorporation in case of Limited
Company.
Bank Certificate.
Income Tax Certificate.
Trade License etc.
6.3.2. Securing the order:
After getting ERC Certificate the exporter may proceed to secure the export order. He can do this
by contacting the buyers directly or through agent. In this purpose the exporter may get help
from:
License Officer;
Buyers Local Agent;
Export Promoting Organization;
Bangladesh Mission Abroad;
Chamber of Commerce (local & foreign)
Trade Fair etc.
6.3.3. Signing the contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting
exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and
marks, inspection and arbitration etc.
6.3.4. Receiving letter of credit:
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly
stating terms and conditions of export and payment The following are the main points to be
looked into for receiving/ collecting export proceeds by means of Documentary Credit:
(1) The terms of the L/C are in conformity with those of the contract;
(2) The L/C is an irrevocable one, preferably confirmed by the advising bank;
(3) The L/C allows sufficient time for shipment and negotiation. (Here the regulatory framework
is UCPDC-500, ICC publication)
Terms and conditions should be stated in the contract clearly in case of other mode of payment:
Cash in advance;
Open account;
Collection basis (Documentary/ Clean)
(Here the regulatory framework is URC-525, ICC publication)
6.3.5. Procuring the materials:
After making the deal and on having the L/C opened in his favor, the next step for the exporter is
to set about the task of procuring or manufacturing the contracted merchandise.
6.3.6. Shipments of goods:
Then the exporter should take the preparation for export arrangement for delivery of goods as per
L/C terms, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due
time. Documents for shipment:
EXP form,
ERC (valid),
L/C copy,
Customer Duty Certificate,
Shipping Instruction,
Transport Documents,
Insurance Documents,
Invoice,
Other Documents,
Bills of Exchange (if required)
Certificate of Origin,
Inspection Certificate,
Quality Control Certificate,

G.S.P. Certificate,
Phyto-sanitary Certificate.
6.3.7. Final step:
Submission of the documents to the Bank for negotiation.
6.4. Export documents checking:
1. General verification: a) L/C restricted or not.
b) Exporter submitted documents before expiry date of the credit.
c) Shortage of documents etc.
2. Particular verification:
a) Each and every document should be verified with the L/C.
3. Cross verification
a) Verified one documents to another.
6.5. Discrepancies:
After proper examination or checking of a described Export document banker may find
following discrepancies:
6.5.1. General:
1. Late shipment
2. Late presentation
3. L/C expired
4. L/C over-drawn
5. Partial shipment or transshipment beyond L/C terms.
6.5.2. Bill of exchange (B/E):
1. Amount of B/E differ with Invoice.
2. Not drawn on L/C issuing Bank.
3. Not signed
4. Tenor of B/E not identical with L/C.
5. Full set not submitted.
6.5.3. Commercial invoice (C/I):
1. Not issued by the Beneficiary.
2. Not signed by the Beneficiary.
3. Not made out in the name of the Applicant
4. Description, Price, quantity, sales terms of the goods not corresponds to the Credit.
5. Not marked one fold as Original.
6. Shipping Mark differs with B/L & Packing List.
6.5.4. Packing list:
1. Gross Wt., Net Wt. & Measurement, Number of Cartoons/Packages differ with B/L.
2. Not market one fold as Original.
3. Not signed by the Beneficiary.

4. Shipping marks differ with B/L.
6.5.5. Bill of lading / Airway bill etc (transport documents):
1. Full set of B/L not submitted.
2. B/L is not drawn or endorsed to the Order of Prime Bank Ltd.
3. Shipped on Board, Freight Prepaid or Freight Collect etc. notations are not marked on
the B/L.
4. B/L not indicate the name and the capacity of the party i.e. carrier or master, on whose behalf
the agent is signing the B/L.
5. Shipped on Board Notation not showing name of Pre-carriage vessel/intended vessel.
6. Shipped on Board Notation not showing port of loading and vessel name ( In case B/L
indicates a place of receipt or taking in charge different from the port of loading).
7. Short Form B/L.
8. Charter party B/L.
9. Description of goods in B/L not agree with that of Invoice, B/E & P/L.
10. Alterations in B/L not authenticated.
11. Loaded on Deck.
12. B/L bearing clauses or notations expressly declaring defective condition of the goods and/or
the packages.
6.5.6. Others:
1. Needed documents not forwarded to buyers or forwarded beyond L/C terms.
2. Inadequate number of Invoice, Packing List, B/L & Others submitted.
3. Short shipment Certificate not submitted.
6.6. Checking:
While checking the export documents following things must be taken in consideration.
6.6.1. L/C terms:
Each and every clause in the L/C must be complied with meticulously and ensure the following:
1. that the documents are not state;
2. that the documents are negotiated within the L/C validity, It a credit expire on a recognized
bank holiday its life is automatically become valid upto the next works day.
3. that the documents value does not exceeds the L/C value.
6.6.2 Draft/Bill of Exchange:
Draft is to be examined as under:
1. Draft must be dated
2. It must be made out in the name of the beneficiarys bank or to be endorsed to the bank.
3. The signature of the drawer must be verified by the negotiating bank.
4. Amount must be tallied with the Invoice amount.
5. It must be marked as drawn under L/C NoDated..Issued by..Bank.
6.6.3 Invoice:
It is to be scrutinized to ensure the following:
1. The Invoice is addressed to the Importer
2. The full description of merchandise must be given in the invoice strictly as per L/C.
3. The price, quality, quantity, etc. must be as per L/C.

4. The Invoice must be languaged in the language of L/C.
5. No other charges are permissible in the Invoice beyond the stipulation on the L/C.
6. The amount of draft and Invoice must be same and within the L/C value.
7. If L/C calls for consular invoice, then the beneficiarys invoice is not sufficient.
8. Number of Invoice will be submitted as per L/C.
9. The shipping mark and number of packing list shown in the B/L must be identical with those
given in the Invoice and other documents.
10. The Invoice value must not be less than the value declared in EXP Forms.
11. Invoice amount must be correct on the basis of price, quantity as per L/C.
12. Invoice amount, indicate sale terms/ Incoterms VIZ FOB, CFR, CIF etc.
13. Consular Invoice must be stamped by the local consulate/embassy of the country to which
the goods are imported.
6.6.4 Other documents:
Beneficiary statement, VISA/Export License issued by EPB, Certificate of Origin, Weight
Certificate, Phytosaitary Certificate, Packing List, Inspection Certificate. Certificate of analysis,
quality certificate, MCD duly signed and any other documents required by L/C each of these
certificates/documents conform to the goods invoice and are relevant to L/C. They will send the
documents on collection or they can negotiate under reserve by the request of the exporter or
they can seek permission/Negotiation authority from issuing Bank to allow Negotiating Bank to
Negotiate the documents despite the discrepancies. L/C issuing Bank will inform the matter to
buyer, if the buyer accepts the discrepancies mentioned by Negotiating Bank, issuing bank will
authorise the Negotiating bank to negotiate the discrepant documents.
6.7. Export financing:
Financing exports constitutes an important part of a banks activities. Exporters require financial
services at four different stages of their export operation. During each of these phases exporters
need different types of financial assistance depending on the nature of the export contract.
6.7.1 Pre-shipment credit:
Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to
the actual shipment of the goods for export. The purpose of such credit is to meet working capital
needs starting from the point of purchasing of raw materials to final shipment of goods for export
to foreign country. Before allowing such credit to the exporters the bank takes into consideration
about the credit worthiness, export performance of the exporters, together with all other
necessary information required for sanctioning the credit in accordance with the existing rules
and regulations. Pre-shipment credit is given for the following purposes:
Cash for local procurement and meeting related expenses.
Procuring and processing of goods for export.
Packing and transporting of goods for export.
Payment of insurance premium.
Inspection fees.
Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted
export letter of credit in form of the followings:
ii. Export cash credit (Hypothecation).
iii. Export cash credit against trust receipt.
iv. Packing credit.
v. Back to back letter of credit.
6.7.1.1. Export cash credit (hypothecation):
Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or
finished goods intended for export. Such facility is allowed to the first class exporters. As the
bank has got no security in this case, except charge documents and lien on exports L/C or
contract, bank normally insists on the exporter in furnishing collateral security. The letter of
hypothecation creates a charge against merchandise in favor of the bank. But neither r the
ownership nor the possession is passed to it.
6.7.1.2 Export cash credit against trust receipt:
In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the
3xportable goods remain in the custody of the exporter. He is required to execute a stamped
export trust receipt in favor of the bank, he holds wherein a declaration is made that goods
purchas4ed with financial assistance of bank in trust for the bank. This type of credit is granted
when the exporter wants to utilize the credit for processing, packing and rendering the goods in
exportable condition and when it seems that exportable goods cannot be taken into banks
custody. This facility is allowed only to the first class party and collateral security is generally
obtained in this case.
6.7.1.3. Packing credit:
Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting
him to buy, process, manufacture, pack and ship the goods. Generally for movement of goods
from the hinterland areas to the ports of shipment the Banks provide interim facilities by way of
Packing Credit. This type of credit is sanctioned for the transitional period starting from dispatch
of goods till the negotiation of the export documents. Practically except for single transaction,
most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in
favor of regular exporters for a particular period. The drawings are required to be adjusted fully
once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an
exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with
fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed
individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are
generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the
negotiation of export documents.
6.7.1.4. Back to back letter of credit:
Bangladesh is a developing country. After receiving order from the importer, very frequently
exporters face problems of scarcity of raw material. Because some raw materials are not
available in the country. These have to be collected from abroad. In that case, exporter gives lien
of export L/C to bank as security and opens an L/C against it for importing raw materials. This
L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin. Sometimes there is
provision in the export L/C that the importer can use the certain portion of the export L/C
amount for importing accessories that are necessary for the making of the product. Only in that
case, BTB is opened.
6.7.2. Post shipment credit:
This type of credit refers to the credit facilities extended to the exporters by the banks after
shipment of the goods against export documents. Necessity for such credit arises as the exporter
cannot afford to wait for a long time for without paying manufacturers/suppliers. Before
extending such credit, it is necessary on the part of banks to look into carefully the financial
soundness of exporters and buyers as well as other relevant documents connected with the export
in accordance with the rules and regulations in force. Banks in our country extend post shipment
credit to the exporters through:
1. Negotiation of documents under L/C.
2. Foreign Documentary Bill Purchase (FDBP).
3. Advances against Export Bills surrendered for collection.
6.7.2.1 Negotiation of documents under L/C:
The exporter presents the relative documents to the negotiating bank after the shipment of the
goods. A slight deviation of the documents from those specified in the L/C may rise an excuse to
the issuing bank to refuse the reimbursement of the payment already made by the negotiating
bank. So the negotiating bank must be careful, prompt, systematic and indifferent while
scrutinizing the documents relating to the export.
6.7.2.2. Foreign Documentary Bill Purchase (FDBP):
Sometimes the client submits the bill of export to bank for collection and payment of the BTB
L/C. In that case, bank purchases the bill and collects the money from the exporter. PBL
subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by
crediting his account or by the pay order.
For this purpose, PBL maintains a separate register named FDBP Register. This register contains
the following information:
Date.
Reference number (FDBP).
Name of the drawee.
Name of the collecting bank.
Conversion rate.
Bill amount both in figure & in Taka.
Export form number.
Export L/C number.
6.7.2.3 Advances against Export Bills surrendered for collection:
Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or
when the documents, even though drawn against an L/C contain some discrepancies. Bills drawn
under L/C, without any discrepancy in the documents, are generally negotiated by the bank and
the exporter gets the money from the bank immediately. However, if the bill is not eligible for
negotiation, the exporter may obtain advance from the bank against the security of export bill. In
addition to the export bill, banks may ask for collateral security like a guarantee by a third party
and equitable/registered mortgage of property.
6.8. Realization:
When the Export proceeds realized then the following vouchers are passed:
Dr. MBL General A/c. (CAD) ID@ OD sight export for BTB and FCAD (Exp) portion (for rest
amount)
CR. F.C held against BTB L/C @ OD sight export.
CR. FCAD (Exp) A/c. (Retention Quota) @ OD sight Intt. For BTB portion
DR. MBL General A/c. (FAD) ID @ B. Bank Ready Buying (for purchase amount)
CR. FDBP A/C (which was created at the time of import bill purchased)
CR. Income A/c. Exchange gains on FBP (difference between B. Bank Ready Buying Rate and
OD sight Export Rate).
The branch will realize overdue interest as per Banks prescribed rate from all export bills after
21 days from the elate of negotiation to the date of realization of proceeds. On realization of
proceeds following vouchers to be passed:
Dr. MBL General A/c on Nostro A/c for negotiated value
Cr. FDBP A/c for negotiated amount in BD Taka
Cr. Income A/c Exchange Gain on FDBP
Cr. MBL General A/c on Nostro A/c Realized FC value less negotiated FC value @ OD sight
export
Cr. Exporters FC held A/c FC amount
For realization of overdue interest (where export bills are realized after 21 days of negotiation)
Dr. Customers A/c for actual overdue interest as per Banks prescribed rate
Cr. Income A/c Interest on FDBP
6.8.1. Accounting procedure on Collection Basis:
(i) Creation of contra liability while sending on collection
Dr. Customers liability: Outward Foreign Documentary Bills for collection (OFDBC)
Cr. Bankers liability: Outward Foreign Documentary Bills for collection (OFDBC)
On realization of proceeds
(i) Reversal of contra liability
Dr. Bankers liability: Outward Foreign Documentary Bills for collection (OFDBC)
Cr. Customers liability: Outward Foreign Documentary Bills for collection (OFDBC)
(ii) Realization vouchers
Dr. MBL General A/c on Nostro A/c FC amount up to BTB obligation + 2-4% @ OD sight
(Export) buying
Cr. Exporters FC held A/c FC amount up to BTB obligation + 2-4% @ OD sight
(Export) buying
Dr. MBL General A/c on Nostro A/c For balance realized FC amount
Cr. Sundry Deposit A/c Courier Service
Cr. Sundry Deposit A/c Reserve Margin, if any
Cr. Sundry Deposit A/c Local Agency Commission, if any

Cr. Sundry Deposit A/c Income Tax, if any
Cr. Packing Credit A/c, if any
Cr. Hire Purchase A/c, if any
Cr. Lease Finance A/c, if nay
Cr. Income A/c Exchange Gain on FDBP (difference between Ready Buying/TT clean & TT
(doc) Buying rate on realized F.C value less F.C held amount)
Cr. Customers CD A/c in net BD Taka
CHAPTER- 7
Remittance
7. Foreign Remittance:
Convertibility of Taka in current account transactions symbolized a turning point in the countrys
exchange arrangement and exchange rate system. Now the operation of foreign currency
accounts have been more liberalized. Funds from this A/Cs are freely remittable to any country
according to the needs of A/c holders.
7.1. Remittance flow of Bangladesh and its contribution of MBL:
MBL is involved with both the form transactions of inward and outward remittance processing
service. MBL started its remittance business in Bangladesh since December, 1996. MBL tries
their level best to increase the flow of remittance through banking channel. Information provided
in (Table-1) shows that remittances from migrant Bangladeshi workers increased significantly
from US Dollars 3,061.97 million in FY 2005-06 to US Dollars 3,866.63 million in FY 2007-08.
Moreover, the inflow of remittances coming through MBL also increased appreciably from US
Dollars 53.95 million in FY 2005-06 to US Dollars 96.93 million in FY 2007-08. In FY 2005-06
the contribution of remittances coming through MBL was 1.76% of total inflow, where as it
stood 2.51% of total inflow in the recent FY 2007-08. During 2006-07 remitting amount was US
Dollars 3,371.97 million, where as remittance inflow from MBL stood at US Dollar 66.34
million which was 1.97% of total inflow. The following statistics shows that remittance flow to
Bangladesh has increased through years as well as the inflow coming through MBL has
increased than the past years. Therefore, the percentage of remittance inflow through MBL also
shows a gradual increase.
Year Foreign Remittance Inflow in Bangladesh (US$ million) Foreign Remittance Inflow
through MBL (US$) Foreign Remittance Inflow through MBL (US$ million) Remittance
percentage of MBL with total remittance inflow in Bangladesh
FY 2005-2006 3,061.97 53,948,160.78 53.95 1.76
FY 2006-2007 3,371.97 66,344,704.83 66.34 1.97
FY 2007-2008 3,866.63 96,930,340.02 96.93 2.51
Table7.1: Comparison of MBLs remittance inflow with total foreign remittance inflow in
Bangladesh
Source: Bangladesh Bank and Remittance Department of MBL
7.2 FC Account:
(a) Resident Foreign Currency Deposit (RFCD) Account:

Persons ordinarily resident in Bangladesh may maintain foreign currency accounts with foreign
currency brought in at the time of their return in Bangladesh from visits abroad. These accounts
are termed as RFCD accounts.
(b) Non-resident Foreign Currency Deposit (NFCD) Account:
Non resident Foreign Currency accounts may now be maintained as long as the account holder
desire. Amount brought in by non-resident Bangladeshi can be deposited in FC account any time
after to Bangladesh.
7.2.1. Who can Open FC Accounts:
The Branch with Authorized Dealership License may, without prior approval of Bangladesh
Bank, open foreign currency A/Cs in their books in the name of:
(a)Bangladeshi nationals residing abroad
(b) Foreign nationals residing abroad or in Bangladesh
(c) Foreign firms and companies registered abroad and operating in Bangladesh or abroad
(d) Foreign missions/Embassies/UN organizations and their expatriate employees
(e) Diplomatic bonded warehouses (duty free shops)
(f) Local and Joint venture contracting firms employed to execute projects financed by foreign
donors/international donor agencies.
(g) Bangladeshi nationals working as employees/consultants in international bodies in
Bangladesh and drawing pay and allowances/consultancy fees/honorarium in foreign currency.
(h) Merchandise and service exporters
(i) Bangladeshi Nationals who are ordinarily resident in Bangladesh may open foreign currency
accounts with foreign exchange brought in at the time of their return to Bangladesh from visits
abroad.
(j) Industrial enterprises in EPZ.
7.2.2. Currency in which FC A/C can be Opened:
FC Accounts can be opened either in
(a) Pound Sterling
(b) USD
(c)EURO
(d) Japanese Yen
7.2.3. Documents required for Opening FC A/Cs:
(a) For Bangladeshi Wage Earners:
Photocopy of first 7 (seven) pages of valid passport and visa page/arrival page.
Photocopy of employment contract/appointment letter/work permit.
Two copies of passport size photograph of each account holder and nominee duly attested.
(b) For Foreign National/Company/Firm:
Two copies of photograph of account holder for individual and operators of other account
holder.
Copies of relevant pages of passport for individual and operators of other account holder.
Copy of service contract/appointment letter/work permit, if any for individual.

Copies of registration in Bangladesh with Board of Investment / Bangladesh Bank for Foreign
Joint Venture Firm.
Copies of the Memorandum and Articles of Association/Laws/Bye Laws, etc. or Joint Venture
Agreement for Joint Venture Company.
7.2.4. Mode of Operation:
Foreign currency accounts opened in the name of Bangladesh nationals working abroad or self
employed abroad can now be maintained as long as the account holder desires.
Such accounts may also be opened by the eligible persons within six months of their return to
Bangladesh.
7.2.5. Deposits:
Credit to a foreign currency account may be made against inward remittance of foreign
exchange in any form or transfer from another FC account or Non-Resident Taka Accounts of
bankers abroad.
ADs may also raise credits to such accounts with the proceeds of convertible foreign exchange
viz. currency note, travelers cheques, drafts, etc. brought into Bangladesh by the account holders
while on temporary visit to Bangladesh, provided such foreign exchange in excess of US$ 5000
or its equivalent has been duly declared by them to the customs at the time of their arrival.
Portion of repatriated export proceeds of Merchandise/service exporters are allowed to credit
to the exporters retention quota account.
Foreign exchange earned through business done or services rendered in Bangladesh can not be
put into F.C account.
7.2.6. Withdrawals:
Payments may be made freely abroad from these FC accounts to the extent of balance lying
therein.
Local disbursements may also be made freely in Taka from such foreign currency accounts.
Funds lying in FC Accounts can be utilized for import of goods and commodities as per
instructions issued by the CC1&E and Bangladesh Bank.
No payment in foreign exchange may be made to or on behalf of any resident in Bangladesh.
FC accounts except foreign diplomats or privileged persons who have specific authority from
Bangladesh Bank to accept such payment.
7.2.7. Interests:
Ads may pay interest at prevailing Euro Currency Deposit rate if balance in the account is not
less than US$ 1000 or Pound Sterling 500 and are maintained for a minimum period of one
month. Foreign nationals/companies/firms registered and/or incorporated abroad and A-type
industries of EPZ may also open F.C account in the form of Term Deposit (NFCD).
7.2.8. Convertible & Non-Convertible Taka A/C:
The branch with Authorized Dealership License may open convertible Taka Accounts in the
names of foreign organizations/foreign nationals viz, diplomatic missions, UN organizations,
Non-profit International Bodies, Foreign Contractors & Consultants engaged for specific projects
under the government, semi-government, agencies & the expatriate employees of such
missions/organizations who are resident in Bangladesh. The accounts may be credited with
foreign currencies brought in or remitted from abroad or transferred from a foreign currency A/C
or another convertible Taka account. For transfer from another convertible Taka account, the
Taka amount from the transferors account would be converted into foreign currency for transfer
& credit to the recipient account by re-conversion into Taka. No money meeting from a business
originating in Bangladesh and otherwise reportable to Bangladesh can be carrier to these
accounts.
Foreign organizations/their expatriate personnel mentioned above may maintain non-convertible
Taka accounts with the branches without prior Bangladesh Bank approval. These accounts may
be credited with funds from convertible Taka accounts, with remittance from abroad and with
Taka received from authorized sources including interest from STD accounts. These accounts
may freely be debited for local expenses. No remittance abroad or transfer to an F.C
account/convertible Taka account may be made by debit to a non-convertible Taka account.
7.3. Types of Ramittance:
Foreign remittance section of MBL, Main Branch is an integral part of Foreign Exchange
Department. And this section of Foreign Exchange Department deals with incoming and
outgoing foreign currencies. Therefore on the basis of its function, foreign remittance is divided
into two types. These are:
1. Outward Foreign Remittance and
2. Inward Foreign Remittance
7.3.1. Outward Foreign Remittance:
Remittances issued by MBL, Main Branch to foreign correspondents to fulfill its customers
needs are considered to be the Outward Foreign Remittances. The term Outward Remittance
include not only remittance i.e. sale of foreign currency by TT, MT, Drafts, Travelers cherub but
also payment against imports into Bangladesh & Local currency credited to Non-Resident Taka
Accounts of Foreign banks or convertible Taka account. It comprises the followings:
FDD Issued
FTT Issued
TC Issued
Endorsement of foreign currencies in the passport.
Sale of foreign currencies.
7.3.1.1. Foreign demand draft (FDD) issued:
People have to send money to abroad for various purposes. MBL issues most of the FDD for the
purpose of payment of the application fees to the foreign universities. For the issuance of FDD,
FORM T/M has to be filled-in duly. This form is filled up under the Foreign Exchange
Regulation Act, 1947. This form contains:
The purpose of travel,
Name of the country where the applicant will go,
Name of the air or shipping company,

Passport number,
Date and place of issue of the passport are given.
This form has to be duly signed by the applicant. In case of application fee, the applicant has to
mention the name of the university in whose favor the FDD is issued. MBL charges TK. 400 for
each FDD.
7.3.1.2. Travelers cherub (TC) issued:
MBL issues only American Express Travelers Cherub (TC). For TC, customer has to fill up T/M
form. He has to fill up the purchase form also. Purchase form has four copies. One copy for
American Express Bank, one copy for PBL, and two copy for the customer. For TC MBL
charges 1% as commission.
7.3.1.3. Endorsement of cash:
Cash foreign currency can also be remitted through the cash endorsement in the passport. In case
of endorsing cash in the passport, the requirements are similar to those of Travelers Cherub. But
according to the foreign exchange Regulation Act, 1947 an individual cannot take more than
$1000.00 in cash in a year. Thats why; the concerned officer checks the last voyage of the
purchaser. If he/she made any voyage and if he/she purchase dollar at that time, then the officer
will deduct the amount and will give the rest to the purchaser.
MBL cannot endorse more than $600.00 as cash at a time. For more than $600.00, the customer
has to purchase TC. For cash endorsement MBL maintains a separate register. For giving cash
foreign currency, MBL charges Tk. 100.00 as service charge.
o Forms used for Outward Remittance:
Two forms are used for Outward Remittance of Foreign Currency, such as
(a)IMP Form: All outward remittances on account of imports are done by form IMP.
(b)T.M. Form: For all other outward remittances form TM is used.
o Private Remittance:
For the following private purposes, outward remittances are permitted:
1. Family remittance facility.
2. Remittance of Membership Fees/Registration Fees etc.
3. Education.
4. Remittance of Consular Fees.
5. Remittance of Evaluation Fees.
6. Travel.
7. Health & Medical.
8. Official/Semi-Official Visit by the officials of Government/Autonomous Bodies.
9. Seminars and workshops.
10. Foreign Nationals.
11. Remittance for Hajj.
12. Other Private Remittances.
o Official & Business Travel:
For the following official and business purposes, outward remittance is permitted:
1. Official Visit.
2. Business Travel quota for New Exporters.
3. Business Travel Quota for Importers and Non-exporting producers.
4. Exporters Retention Quota.
o Commercial Remittance:
For the following commercial purposes, outward remittances are permitted:
1. Opening of branches or subsidiary companies abroad.
2. Remittance by shipping companies, Airlines & Courier Service.
3. Remittance of Royalty and Technical Fees.
4. Remittance on account of Training & Consultancy.
5. Remittance of Profits of Foreign Firms/Branches.
6. Remittance of Dividend.
7. Subscriptions to Foreign Media Services.
8. Costs/Fees for Reuters Monitors.
9. Advertisement of Bangladeshi Products in mass media abroad.
10. Bank Changes.
11. Sundries.
o Accounting Mechanism:
1. Issuance of Draft, T.T. etc:
(a) Against BD. Taka
Dr. Cash from Customer or Customers CD/SB Account for F.C Amount @ T.T & OD selling
plus amount of charges as per schedule.
Cr. Mercantile General A/C Head Office(ID) for FC Amount @ Ready selling for USD & ACUD
or at Mid rate of T.T, O.D & T.T clean for other currencies.
Cr. Income A/C: Exchange Gain on F.C.(Difference amount)
Cr. Income A/C: Commission on T.T./D.D foreign as per schedule of charges.
(b) From FC of the Customer
Dr. Customers F.C A/C for FC Amount @ Prevailing holding rate of F.C balance.
Cr. Mercantile General A/C H.O.(ID) for FC Amount @ Prevailing holding rate.
Dr. Customers Taka A/C or cash from Customer for charges as per schedule
Cr. Income A/C Commission on T.T./D.D. foreign for charges schedule.
2. Issuance of Travelers Cherub:
(a) Against BD. Taka
Dr. Cash from Customer or Customers CD/SB Account for F.C. Amount @ T.C. selling plus
commission & charges as per schedule.
Cr. T.C. Issued @ Ready selling rate.
Cr. Income A/C: Exchange Gain on F.C. (Difference amount between T.C selling & Ready
selling amount).
Cr. Income A/C: Commission on T.C. as per schedule of charges.
(b) From F.C Account of the Customer

Dr. Customers F.C. account for F.C Amount @ prevailing holding rate of F.C. balance.
Cr. T.C Issued @ prevailing holding rate of F.C balance.
Dr. Cash from customer or CD/SB A/C for charges as per schedule.
Cr. Income A/C: Commission on T.C as per schedule of charges.
(c) Settlement of Travelers Cherub (weekly basis)
Dr. T.C. Issued
Cr. Mercantile General A/C Head Office (ID)
3. Issuance of F.C. Notes:
Dr. Cash from Customer or CD/SB Account for F.C amount @ cash selling rate plus commission
& charges as per schedule.
Cr. F.C. in hand Account for F.C amount @ cash selling rate.
Cr. Income A/C: Commission on F.C as per schedule of charges.
7.3.2. Inward Foreign Remittance:
Normally, Inward Foreign Remittance comprises of all incoming foreign currencies. Remittances
issued by the correspondent banks situated in the foreign countries and thereby drawn on MBL,
Main branch are considered to be its Inward Foreign Remittances. Followings are the Inward
Foreign Remittances of MBL, Main branch.
a. FDD Payable
b. FTT Payable
c. TC Payable
d. Encashment of foreign currencies endorsed in the passport.
e. Purchase of foreign currencies.
Two forms as prescribed by Bangladesh Bank are used for purchase of Foreign Currencies such
as,
EXP Form: Remittances received against exports of goods from Bangladesh are done by form
EXP.
Form C: Inward remittances equivalent to US$2000.- and above are done by Form C.
However, declaration in Form C is not Required in case of Remittances by Bangladesh Nationals
working abroad.
Utmost care should be taken while purchasing Currency Notes, Travelers cherub, Demand Draft
& similar Instrument for protecting the bank from probable loss as well as safety of the Bank
officials concerned.
7.3.2.1. Purchase of Currency Notes, Travelers cheques, Drafts etc:
Following General observations are required in addition to common
judgment/intelligent/vigilance of the dealing officers:-
i. Currency Notes to be checked very carefully so as to avoid risk of purchasing counterfeit

Notes.
ii. While Purchasing Travelers cherub signature of the holder to be obtained on the T/Cs in front
of the Bank Officials and should be verified with the signature of the holder already given at the
time of issuance of T.Cs. Passport of the seller as well as purchase contract of the T.Cs to be
asked for to ensure genuineness/bonafide of the transactions.
iii. Drafts should not be purchased under any circumstances unless the holder is a regular/valued
customer of the Bank. Indemnity Bond to be obtained for recovering the amount paid in advance
to the holder in case of dishonor of the instrument.
iv. Private cherub should not be purchased under any circumstances without prior approval of
Head Office.
7.3.2.2. Dealing in Foreign Currency Notes & Coins:
The Authorized Dealer branches are permitted to deal in foreign currency notes & coinsand may
freely buy foreign currency from incoming passengers regardless of nationality and regardless of
whether or not a declaration on form FMJ is produced at the time of encashment. If this form is
produced, the amount encashed should be endorsed on it. The ADs may also purchase foreign
currency notes, coins and other travel instruments freely from Authorized Moneychangers
without production of FMJ. The branches with AD license are permitted to dispose of foreign
currency notes etc. by way of sales to other ADs and the general public in accordance with the
instructions of the Bangladesh Bank.
7.3.2.3. Accounting Mechanism:
1. Encashment of Travelers Cherub:
(a) For Payment in Taka Counter value
Dr. FBP Clean A/C for F.C Amount @ T.C. Buying.
Cr. Cash A/C or partys A/C for payment to customer for F.C Amount @ T.C. Buying less postal
charges.
Cr. Income A/C: Postage as per schedule of charges.
(b) On realization of proceeds in Nostro A/C:
Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C Amount @ Ready Buying.
Cr. FBP Clean for outstanding amount
Cr. Income A/C: Exchange Gain on F.C. (Difference amount between Ready Buying & FBP
outstanding amount)
2. Purchase of Foreign Currency Notes
(a) For payment in Taka Counter value
Dr. F.C in hand Account for F.C Amount @ Cash F.C Buying
Cr. Cash A/C or partys A/C for payment to customer for F.C Amount at same rate.
(b) For Credit F.C Account
Dr. F.C in hand Account for F.C amount @ Cash F.C Buying
Cr. Customers F.C Account @ T.T. clean buying
Cr. Income A/C: Exchange Gain on F.C. (The difference amount between above two)
3. Encashment of T.T.:
(a) For payment in Taka Counter value
Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C Amount @ Ready Buying
for USD & ACUD or at Mid rate between T.T., O.D & T.T clean for other currencies.
Cr. Customers CD/SB A/C or Payment Order for F.C Amount @ Clean Buying less commission
and charger as per schedule.
Cr. Income A/C: Exchange Gain on F.C. (The difference amount between Ready buying and T.T.
Clean buying Amount).
Cr. Income A/C: Commission T.T Foreign.
(b) For Credit to F.C Account
Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C amount @ T.T clean
buying.
Cr. Customers F.C. Account at the same rate.
Dr. Customers CD/SB Account for charges as per schedule.
Cr. Income A/C: Commission T.T. Foreign.
4. Purchase & Collection of Foreign Draft:
(a) Purchase for payment in Taka counter value
Dr. FBP Clean A/C: for F.C Amount @ O.D. Transfer Buying.
Cr. Cash A/C: for payment to customer @ O.D Transfer less commission and charges as per
schedule.
Cr. Income A/C: Commission on F. Bills as per schedule.
Cr. Income A/C: Postage as per schedule.
(b) On realization of proceeds in Nostro A/C
Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C. amount @ Ready buying
for USD& ACUD or at Mid rate between T.T., O.D &T.T clean for other currencies.
Cr. FBP Clean A/C for outstanding amount.
Cr. Income A/C: Exchange Gain on F.C (The difference amount between above two)
(c) For collection without purchase
Dr. Customers Liability: Foreign bill lodged A/C for F.C Amount @ O.D. Transfer buying
Cr. Bankers Liability: Foreign bills for collection A/C for F.C amount at the same rate.
CHAPTER- 8
Analysis & Findings
8.1. Foreign exchange business of MBL:
The performance of foreign exchange business of Mercantile Bank Ltd. can be visualized from
the following data in Table-8.1. Here, five years data of foreign exchange business are presented.
These are off-balance sheet items and showed as contingent liability.
Tk in millions
Year Export L/C Import L/C Total Business
2004 15,250.60 20,380.80 35,631.40
2005 17,411.00 28,325.20 45,736.20
2006 24,108.57 33,271.90 57,380.47
2007 34,108.57 42442.80 76,551.37
2008 32,670.10 40380.10 73,050.20
Table-8.1: Foreign exchange business of MBL
Source: Annual report, 2008
Figure 8.1: Foreign Exchange Business of MBL
In the Table-8.1 it is observed that the foreign exchange business of Mercantile Bank Ltd. has
been increasing with the passage of time but last year it is declined. Growth of import and export
are decline by 4.85% and 4.21% respectively.
8.2 Foreign exchange income of MBL:
Foreign exchange income is a great source of revenue for the bank. This revenue comes in two
forms: commission and exchange gain. Here, five years data of foreign exchange income is
presented in Table-8.2.
In millions Tk
Commission
Year L/C Export Bill Bill Purchased Accepted Bill OBC, IBC PO,DD,
TT, TC Exchange
Gain TotalFX
Income
2004 100.39 2.00 0.99 4.88 1.53 9.65 96.47 215.91
2005 129.85 3.46 1.55 6.26 2.85 9.89 188.72 342.58
2006 156.51 5.22 1.39 11.16 2.53 8.96 201.06 386.83
2007 196.84 8.33 2.11 18.30 2.26 11.62 254.76 494.22
2008 216.55 11.17 2.64 19.65 3.23 12.35 274.90 540.49
Table 8.2: Foreign exchange income of MBL
Source: Annual report 2005, 2006, 2007, 2008
Figure 8.2 : Foreign exchange income of MBL
In the Table-8.2 the different sources of income for foreign exchange business are revealed and
the income is showing a continuous increasing trend. The most dominant variable in foreign
exchange income is exchange gain. This is achieved from both export and remittance business.
8.3. Foreign exchange income, operating income and profit:
The foreign exchange income, operating income and profit after tax for five years is presented in
Table-8.3. The foreign exchange income has a contribution to operating income as well as to
banks profit.
In million Tk
Year Total FX Income Operating Income Profit
2004 215.91 1592.21 301
2005 342.58 1970.37 389
2006 386.83 1968.83 472
2007 494.22 2401.66 543
2008 540.49 2831.53 619
Table 8.3: Foreign exchange income, operating income and profit
Source: Annual report, 2008
Figure 8.3: Operating Income & Foreign exchange income
In the Table-8.3, it is shown that along with the increasing trend in foreign exchange income the
operating income is also increasing. So, foreign exchange income has a positive effect on
operating income as well as profit. Table-8.1, 8.2, 8.3 focuses on the important information of
foreign exchange business of Mercantile Bank Ltd..
8.4. SWOT analysis:
The comparison of strengths weaknesses, opportunities, and threats is normally referred to as a
SWOT analysis. The central purpose of the SWOT analysis is to identify strategies that align, fit,
or match a companys resources and capabilities to the demands of the environment in which the
company operates. To put it an other way, the purpose of the strategic alternatives generated by a
SWOT analysis should be to build on company strengths in order to exploit opportunities and
counter threats and to correct company weakens.
SWOT analysis explains in two broad ways on viewed of organizations environment. These are:
a) Internal Environment Analysis:
It includes:
1) Strength
2) Weakness
b) External Environment Analysis:
It includes:
1) Opportunity
2) Threats
During my internship period in MBL I have found some aspects relating to the Banks strength,
opportunity, weakness and threats, which are more or less. I think affecting the banks
performance in total, which are explained below:
8.4.1. Strengths:
MBL has already established a favorable reputation in the banking industry of the country. It is
one of the leading private commercial banks in Bangladesh. The bank has already shown a
tremendous growth in the profits and deposits sector.
Mercantile Bank Ltd. is maintaining a strong capital base. By the end of December 2008,
capital adequacy ratio of the bank was 10.68% that is well above the stipulated requirements of
9%.
Earning base in assets of the bank was 88.00%in 2008 as compared to 92.40% in 2007. The
ratio indicates efficient utilization of resources to earn revenues.
MBL has provided its banking service with a top leadership and management position. The
Board of Directors is the skilled person in business world. The top management officials have all
worked in reputed banks and their years of banking experience, skill, and expertise will continue
to contribute towards further expansion of the bank.
MBL has already achieved a high growth rate accompanied by an impressive profit growth
rate in 2008. The number of deposits and the loans and advances are also increasing rapidly.
MBL has an interactive corporate culture. The working environment is very friendly,
interactive and informal. And, there are no hidden barriers or boundaries while communicate
between the superior and the employees. This corporate culture provides as a great motivation
factor among the employees.
MBL has the reputation of being the provider of good quality services too its potential
customers.
8.4.2. Weakness:
This bank has not any long-term strategies of whether it wants to focus on retail banking or
become a corporate bank. The path of the future should be determined now with a strong feasible
strategic plan.
The bank failed to provide a strong quality-recruitment policy in the lower and some mid level
position. As a result the services of the bank seem to be Deus in the present days.
Service quality of this bank is good but hot high as the customers want and expectation. The
quality of the service at MBL is higher than the Dhaka Bank, Prime Bank or Dutch Bangla Bank
etc. But the bank has to compete with the Multinational Bank located here.
Some of the job in MBL has no growth or advancement path. So lack of motivation exists in
persons filling those positions. This is a weakness of MBL that it is having a group of unsatisfied
employees.
In terms of promotional sector, MBL has to more emphasize on that. They have to follow
aggressive marketing campaign.
8.4.3. Opportunity:
In order to reduce the business risk, MBL has to expand their business portfolio. The
management can consider options of starting merchant banking or diversify into leasing and
insurance sector.
The activity in the secondary financial market has direct impact on the primary financial
market. Banks operate in the primary financial market. Investment in the Secondary market
governs the national economic activity. Activity in the national economy controls the business of
the bank.
Opportunity in retail banking lies in the fact that the countrys increased population is
gradually learning to adopt consumer finance. The bulk of our population is middle class.
Different types of retail lending products have great appeal to this class. So a wide variety of
retail lending products has a very large and easily pregnable market.
A large number of private banks coming into the market in the recent time. In this competitive
environment MBL must expand its product line to enhance its sustainable competitive advantage.
In that product line, they can introduce lots of the ATM to compete with the local and the foreign
bank.
In addition of those things, MBL can introduce special corporate scheme for the corporate
customer. At the same time, they can emphasize more on various social activities because it has
these opportunities.
8.4.4. Threats:
The default risks of all terms of loan have to be minimizing in order to sustain in the financial
market. Because default risk leads the organization towards to bankrupt. Mercantile Bank has to
remain vigilant about this problem so that proactive strategies are taken to minimize this problem
if not elimination.
The low compensation package of the employees from mid level to lower level position threats
the employee motivation. As a result, good quality employees leave the organization and it
effects the organization as a whole.
In recent years, the numbers of private bank is increasing. These banks always pose a threat
for others by coming up with new product line, innovative technology, quality services, etc. thus
the level of competition rises and create threat for Mercantile bank Ltd.
Compared to their private banks of Bangladesh, the compensation of MBL is not so attractive.
This poses a threat on the employees of switching to other banks from MBL.
Daily basis interest on deposit offered by HSBC.
8.5. Findings:
Major findings of the study are:
The MBL follows the traditional banking system. The entire banking procedure is not fully
computerized.
The working environment of MBL is very interactive, informal and attractive. People working
here are cooperative to the highest possible extent, according to me.
The Foreign Exchange Department is very much Strong. Clauses they use in dealing with the
foreign Bank in term of L/C opening and amendment of L/C, are very much expedient to the
foreign Bank. It is giving a competitive advantage to the MBL. For this, businessmen like to deal
their business with the MBL.
The operations of international trade are as per local and international laws, rules, customs and
practices.
The top executives and officers are very helpful to the clients. Some of our businessmen do not
know the exact procedures of international trade. The officers of MBL help them to properly
execute their business.
Financing in the international trade is very crucial for the economy as well as it is risky.
Sometimes the government imposes restriction to import and export some products. As a result
the rate of opening L/C become reduces.
MBL provide little assistance in relation with foreign exchange to the small entrepreneur
comparing to large business houses. Small entrepreneur has to keep higher margin, sometimes
100%, regarding opening a L/C.
The presence of modern data processing and communication equipments is inadequate in
MBL. This cause a considerable degree of inefficiency in the banks performance, especially in
the foreign exchange department.
Internal Control System (ICS) of MBL is not up to the standard (as per BAS).
Anti money laundering procedures of the bank is very effective.
The marketing strategy adopted by the bank is effective but not efficient. The appearance of
the bank in the printing media and electronic media has become a matter of fortune.
The specialization of the personnel on a particular task is not ensured. It has been found that
executives are transferred from one department to another department frequently, from branch to
another in every three years without ensuring that they are acquainted with the task.
The expansion process of the bank has little match with the modern pace of globalization.
Despite being stoned in 1999, the bank has only 41 branches now. Even it does not have branch
in many commercially and industrially important places.
CHAPTER- 9
Recommendation&
Conclusion
9.1. Recommendation:
I had the practical exposure in Mercantile Bank Ltd. for just three months, with my little
experience in the bank in comparison with vast and complex banking system; it is not so easy to
recommend some suggestion to enhance the performance level of the organization. I have
observed some shortcomings regarding operational and other aspects of their banking. On the
basis of my observation I would like to present the following recommendations:
The Branch should move to the fully automated banking system. This will save a lot of time of
personnel working here and will increase their and the Banks performance thereby.
Incase of importing goods the Bank should aware about over invoicing so that nobody can get
chance to send money abroad illegally.
Incase of exporting goods the Bank should aware about under invoicing so that no body can get
chance to avoid Tax, Vat, Duty.
MIS cell should be developed through internal, tax e-mail etc.
Accounting system of the Bank should be software base.
Fund management of the Bank should be more efficient. This will reduce the average cost of
working fund.
Productivity measurement should be done from time to time through developing customer
services.
Stuck up advances should be reduced through more recovery at lower rate of interest.
If the bankers can scrutinize the Commercial invoice it will decrease the Money Laundering.
The Assistant Commissioners of Tax can contribute more. They must be more careful about
invoicing and restricted products.
Internal control system MBL to be further strengthened.
Mercantile Bank Ltd. Foreign Exchange Department now using only one software and that is
PC BANK. But recently the bank is taking initiatives for installing new software named
TEMONUS T24. It is very dedicated software. It has real time online banking, ATM facilities
and E-banking and lot of more. So I think it will be a great progress for the bank.
The bank should introduce new innovative products to attract new potential customers and
also keep its existing customer happy.
Improve own ATM network and maintain sufficient fund in ATM booth.
ATM card facilities are not easy of MBL. So they are losing their many potential customers.
So I think MBL should take necessary step to easy their ATM card facilities for their customers.
Bank should hold and increase overall satisfaction rate and provide modern service, modern
equipment, light behavior, physical facilities and so on.
There are more gaps are showing between perception and expectation of the respondents. As
soon as possible remove this gap, which are existing between clients and Bank.
The bankers must be careful in financing international trade So that, the bank does not fall in
bad loss provision sated by BB.
Bank should fixed-up specific types of client strategy according to the different character of
client.
Commission income occupies the major part of the total earnings of a bank and banks
profitability mainly depends on commission earning capacity, so research and development cell
of the bank should put more effort for the purpose of introducing an efficient Foreign Exchange
department.
Human resource is another sector for the branch to be developed urgently. Human resources in
the branch need to be equipped with adequate banking knowledge. They should have basic
knowledge regarding money, banking, finance and accounting. Without proper knowledge in
these subjects, efficiency cannot be optimized. Bank can arrange sufficient training program on
these subjects.
Many times, the branchs photocopier remains out of order. Printers are of obsolete
technology. ACs gets out of order frequently. Attention should be given on proper maintenance
and replacement of phone, computer, printer fax, machine and photocopier.
Bank can introduce more advanced MIS system to mobilize its day to day activities. It will
help the employee to do their works more quickly and at the same time maintaining their quality
of work.
The management should impart more imphasis on the advertisement of the bank in different
electronic and printing media. The Basic goal of the advertisement should be firstly to make
people know and understand that the bank is universal one and permits anyones access.
The spread out mechanism of the bank should be faster and progressive as well. Being
established in 1999, the bank has established only 41 branches in ten (10)years. The mode of
extension is much slower than other contemporary and equivalent banks. Branches should be
opened in every industrial and commercial corner of the country.
More products of varied interests should be introduced for the diversified client group.
Opportunity in retail banking lies in the fact that the countrys increased population is gradually
learning to adopt consumer finance. The greater bulk of our population is of middle classed.
Different types of retail lending products would create great appeal to this mammoth class. So a
wide variety of retail lending products has a very large and easily pregnable market.
I think the Management should employ at least few more employees in Foreign Exchange
Department of Main Branch. I have seen from my practical experience that many customers wait
for a long time for any service as they see that the some concerned officials are doing their best
to meet the requirements of the customers. But as the Foreign Exchange procedure is designed
with many small tasks. There is a burning need for some additional employees. The workload in
this department is so high that at every quarter in the year MBL places a good number of interns
in this division.
9.2. Conclusion:
Banking industry in Bangladesh is now on the right track. The banks are contributing much than
the previous years for the growth and development of the country. Credit for such contribution
by the industry goes to the Bangladesh Bank. Banking industry is much organized because of
strong vigilance and supervision of Bangladesh Bank. In the industry, Mercantile Bank is one of
the pioneers in many criteria. MBL is committed towards the excellence in the service with
efficiency, accuracy and proficiency. Like of most of the commercial banks, foreign exchange
department is one of the most important departments of MBL. Perhaps, it is the most important
department of the Bank. This department is driving the bank from the front. Through the import,
export and foreign remittance operations, this department is making a great contribution to the
bank and the economy as a whole. If it is said that this department of the bank is running
according to all of the ideal principles of modern foreign exchange business mentioned in the
book, it will be exaggerated. Despite problems and weaknesses, it is driving the bank from the
front. With an easy to understand operating guidelines, transparent operating procedure and a
tem of highly knowledgeable and proficient personnel, this department is expanding and
excelling itself day by day.
To the gateway to practical professional life an experience at MBL as an internee was a privilege
for me. MBL does offer a real practical orientation to the new comers with typical corporate
culture. Rather, it offers people like us an environment where the appetite for learning just gets
intense. This three months internship orientation with MBL undoubtedly will help me a lot to
understand and cope with any typical corporate culture.
- See more at: http://www.assignmentpoint.com/business/an-internship-report-on-foreignexchange-operations-of-mercantile-bank-limited.html#sthash.DjNafVYw.dpuf

An Internship Report On Foreign Exchange Operations of Mercantile Bank Limited

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

An Internship Report On Foreign Exchange Operations of Mercantile Bank Limited

Uploaded by

Copyright:

Available Formats

Introduction:

Bangladesh, I believe I have accumulated an experience unmatched to any other.

Figure 2.1: Diagram of evolution of banking business

Figure 2.2: At a glance-Evaluation in Banking Institutions in World According to Different Age

Name of the Bank

1st Bank in the World

1st Government Bank

Bank of San Georgio

Jointly established by traders

Established by Govt. incentive

Risk Bank of Sweden

1st Central Bank in the World

1st commercial Bank in Indian

Ancient Bank of Indian Continent

Central Bank of India

Ancient Bank of Indian Continent

Central Bank of France

1st Precedence Bank of India

Central Bank of Owned by private

Central Bank of Owned by private

1st licensed Bank in World which

2nd Precedence Bank of India

3rd Precedence Bank of India

Central Bank of Germany

Switch National Bank

Central Bank of U.S.A

Impreial Bank of India

Largest commercial Bank of India

Bank of establishment in private

1st central Bank in Indian

1st Muslim Bank in Indian

Reserve Bank of India

Habib Bank Ltd.

State Bank of Pakistan

Central Bank of Japan Owned by

Central Bank of Brazil owned by

1st Commercial and enlisted Bank

1st Bank established in Bengali

Table 2.1: List of some important Ancient Banks

4. Bangladesh Samabaya Bank.

Figure 2.3: Classification of Banks in Bangladesh

In more recent period, the economic situation of Bangladesh is like this:

Year Gross Domestic Product US Dollar Exchange

Inflation Index Per Capita Income

Table2.2: Macro-economic trend

Foreign Remittance Earnings

Table 2.3: Economic target

3.1. An Overview of Mercantile Bank Limited :

It maintains high standard of corporate and business ethics.

3.2.5. Nature of business:

Mercantile Bank Limited

Table 3.1: General Information of MBL

Figure 3.1: Composition of the board

3.5. Capital & Reserves:

3.5.1.1. Authorized Capital:

3.5.2.2. Other Reserve:

3.6. Milestones in the development of the organization:

Figure 3.2: Milestones in the development of the organization

3.7. Management Structure of MBL:

Figure 3.3 : Management Hierarchy

For 100 basis point decrease in interest rate

Table 3.6: Repricing Gap: 2008

Their approach to liquidity management is to project liquidity requirements based on expected