Business Education in Bangladesh

Today i am going to post a internship report.Internship report was part of my BBA degree.I have completed my internship from Al-Arafah Islami Bank Ltd.My internship topics was 'Foreign exchange practices of Al-Arafah Islami Bank Ltd.'

Chapter-1

Introduction

Bangladesh is largest of the Muslim countries in the world. The people of this country are deeply committed to lead an Islamic way of life which is best on the principle of Holy Quran and the sunnah . The Al-Arafah islami Bank which is established on June 18, 1995 is the true reflection of this inner urge of its people which started banking with effect from September 27, 1995. It is committed to conduct all Financial Activities banking and investment activities on the basis of interest free profit and loss sharing system. In doing so it has unveiled in a new horizon and unheard in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their Banking transaction in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic Banks, financial institution and government bodies, Al-Arafah Islami Bank Limited has new earned the unique position of a leading private commercial bank in Bangladesh.

Al-Arafah Islami Bank Limited has made a positive contribution towards the socio economic The equity of the bank stood at TK.1690 Million cr.on 31 December 2011.The manpower was 912 and the number of shareholders was 4487. development of the country by opening 90 branches in which 16 authorized dealer throughout the country. Finally, this report must provide the necessary information that can help us to ensure real practice of first growing banking activities in our country. In fact, Internship program is a practical course that teaches student how to develop and implement their hidden abilities in the personal life and job-oriented sector. In addition, it will help students understand the pitfall of the foreign exchange

Origin of the report

We student of Bachelor of Business administrative program are ask to complete internship program as an integral part of Bachelor of Business administrative program .After completion of the program period a student must submit the report on the assigned topic to the supervisor and the department . This programs duration is three months. I was assigned to Al-Arafah Islami Bank Limited to complete the report .My respective supervisor has given me the topic “Foreign exchange practices of Al-Arafah Islami Bank Limited “(Jatrabari Branch ).

Objective of the report

General objective of the report

The main purpose of the study to know the overall financial performance and foreign exchange performance of the Al-Arafah Islami Bank Limited and fulfilling the practical requirements of the BBA program.

Specific objectives are:

To gather comprehensive knowledge on overall banking function of the Al-Arafah Islami Bank Limited
To know about the policy of foreign exchange, L/C opening procedures and others activity.
To explain the meaning and concept of foreign exchange.
Interviewing the concern people to get information about the organization present and future plan regarding this topic.
To acquire in depth knowledge about AIBL.
To know the competitive strength and weakness of the bank.
To know the financial activities of Al-Arafah Islami Bank Limited.

Scope of the report

As I working in the Al-Arafah Islami Bank Limited, Jatrabari Branch, I got the opportunity to learn different part of banking system .I also get the opportunity to work in foreign exchange division. Here I get the details information about foreign exchange. I also work in general banking division. I have got the total information about the bank activities..

Methodology of the report

Methodology of the study

I make this report on the basis of my experience that I gathered during the internship report. within this period I have worked in both the general banking and foreign exchange department. But my topics is foreign exchange practices of AIBL. At first total duration was distributed in the following manner.

Selection of the topics and contents:

Before selection of the topic I discuss with my supervisors and I also discuss in bank about the selection of topics. I personally tale my supervisors that I want to work about foreign exchange. My supervisors give me the permission. Finally I choose the topics ‘’Foreign Exchange Practices of AIBL.

After selecting the topic I have prepared the contents that are essential for my report to conduct a study on the said topic.

Data sources

This study is mainly based on secondary data available from the various divisions and departments of Al-Arafah Islami Bank Ltd, in addition to these other necessary information have been collected from the relevant journals, annual reports of Al-Arafah Islami Bank Ltd, web side and publications of other relevant institutions have also been taken into consideration.

Primary sources:

Direct observation of daily banking activities.

Observation of daily transaction for operation level.
Conversation with concerned person (Officers, Employees).
Discussion with top level management.

Secondary sources:

A) Internal sources

Bank Annual Report
Brochure of AIBL
Monthly report
Published documents

B) External sources

Different books, Journals and periodicals that are related to the banking section. Official web site of the bank.

Tools & techniques for financial performance analysis:

For the financial performance analysis I have used several evaluation techniques like common size financial statements, ratio analysis, analysis etc.

Computer software: After gathering all the required data I have prepared my internship report using different software like- Microsoft Word and Microsoft Excel.

Limitations of the report

During my internship period, the problems that I faced are mentioned below:

Top level management officers are very busy:

In banking system, data is more important to evaluate the performance of the certain bank but data is managed strictly by the top level management and they are also busy.

Time limitation:

The major limitation is time binding .Experience comes from learning but learning takes time .Adequate time is required for learning .Three month is sufficient time but I will not get three month, because I start in late.

Secrecy problem:

Every organization follows its own secrecy .For a financial institution, it is very risky to disclose the secret information’s to others.

Inadequate data:

Some desired information could not be collected due to confidently of business and the limited services of the branch.

All of the above limitations are seriously hampered my internship report.

Chapter-2

Profile of the Al - Arafah Islami Bank LTD.

Historical background of AIBL

Islam provides us a complete lifestyle. Main object of Islamic lifestyle is to be successful both in our mortal and immortal life. Therefore in every aspect of our life we should follow the doctrine of Al Quran and life style of Hazrat Muhammad (sm) for our supreme success. Al-Arafah Islami Bank Limited started it journey in 1995 with the said principles in mind and to introduce a modern banking system based on Al –Quran and sunnah .

A group of established, dedicated and pious personalities of Bangladesh are the architects and directors of the Bank. Among them a noted Islamic scholar, economist, writer, ex-bureau craft of Bangladesh government Mr.Samsul Alam is the founder chairman of the bank .His progressive leadership and continuous inspiration provided a boost for the bank in getting a foothold in the financial market of Bangladesh .

A group of 26 dedicated and noted Islamic personalities of Bangladesh are the member of executive council of the bank .They is also noted for their business acumen. Al-Arafah Islami Bank Limited has 90 branches.

Wisdom of the directors, Islamic bankers and the wish of almighty Allah make Al-Arafah Islami Bank Limited most modern and a leading bank in Bangladesh.

Objectives of AIBL

Al-Arafah Islami Bank Limited is islami banking institution that operates with the objectives of implement and materialize the economic and financial principles of Islamic in the banking arena. The objectives of AIBL are not only to earn profit but also to do good welfare to the people .The main objectives of AIBL are listed below.

¨ To establish a banking system devoid of interest and based on Islamic Shariah.

¨ To offer banking facilities to those people who are staying outside the banking habit, especially to those, who have religious sympathy to banks based on interest.

¨ To provide commercial and investment banking services to big business clients.

¨ To provide facilities of intending Hajees to perform Hajj and Umrah.

Special features of AIBL

Ø All activities of the bank are conducted according to Islamic Shariah where profit is the legal alternative to interest.

Ø The bank’s investment policy follows different modes approved by Islamic Shariah based on Quran & Sunnah.

Ø The bank is committed towards establishing a welfare-oriented banking system, economic boost up of the low income group of people, create employment opportunities.

Ø According to the needs and demands of the society and the country as a whole the bank invests money to different Halal business.

Financial highlights of AIBL

Particulars	2009	2010	2011
Investment income	3502.14	4004.54	4143.30
Profit paid to depositors	2220.47	2667.34	3133.69
Net investment income	1281.68	1337.20	1009.61
Commission ,exchange and other	885.12	1301.10	3058.95
Total operating income	2166.80	2638.29	4388.56
Total operating expense	638.70	908.47	1328.61
Profit before tax and provision	1528.10	1729.30	3059.95
Provision on investment and other	269.20	140.59	370.80
Profit before tax	1258.90	1589.24	2689.15
Net profit after tax	668.24	858.99	1816.13
Earning per share(EPS)	48.29	47.75	4.21

Source: Annual Report 2009-2011

Mission of AIBL

· Maintaining high Achieving the satisfaction of Almighty Allah both here and hereafter

· Proliferation of shariah based Banking practices

· Quality financial services adopting the latest technology

· Fast and efficient standard of business ethics

· Balanced growth

· Steady and competitive return on shareholders equity

· Innovative banking at a competitive price Attract and retain quality human resources.

· Firm commitment to the growth of national economy involving more in micro and SME financing.

Vision of AIBL

To operate based on Islamic principles of transaction along with ensuring justice and equity in the economy.

To be a pioneer in Islami Banking in Bangladesh and contribute significantly the growth of the national economy.

To improve Banker-customer relationship through improving customer services.

To develop new and innovate products/service through integration of technology and policy and principle.

The Hierarchical Structure

Managing Director (MD)

Deputy Managing Director (DMD

)

Senior Executive Vice President (SEVP)

Executive Vice President (EVP)

Senior Vice President (SVP)

Vice President (VP)

Senior Assistant Vice President (SAVP)

Assistant Vice President (AVP)

First Assistant Vice President (FAVP)

Senior Principal Officer (SPO)

Principal Officer (PO)

Senior Executive Officer (SEO)

Executive Officer (EO)

Officer

Chapter-3

Foreign Exchange Operation Of AIBL

Foreign Exchange Division

Foreign exchange is the means and methods by which rights to wealth in a country's currency are converted into rights to wealth in another country's 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 Exchange Department (FED) is the international department Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign countries. So AL-ARAFAH ISLAMI Bank, Principal branch is an authorized dealer.

There are three kinds of foreign exchange transaction:-

‘ Import

‘ Export

‘ Remittance

IMPORT:

To import, a person should be competent to be and importer. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. In an international business environment, buyers and sellers are generally unknown to each other. So seller of goods always seeks security for the payment of his exported goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by 'Letter of Credit'.

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 (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.

Form of letter of credit

A letter of credit (L/C) may be two forms. These as below :
i) Revocable letter of credit.
ii) Irrevocable letter of credit.

(i) Revocable L/C : If any letter of credit can be amendment or change of any clause or canceled by consent of the exporter and importer is known as revocable letter of credit.

A revocable letter of credit can be amended or canceled by the issuing bank at any time without prior notice to the beneficiary. It does not constitute a legally binding undertaking by the bank to make payment. Revocation is possible only until the documents have been honored by the issuing bank or its correspondent. Thus a revocable credit does not usually provide adequate security for the beneficiary.

(ii) Irrevocable L/C : If any letter of credit can not be changed or amendment without the consent of the importer and exporter is known as irrevocable letter of credit.

An irrevocable credit constitutions a firm undertaking by the issuing bank to make payment. It therefore, gives the beneficiary a high degree of assurance that he will paid to his goods or services provide he complies with terms of the credit.

TYPES OF LETTER OF CREDIT

Letter of Credit are classified into various types according to the method of settlement employed. All credits must clearly indicate in major categories.

i) Sight payment credit.
ii) Deferred payment credit.
iii) Acceptance credit.
iv) Negotiation credit.
v) Red close credit.
vi) Revolving credit.
vii) Stand by credit.
viii) Transferable credit.

(i) Sight payment credit : The most commonly used credits are sight payment credits. These provide for payment to be made to the beneficiary immodestly after presentation of the stipulated documents on the condition that the terms of the credit have been complied with. The banks are allowed reasonable time to examine the documents.

(ii) Deferred payment credit : Under a deferred payment credit the beneficiary does not receive payment when his presents the documents but at a later date specified in the credit. On presenting the required documents, he received the authorized banks written undertaking to make payment of maturity. In this way the importer gains possession of the documents before being debited for the amount involved.

In terms of its economic effect a deterred payment credit is equivalent to an acceptance credit, except that there is no bill of exchange and therefore no
possibility of obtaining money immediately through a descant transaction. In certain circumstances, how ever, the banks payment undertaking can be used as collateral for an advance, though such as advance will normally only be available form the issuing or confirming bank. A discountable bill offers wider scope

(iii) Acceptance Credit: With an acceptance credit payment is made in the form of a tern bill of exchange drawn on the buyer, the issuing Bank or the pendent bank. Once he has fulfilled the credit requirements, the beneficiary can demand that the bill of exchange be accepted and returned to him. Thus the accepted bill takes the place of cash payment.

The beneficiary can present the we accented bill to his own bank for payment at maturity or for discounting, depending on whether or not he wants cash immediately. For simplicities sake the beneficiary usually gives on instruction that the accepted bill should be left in the safekeeping of one of the banks involved until it matures. Bill of exchange drawn under acceptances credit usually have a term of 60-180 days.

The purpose of an acceptance is to give the importer time to make payment. It he sells the goods before payments fall due, he can use the precedes to meet the bill of Exchange in this way, he does not have to borrow money to finance the transaction.

(iv) Negotiation credit : Negotiation means the purchase and sale of bill of exchange or other marketable instruments. A negotiation credit is a commercial letter of credit opened by the issuing bank in the currency of its own country and addressed directly to the beneficiary. The letter is usually delivered to the addressee by a correspondent bank. This credit is sometimes also as Hand on credit.

The letter of credit empowers the beneficiary to draw a bill of exchange on the using bank, on any other named drawer or on the applicant for the credit. The beneficiary can them present this bill to a bank for negotiation, together with the original letter of credit and the documents stipulated therein.

Payment of the bill of exchange is guaranteed by the issuing bank on the condition that the documents presented by the beneficiary are in order. The most common form of negotiation credit permits negotiation by any bank. In rare case the choice is limited to specified banks.

(v) Red clause credit : In the case of a red clauses credit, the seller can obtain an advance for an agreed amount from the correspondent bank, goods that are going to be delivered under the documentary credit. On receiving the advances, the beneficiary must give a receipt and provide a written undertaking to present the required documents before the credit expires.

The advance is paid by the correspondent bank, but it is the using bank that assumes liability. If the sellers does not present the required documents in time and fails to refund the advance, the correspondent bank debits the issuing bank with the amount of the advance plus interest. The issuing bank, in turn, has reveres to the applicant, who therefore bears the risk for the advance and the interest accursed. The clause permitting the correspondent bank to make an advance used to be written on red in home the name red clause credit.

(vi) Revolving Credit : Revolving credit can be used when goods are to be delivered in installment at specified intervals. The amount available at any one time is equivalent to the value of one partial delivery.

A revolving credit can be cumulative or non-cumulative means that amount from unused or incompletely used portions can be carried forward to subsequent period. If a credit is non-cumulative, portions not used in the prescribing period case to be available.

(vii) Stand by credit : Stand by credit are encountered principally in the US. Under the laws of most US states, banks are prohibited from issuing regular quarantines, so credits are used instead. In Europe, too the use of this type of credit is increasing by virtue of their documentary credit, stand-by credit are governed by the UCP. However, their function is that of a grantee. The types of payment and performance that can be guaranteed by stand-by credits include the following :

- Payment of thorium bill of exchange
- Repayment of bank advance
- Payment of goods delivered.
- Delivery of goods in accordance wets contract and
- Execution of construction contracts, supply and install contracts.

In order to enforce payment by the bank, the beneficiary merely presents a declaration stating that the applicant for the credit has failed to meet his contractual obligation. This declaration may have to be accompanied by other documents.

(viii) Transferable credit : Transferable credit are particularly well adapted to the requirements of international trade. A trader who receives payment from a buyer in the form of a transferable documentary credit can use that credit to pay his own supplier. This enables him to carry out the transaction with only a limited and lay of his own funds.

The buyer supplies for an irrecoverable credit issued in the traders favor.
As soon as the trader receives the confirmation of credit he can request the bank to transfer the credit to his supplier. The bank is under no obligation to effect the transfer except in so far as it has expressly consented to do so.

The costs of the transfer are usually charged to the trader and the transferring bank is entitled to delete them in advance.

PARTIES TO A LETTER OF CREDIT

A letter of credit is issued by a Bank at the request of an importer in favor of an exporter from whom he has contracted to purchases some commodity or commodities. The importer, the exporter and the issuing bank are parties to the letter of credit. There are however, one or more than one banks that are involved in various capacities and at various stages to play an important role in the total operation of the credit.

i) The opening Bank.
ii) The Advising Bank.
iii) The Buyer and the Beneficiary.
iv) The paying Bank.
v) The negotiating Bank.
vi) The confirming Bank.

i) The opening Bank : The opening Bank is one that issues the letter of credit at the request of the buyer. By issuing a letter of credit it takes upon itself the liability to pay the bills drawn under the credit. If the drafts are negotiated by the another bank, the opening Bank reimburses that Bank. As soon as the opening Bank, issuing a letter of credit (L/C), it express its undertaking to pay the bill or bills as and when they are drawn by the beneficiary under the credit. When the bills are presented to or when antic is received that bills have been presented to a paying or negotiating Banks its liability matures.

ii) The Advising Bank : The letter of credit is often transmitted to the beneficiary through a bank in the letters country. The bank may be a branch or a correspondent of the opening bank. The credit is some times advised to this bank by cable and is then transmitted by it to the beneficiary on its own special form. On the other occasions, the letter is sent to the bank by mail or telex and forwarded by it to the exporter. The bank providing this services is known as the advising bank. The advising bank undertakes the responsibility of prompt advice of credit to the beneficiary and has to be careful in communicating all its details.

iii) The Buyer and the Beneficiary : The importer at whose request a letter of credit is issued is known as the buyer. On the strength of the contract that he makes with the exporter for the purchase of some goods that the letter of credit is opened by the opening bank.

The exporter in whose favor the credit is opened and to whom the letter of credit is addressed is known as the beneficiary. As the seller of goods he is entitled to receive payment which he does by drawing bills under the letter of credit (L/C). As soon as he has shipped the goods and has collected the required documents, he draws a set of papers and presents it with the documents to the opening bank or some other bank mentioned in the L/C.

iv) The paying Bank : The paying bank only pays the drafts drawn under the credit but under takes no opening bank, by debating the letters accounts with it if there is such an account or by any other measured up, between the two bankers. As soon as the beneficiary has received payment for the draft, he is out of the picture and the rest of the operation concerns only the paying bank and the opening bank.

v) The Negotiating bank : The negotiating bank has to be careful in scrutinize that the drafts and the documents attached there to are in conformity with the condition laid down in the L/C. Any discrepancy may result in refused on the part of the opening bank to honor the instruments is such an eventuality the negotiating bank has to look back to the beneficiary for refund of the amounts paid to him.

vi) The Confirming Bank : Sometimes an exporter stipulates that a L/C issued in his favor be confirm by a bank in his own country. The opening this country to add its confirming to the credit the bank confirming the credit is known as the confirming bank and the credit is known as confirmed credit.

CONTENTS OF THE LETTER OF CREDIT

Banks normally issued letter of credit (L/C) on forms which clearly indicate the banks name and extent of the banks obligation under the credit. The contents of the l/c of different Banks may be different .In general l/c contain the following information :-

i) Name of the buyer : who is also known as the accounted since it is for his account that the credit has been opened.

ii) Name of the seller : Who is also known as the beneficiary of the credit.

iii) Moment of the credit : Which should be the value of the merchandise plus any shipping charges intent to be paid under the credit.

iv) Trade terms : Such as F.O.B and CIF

v) Expiration date : Which is specified the latest date documents may be presented. In this manner or by including additionally a latest shipping date, the buyer may exercise control over the time of shipment.

vi) Documents required : Which will normally include commercial invoice consular or customers invoice, insurance policies as certificates, if the source is to be effected by the beneficiary and original bills of lading.

vii) General description of the merchandise : Which briefly and in a general manner duly describes the merchandise covered by a letter of credit.

PROCEDURES OF OPENING THE L/C

The importer after receiving the proforma invoice from the exporter, by applying for the issue of a documentary credit, the importer request his Bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the short of commodity that can be traded on an organized market, such an arrangement would involve the bank in excessive risk outside its specialist field. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount.

Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The applicant cannot prevent a bank from honoring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted.

The importer submit the following documents before opening of the L/C :

a. Tax Identification Number (TIN)
b. Valid Trade License.
c. Import Registration Certificate (IRC)

The Bank will supply the following documents before opening of the L/C :
a. LCA form.
b. Application and Agreement form.
c. IMP form
d. Necessary charge documents for documentation.

The above documents / papers must be completed duly signed and filled in by the party according to the instruction of the banker.

Parties to the L/C

Importer	Who applies for L/C
Issuing Bank	It is the bank which opens/issues a L/C on behalf of the importer.
Confirming Bank	It is the bank, which adds its confirmation to the credit and it, is done at the request of issuing bank. Confirming bank may or may not be advising bank
Advising or Notifying Bank	It is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit.
Negotiating Bank	It is the bank, which negotiates the bill and pays the amount of the beneficiary- The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.
Accepting Bank	It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank
Reimbursing Bank	It is the bank, which would reimburse the negotiating bank after getting payment - instructions from issuing bank.

Steps for import L/C Operation - 8 steps operation:

Step 1 - Registration with CCI&E:

• For engaging in international trade, even⁷ trader must be first registered with the Chief Controller of Import and Export.

• By paying specified registration fees to the CCI&E- the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.

Step 2 - Determination terms of credit:

• The terms of the letter of credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange-period and mode of shipment and of destination, nature of credit, expiry date name and number of sets of shipping documents etc.

Step 3 - Proposal for Opening of L/C:

To have an import LC limit an importer submits an application to department to AL-ARAFAH-ISLAMI Bank.

The proposal contains the following particulars:

Full particulars of the bank account.
Nature of business.
Required amount of limit.
Payment terms and conditions.
Goods to be imported.
Offered security.
Repayment schedule.

Step 4 - Application by importer to the banker to open letter of credit:

• For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with the following documents:

1. L/C Application form	7. Authority to debit account
2. Filled up LCA form	8. Filled up amendment request Form
3. Demand Promissory Note	9. IMP form
4. pro-forma invoice	10. Insurance cover note and money receipt
5. Tax Identification number	11. Membership certificate
6. Import registration certificate	12. Rate fluctuation undertaking

Step 5 - Opening of L/C by the bank for the opener:

Taking filled up application form from the importer.
Collects credit report of exporter from exporter's country through his foreign correspondence there.
Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own form where it is addressed to him or merely hand over the original L/C to the beneficiary if it is so addressed.

Step 6 - Shipment of goods and lodgment of documents by exporter:

Then exporter ships the goods to the destination of the importer country.

Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the Opening Banker with L/C:

1. Bill of Exchange	6. Packing List
2. Bill of Lading	7. Advice Details of Shipment
3. Commercial Invoice	8. Pre-shipment Inspection Certificate
4. Certificate of Origin	9. Vessel Particular
5. A certificate stating that each packet contains the description of goods over the packet.	10.Shipment Certificate

Step 7 - Lodgment of Documents by the opening Bank from the negotiating bank:

After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retiring the document. At this time many thing can happen. These are indicated in the following:

Discrepancy found but the importer accepts - no problem occurs in lodgment.

Discrepancy found and importer not agreed to accept - In this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C.

Documents are OK but importer is willing to retire the documents - In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD.

Everything is O.K. but importer fails to clear goods from the port and request bank to clear - In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer's account and in banking it is called LIM.

Step 8 – Retirement:

The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR (Loan against Trust Receipt).

Accounting Procedure in case of L/C Opening:

When the officer thinks fit the application to open a L/C, giving the following entries-creates the following charges:-

Particulars	Debit/ Credit	Charges in Taka
Customer's A/C	Debit	12%
L/C Margin A/C	Credit	10%
Commission A/C on L/C	Credit	50%
VAT	Credit	15% on commission
SWIFT Charge	Credit	3000/=
Data max	Credit	1000/=
Stamp	Credit	150/=
Postage	Credit	300/=
HL/Courier	Credit	1500/=

Amendment of L/C:

After opening of L/C some time's alteration to the original terms and conditions become necessary. These amendments involve changes in

a Unit price.

b. Extension of validity o the L/C.

c. Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

For any amendment the importer must request the issuing bank in writing duly supported by revised indent/preformed invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.

Loan against Trust Receipts (LTR):

Advance against a Trust Receipt obtained from the Customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained.

The customer holds the goods or their sale-proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.

The Trust Receipt is a document that creates the Banker's Hen on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

Loan against Imported Merchandise (LIM):

Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation, of goods, retaining margin prescribed or their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank

shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.

Payment Procedure of Import Documents:

This is the most sensitive task of the Import Department The officials have to be very much careful while making payment. This task constitutes the following:

Date of Payment:

Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing Sale Memo:

A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

Requisition for the Foreign Currency:

For arranging necessary fund for payment a requisition is sent to the International Department

Transmission of Message:

Message is transmitted to the correspondent bank ensuring that payment is being made.

EXPORT:

Understanding:

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CC & E).

No exporter is allowed to export any commodity permissible for export from Bangladesh .

Unless he is registered with CC! & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed ever}year. The ERC number is to be incorporated on EXP forms and other documents connected with exports. The formalities and procedure are enumerated as follows:

1. Obtaining exports LC: To get export LC form exporter issued by the importer.

2. Submission of export documents: Exporter has to submit all necessary documents to the collecting bank after shipping of goods

3. Checking of export documents: After getting the documents banker used to check the documents as per LC terms

4. Negotiation of export documents: If the bank accepts the document and pays the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. If the bank does buy the LC then the bank normally acts as collecting bank

5. Realization of proceeds: This is the period when the issuing bank has realized the payment.

6. Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment.

7. Issue to proceeds realization certificate (PRC): Bank has to issue precede realization certificate of export LC to the supplier / exporter for getting cash assistance

Export operation:

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 country's 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 AL-ARAFAH-ISLAMI BANK are readymade garment 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.

As An Advising Bank:

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

Total import and export

(In million taka)

Total import

Years	2009	2010	2011
Amounts In Million	34074.80	55934.10	76112.10

TOTAL EXPORT

Years	2009	2010	2011
Amounts In Million	23546.10	32042.40	52202.10

Fig: Total Import and Export

As Negotiating Bank:

It negotiates the bills and other shipping documents in favor of the exporter. That is_? it collects the proceeds of the export-bill from the drawer and credits the exporter's account for the same. Collection proceed from the export bill is deposited in the bank's NOSTRO account in the importer's country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawer to in cash it.

In our country, Export and Import operation of bank is very much related with one another because of use of Back to Back and maturity of payment for Back-to-Back L/C is set in such that it can be paid out of export proceeds.

Back-To-Back L/C:

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/C. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.

Features Of Back To Back L/C:

• An Import L/C to procure goods /raw materials for further processing.

• It is opened based on Export L/C,

• It is a kind of Export Finance.

• Export L/C is at Sight but back to Back L/C is at Séance.

• No margin is required to open Back to back L/C

• Application is registered with CCI&E

• Applicant has bonded warehouse license.

• L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.

• Séance period will be up to 180 days.

• The import L/C is opened for 75% of the value of Export L/C.

• Here L/C issued against the lien of export L/C.

• Arrangements are such that export L/C matures first then out of this export profit, import L/C is paid out.

Documents Required for Opening a Back-to-back L/C

In AL-ARAFAH-ISLAMI Bank Principal Branch, following papers/ documents are required for opening a back-to-back L/C-

1. Master L/C.

2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC).

3. L/C Application and LCAF duly filled in and signed.

4. Performa Invoice or Indent.

5. Insurance Cover Note with money receipt.

6. IMP Form duly signed.

In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C -

1. Textile Permission.

2. Valid Bonded Warehouse License.

3. Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

Check list of export I/C :

Following defective points are usually found in the Master L/C. So, these points are so much carefully checked by the bank officials. These are:

1. Name of the Advising Bank.

2. Name of Transferring Bank

3. Form of Doc. credit:

• Name of Issuing Bank

• Documentary Credit No. And issuing date

• Date of shipment

• Expiry date and place

4. Applicant/ for order of/ On Account.

5. Beneficiary/ Favoring

6. Amount

7. Availability of Credit

8. Partial shipment/ Transshipment

9. Payment condition /Draft Sight

10. Category.

11. Description of goods:

• Item

• Total Qty

• Unit price

12. B/L Clause

13. Reimbursement clause.

14. UCPDC Clause

15. Net FOB value.

Payment of back to back L/C:

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

L/C under EOF:

• Exporter development Fund is created by Bangladesh Bank to give encourages to the exporter in Bangladesh.

• Generally Back-to-Back L/C is Nuisance L/C that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance/negotiation. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank gives the fund to the bank to pay the price of imported goods in favor of the local purchaser of raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.

Negotiation of Export Documents:

The most common method of financing exporters is negotiation of documents under L/C. It is a post-shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents are to submit within the period mentioned in the L/C. after approval of negotiation of the bill the full particulars of the documents are branch with a forwarding letter. The branch claim reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to credit the proceeds of the bill to the AL-ARAFAH-ISLAMI Bank head office NOSTRO A/C maintained with the named correspondent bank abroad under telex intimation to the Principal branch and Head Office (International Division).

Negotiation stands for payment of value to the exporter against "the documents stipulated in the LAC. If documents are in order, AL-ARFAH-ISLAMI Bank purchases (negotiates) the same on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).If the bank is not satisfied with the documents submitted to AL-ARAFAH-ISLAMI Bank gives the exporter reasonable time to remove the discrepancies or sends the documents to

L/C opening bank for collection , this is known as Foreign Documentary Bill for Collection (FDBC) entered into the Foreign, bill Purchased (F.B.P) register. The documents are sent to the L/C opening

Presentation of export documents for negotiation/Purchase:

After shipment exporter submits the following documents to AL-ARAFAH-ISLAMI Bank for negotiation.

• Bill of exchange

• Bill of Lading

• Invoice

• Insurance Policy/Certificate

• Certificate of Origin

• Inspection Certificate

• Consular Invoice

• Packing List

• Quality Control Certificate

• G.S.P. certificate.

Foreign documentary bills for collection (FPBC):

Settlement of Local Bills:

1. The settlement of local bills is done in the following ways. -

2. The customer submits the L/C to AL-ARAFAH-ISLAMI Bank along with the documents to negotiate

3. AL-ARAFH-ISLAMI Bank official scrutinizes the documents to ensure the conformity \\ith the terms and conditions.

4. The documents are then forwarded to the L/C opening bank.

5. The L/C issuing bank gives the acceptance and forwards an acceptance letter.

6. Payment is given to the customer on either by collection basis or by purchasing the document.

Mode of payment of export bill under L/C:

As per UCPDC 500, 1993 revision there are four types of credit. These are as follows;

Sight Payment Credit: In a Sight Payment Credit the bank pays the stipulated sum immediately against the exporter's presentation of the documents.

A Deferred payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. Payment is given to the party at the rate of D. A 60-90-120-180 as the case may be. But the Head office is paid at T.T clean rate. The difference between the two rates us the exchange trading for the branch.

Acceptance credit: In acceptance credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

L/C OPERATION OF AIBL

Today AIBL is one of the leading and most successful Banking enterprises in the country. If pay a great role in the economy of the country. By export-import business the Bank play a great role to the economy of Bangladesh. AIBL is one of the greatest bank in export-import business.

Foreign trade plays a vital role in the economic advancement process of a nation. So the trend of country's foreign trade, i.e import & export is of a great concern to the government of a country. Fluctuation in the parameters of foreign trade immediately brings about some impact on the total economy. As such the nature, trend and the volume of foreign trade are required to keep peace with the national economic needs and objective. There may be some areas where emphasis is to be given while there may be others which deserve restrictions or discouragement. Moreover the items of import & export value and volume of the same, the corresponding time period, sources of fund far payment and receipt, all these factors are to be considered very carefully for making necessary adjustment to match with the national economic policies as well as achieve balanced economic growth through the interpolicy and interpolicy co-ordination.

International trade policy relates to commercial policy which has two main components of Import policy relates to commercial policy which has two main components of Import policy and Export policy. With a view to achieving favorable balance of payment position as well as to encouraging or well to encouraging or well regulated and need based foreign trade of the country, the government formulates the national commercial policy i.e. import and export policy for a certain period considering all the favorable & unfavorable aspects of the nation's previous trade performance as well as the future requirement and prospects.

L/C OPERATION OF AIBL (Continue)

As the policy matter and the operational of import & export trade are quite different, two separate policies for import & export trade are formulated by the government. Import policy refers to government policies account for a particular fiscal period envisaging the allocation of fund available from various sources for import of certain quantity of certain goods. The main purpose of the policy is to conserve scare foreign exchange & to ensure its utilization for the import of goods and services which have national priority. The selected persons on institutions those who have got valid Import Registration Certificate (IRC) form the Chief Controller of Import and Export (CCI & E) can import and they are known as importers.

These importers can import goods as entitled in each year as per import policy by opening letter of credit (L/C) through bank i.e. Authorized Dealer (A.D). Authorized Dealer means the branches of commercial banks, those who are authorized / licensed by the Bangladesh Bank to deal in foreign Exchange. Letter of Credit may be defined as the letter as the letter of undertaking or letter of guarantee issued by the L/C opening bank on behalf of the importer submits all the documents as mentioned in the L/C submits all the documents as mentioned in the L/C within the time schedule to his bank i.e. exporters bank.

Before opening L/C in favor of the exporter the entitlement of the importer (total amount in taka he can import as per import policy) to be registered with Bangladesh Bank. For this purpose the importer is to apply through L/C. Authorization form (LC A form). This is a set in quintuplicate and the authorized dealer will issue LCA form to the individual importer at their request. After filled up and signed up the appropriate column of the LCA from, the importer will submit it to Authorized Dealer who inurn forward the same to Bangladesh Bank for registration where fund is purchased from Bangladesh Bank. After registration Bangladesh Bank forward the 1st and 2nd copy of LCA form to the Authorized Dealer, 3rd and 4th copy to CCI & E and keep the 5th copy as their office copy. 1st copy of LCA is known as Exchange Control copy against which Authorized Dealer can open L/C at the request of the importer. 2nd Copy is known as custom purpose copy which will be handed over to the importer who will clear the goods from the port on its arrival through this custom purpose copy of LCA along with other shipping documents.

FOREIGN REMITTANCE

This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services.

The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes place an agreed rate of exchange, which the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like am other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.

Remittance procedures of foreign currency:

There are two types of remittance:

1. Inward remittance

2. Outward remittance.

1. Inward Foreign Remittance: Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D, and bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.

2. Outward Foreign Remittance: Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills retired.

An overview on Foreign Exchange Risk Management:

Definition of Risk: Risk is Uncertainty of outcome leading to loss of money, loss of reputation and/or destabilization of cash flows. It is an inherent part of foreign exchange trade and money market operation. It never can be avoided but to minimize.

Risk Management:

i) Identifying Risk

ii) Measure of controlling Risks

i) Identifying Risk:

a) Credit Risk / Counter party Risk- It is the risk of loss due to inability or unwillingness of the counterparty to meet its obligation.

b) Liquidity Risk- Liquidity risk is the risk that a bank will be unable to meet its funding requirements or execute a transaction quickly and at a reasonable price.

c) Market Risk- There are two types of market risk as and when investment is made in foreign currency viz.,i) Currency Exchange Rate Risk and ii) Interest Rate Risk.

d) Operational Risk- Operational risk can arise out of many situations, e.g. on account human error or fault system and procedures.

e) Other Risks – Country Risk, Legal Risk, etc.

ii) Measures of controlling Risk:

a) Credit Risk – Through selection of counterparty and fixation of counter party limit.

b) Liquidity Risk and Market Risk – to minimize this type of risk we can follow a benchmark. Currency composition, investment portfolio, duration etv. are include in the benchmark.

c) Operational Risk- To ensure the minimum level of operational risk , there are three offices/groups/desks viz., i) Front office ii) Middle office and iii) Back office.

d) Other Risks – Open position limit , day-light limit/Intra-day limit- overnight limit- stop loss limit, currency wise limit, dealer wise limit, country limit etc.

More Risks in international trade can be divided under several types, such as,

Economic risks:

 Risk of concession in economic control

 Risk of insolvency of the buyer

 Risk of non-acceptance

 Risk of protracted default i.e. the failure of the buyer to pay off the due amount after six months of the due date

 Risk of Exchange rate

Political risks

 Risk of non- renewal of import and exports licenses

 Risks due to war

 Risk of the imposition of an import ban after the delivery of the goods

 Surrendering of political sovereignty

Buyer Country risks

 Changes in the policies of the government

 Exchange control regulations

 Lack of foreign currency

 Trade embargoes

Commercial risk

 A bank's lack of ability to honor its responsibilities

 A buyer's failure pertaining to payment due to financial limitations

 A seller's inability to provide the required quantity or quality of goods

Others Risks

 Cultural differences e.g., some cultures consider the payment of an incentive to help trading is absolutely lawful

 Lack of knowledge of overseas markets

 Language barriers

 Inclination to corrupt business associates

 Legal protection for breach of contract or non-payment is low

 Effects of unpredictable business environment and fluctuating exchange rates

 Sovereign risk - the ability of the government of a country to pay off its debts

What types of risks will have to manage?

Customer Risk:

You will need an assessment of the credit worthiness of your customer. This should include checking the following:

The identity of your customer. Do they exist as a legally established business in the country of import? Are you dealing with someone who has the authority to bind your customer?

The usual period of credit offered in your customer's country;

The credit limit you are prepared to offer your customer; the trading history of your customer. Are they a prompt payer? Have there been any changes to their normal payment patterns?

Are your exports compatible with your customer's normal business profile?

Can your customer pay the bill?

Insolvency. Remember that a customer's insolvency can involve you in a pre credit risk, where losses can occur if your customer becomes insolvent during the manufacturing process or at any time before or after the despatch of the export consignment.

You can obtain the information needed to carry out these checks either yourself or through a reputable credit agency or credit insurer.

Country Risk: As well as your customer, their country can pose separate risks that you will need to manage. Country risks traditionally fall into five areas:

Sovereign: The willingness or ability of the government to pay its debts. This is affected by the political climate within the country (the legislature, judiciary and government institutions); internal and external threats to the country; international trading performance including balance of payments record; the level of national debt and the amount of foreign exchange reserves. Other political decisions can also frustrate your export sales; these include the imposition of embargoes, tariff or other quotas, and import or export restrictions.

Private: The ability of the private sector to pay for its imports. This situation is affected by the state of the domestic economy, the commercial institutions in the country, and the competence of banking and financial services sector.

Natural: Some regions of the world suffer from regular climactic catastrophes (for example annual flooding, drought, earthquakes and other disasters). When these occur they can severely disrupt the operations of both the business sector and the government.

Fashion and Finance: International trading patterns often create a fashionable region or country as an export market. In these circumstances trade finance is often readily available, allowing you to offer good credit terms to your export customers. However, fashions change and countries can quickly go out of favor for both exports and trade finance.

Other: These include transfer risks such as the inconvertibility of the local currency; transaction risks such as late or non-payment, and transition risks for emerging markets where the threats are the effectiveness of the liberalization programmed, failure to complete economic structural reforms and any possible destabilizing influences.

Credit Risk:

Perhaps the first question you should ask is 'Can I afford to give my customers credit?' To decide how much credit you are prepared to advance you must consider :

The amount of credit outstanding in your trading accounts, both overseas and domestic

What do you know about your customer and what is the maximum amount of credit you should NOT exceed;

Can you carry any financial shortfall? What will be the impact on your business if your customer delays payment or does not pay at all?

How will you finance the credit period you offer? This means do you have sufficient money to allow you to offer credit terms in export sales contracts as part of your business cycle.

Exchange Risk:

When you trade internationally you will most likely be dealing in more than one currency. This means you are exposed to fluctuations in the foreign exchange market. You can learn how to manage this risk by referring SITPRO's guide on foreign exchange market.

Other risks:

If you manufacture goods to order you must include in your export strategy a contingency that will help you manage the risk of a frustrated export - this is when your customer refuses the goods. You should have a plan to either resell the product to another market or realize a salvage value for your goods.

You must also have procedures in place for the collection of your invoice amount. Under your contract you may have to collect your money in your customer's country. This does have its risks as collection maybe more uncertain or expensive, so you will have to consider the legal system in their country. Your contract may, however, allow you to take legal steps to recover your debt in another country, including your own.

How do manage these risks?

You can do the job yourself or employ the services of a comprehensive credit management and insurance provider. If you decide, for sound business reasons, to do the job 'in house' then you must have the resources and knowledge to: Gather credit and other trade information about existing, and potential, customers; Research the country and associated risks;

Examine the need for credit insurance, identify the most appropriate policy and investigate competitive products and services; manage the credit insurance policy and maximize any benefits.

If you decide to go down this route, you will have to consider the financial and other impacts on your business. These include senior management ownership of the credit management strategy; the allocation of sufficient time, resource and money to do the job, and a review of your export catalogue prices. You must remember to include the costs of 'in house' risk management and extending credit terms in your export quotes. Otherwise, a profit can soon turn into a loss as administrative costs eat into your bottom line.

Chapter-4

Company Analysis

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as SWOT analysis.
The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

Fig: SWOT Analysis

Strength

v All the level of management is solely directed to maintain a culture for the betterment of the quality of the service and the bank is operated base on Islamic Shariah.

v As a Islamic bank, they get the religious feelings of the people.

v Skilled personal have development professional relationship with their customers and clients, which is an emotional tie on a regular business.

v Profit and loss sharing policy also a good strength.

v Al-Arafah Islami Bank Limited has a Welfare Foundation which acts as Promotional activities.

Weakness

v Reference appointment is very much effective in AIBL. As a result of this there are many who are only drawing salaries at the end of the month but making a minimum contribution towards the organization.

v AIBL has not set up proper network system among branches.

v A remarkable portion of the total human resources is inefficient.

v The bank does not have any research and development division.

Opportunity

v The bank can introduce more innovated modern customer service to better survive in the competition.

v They can also offer micro credit business for individual and small business.

v Rural Development Scheme of Al-Arafah Islami Bank Limited has a great chance to save the county’s poor people from taking loan from different NGOs or few banks with higher interest rate, because Al-Arafah Islami Bank Limited provides no Interest.

v Bank will be able to accommodate knowledgeable, skilled, experience and hard working person by offering attractive remunerations and fringe benefits with nice working environment.

Threat

v Central bank (B.B)is always supervising the local and foreign banks in Bangladesh and sometimes it is hampering the normal operation of private bank .

v Through the innovation working is in contentious process ,but the other rival banks are coping it within the short time .

v The world is advancing towards technology very fast. Though AIBL taken effort to join the stream, it is not possible to complete the mission due to the poor technological infrastructure of our country.

v The rapid expansion of one of the biggest Islami Shariah bank named Islami Bank Bangladesh Limited is referred to as major threats for Al-Arafah Islami Bank. Islami Bank Bangladesh can provide faster and smooth services to its clients because of dealing a good foreign exchange business.

v At the time of Foreign Exchange Business sometimes Al-Arafah Islami Bank Limited has faced some problems associated with information technology which hamper to deal with Export, Import and Remittance.

Chapter-5

Financial Performance Analysis

Common size Statement: “ Normalize” balance sheet & income statement items to allow easier comparison of different size firms. A common size balance sheet expresses all balance sheet accounts as a percentage of total asset. A common size income statement all income statement items as a percentage of sale.

Al-Arafah Islami Bank Limited

Common Size Analysis

(Balance Sheet)

Particulars	2011(%)	2010(%)
Assets
Non current asset
Property,plant,equipment	0.49	0.92
Current asset
Accounts receivable	0.17	1.37
Investment	84.14	75.41
Membership Cost	9.61	17.05
Advance, Deposits & Prepayment	0.11	0.000024
Preliminary Expenses	-	0.11
Cash and Bank Balance	3.57	5.13
Advance Income Tax	1.92	0.02
Total asset	100%	100%
EQUITY AND LIABILITIES:
Capital and Reserve	54.9	97.44
Paid -up Capital	6.39	0.95
Current Liabilities
Borrowing from Bank	33.02
Accounts Payable	2	1.03
Provision for Investments	0.23	-
Provision for taxation	3.45	0.57
Total Equity and Liabilities	100%	100%

Common size analysis

(Income Statement)

particulars	2011	%	2010	%
Net Investment Income	584250665	100	62691955	100
Brokerage Commission	136608980	23.38	-	-
Documentation & Maintenance Fess	3126000	0.5350	-	-
Other Operating Income	18527653	3.171	-	-
Total operating Income (A)	742513298	-	62691955	-
Hawla,Laga & CDBL Charges	19819366	3.39	-	-
Salary allowances& Contribution to P.F	23677002	4.05		-
Rents, Taxes, Insurance, Lighting etc.	9884202	1.69	-	-
Honorarium & Meeting Expense	596000	0.1020	-	-
Law Charges	3000	0.00051	-	-
Postage, Telegram, Telephone & Stamps etc	412580	0.070	-	-
Depreciation, Amortization & Repairs to Properties	11368549	1.94	-	-
Stationery, Printing, Advertisement etc.	783551	0.1341	-	-
Audit Fees	100000	0.0171	50000	0.079
Other Expenses	4292650	0.734	10575	0.016
Total operating expenses (B)	70936900	12.14	60575	0.0966
Profit/(loss) before provision and Tax C = (A - B)	671576398	-	62631380	-
Provision for Investments	16694065	2.8573	-	-
Provision for Taxation	228187183	39.05	23486768	37.46
Net Profit after Tax	426695150	73.03	39144612	62.43
Retained Earning Brought forward	39144612	6.69	-	-
Retained earning Carried forward	465839762	79.73	39144612	62.43

Interpretation of Balance Sheet

One useful way of analyzing financial statement is to convert them into common size statements by expressing absolute taka amount into percentage. A common size balance sheet expresses all balance sheet account as a percentage of total assets. From the common size balance sheet of AIBL we can say that the current asset position is good. In current liability borrowing from bank is 33.02%.

Interpretation of income statement

In common size, the income statement exhibits each expense items or group items as a percentage of net sale/net invested income. From the above income statement we can say that net profit after tax has increased in year 2012.It is 73.03 %.Retained earning position also has increased in year 2012.

Important ratio regarding banking sector

Names of Ratios	year 2011	year 2010	year 2009	year 2008
Credit deposit ratio	89.07%	93.43%	94.21%	93.44%
Ratio of classified investment	1.02%	1.14%	1.68%	2.75%
Cost of fund	11.08%	9.72%	11.08%	10.46%
Return on asset	1.71%	2.55%	1.77%	1.80%
Earning per share	3.01	3.26	2.00	37.15
Net income per share	3.01	3.26	2.00	37.15
Price earning ratio	12.57times	20.53times	9.53 times	9.53 times

Credit Deposit Ratio:

Credit deposit ratio is also known as investment-deposit Ratio. Over the last four years investment deposit ratio is in a moderate form. For maintain liquidity it should be less than 100%.

Fig: Credit deposit ratio

Ratio of classified investment:

Ratio of classified investment has decreased in year 2011.It was higher in 2010.I think it is in moderate form. It was higher in 2008.

Fig: Ratio of classified investment

Cost of Fund:

Cost of fund has been increased due to government roles, Bangladesh bank roles, and political condition. Maximum banks are sufferer in this case. Cost of fund has increased in 2011.

Fig: Cost of fund

Return on asset

Return on asset measures the overall effectiveness of measurement in generating profits with its available assets. Return on asset has decreased in year 2011,it was good in 2010.Here they need to be improved.

ROA= Earning available for common stockholders/ Total asset

Fig: Return on asset

Earning Per Share

Earnings per share represent the number of dollars earned during the period on behalf of each outstanding share of common stock. Earning per share is not in good condition.

EPS=Earning available for common stockholders/No. of share

Fig: Earning per share

Net income per share

Net income per share is an important indicator. In the year 2008 net income per hare was in good position. After that it has decreased. At the end of year 2011 it is 3.01tk. AIBL need to be improved here.

Fig: Net income per share

Price earning ratio

The price earning ratio shows how much investors are willing to pay per dollar of reported profit. P/E ratios are higher for firms with strong growth prospects. P/E ratio is lower in 2011 rather then 2010.

Fig: P/E ratio

Comparative analysis

Comparative analysis with other banks of important ratios regarding banking sector

Comparatives analysis

AL-ARAFAH ISLAMI BANK with others bank

Names of ratios	Al-Arafah Islami Bank Ltd.		IFIC Bank Ltd.		Trust Bank Ltd.		Bank Asia		Initials
Years	2011	2010	2011	2010	2011	2010	2011	2010	Good-Moderate-Low
Credit Deposit Ratio	89.07%	93.43%	86.94%	87.02%	77.18%	78.95%	87.06%	92.06%	Moderate
Percentage of classified loan against total loans and advances	1.02%	2.41%	4.06%	4.76%	3.02%	2.41%	2.72%	1.62%	Moderate
Cost of Fund	11.08%	6.38%	5.91%	4.14%	8.98%	6.38%	11.97%	9.23%	Low
Return on Investment	12.22%	21.96%	16.91%	17.19%	7.13%	21.96%	13.98%	15.79%	Moderate
Return on Asset	1.71%	2.19%	0.89%	2.37%	0.81%	2.19%	1.72%	2.22%	Good
Earnings Per Share	3.01	3.26	2.58	5.95	2.32	4.79	3.65	4.59	Moderate
Price Earnings Ratio	12.57 times	7.63 Times	26.19 Times	18.81 Times	5.40 Times	7.63 Times	10.48 Times	8.34 Times	Good

Interpretation

Credit deposit ratio

Credit deposit ratio is an important factor for bank. If credit deposit ratio increase that is not good for bank. If it is becoming low that is not also satisfactory. If we compare the performance with other bank. The credit deposit ratio performance of AIBL is not satisfactory. Here trust bank performance is better then others.

Percentage of classified loan

If we analyze the performance of classified loan, we can say that the AIBL has lowest percentage of classified loan rather then other bank.

Cost of fund

If we compare the performance of cost of fund, we can say that the cost of fund performance is too bad. It is only better then Bank Asia.AIBL cost of fund has increased in year 2011.

Return on investment

Return on investment performance of AIBL is not too bad. The performance is better then trust bank. But it has decreased in year 2011.

Return on asset

Return on asset performance of AIBL is better then other bank. Though it has decreased in year 2011.

Earning per share

Every bank earning per share has decreased in year 2011 rather then other bank. But the performance of AIBL is moderate.

Price earning ratio

Price earning ratio performance of AIBL is good. It has increased in year 2011.But the IFIC bank price earning ratio performance is better then other bank.

Comparative Analysis in case of Foreign Exchange Operation(2011)

Sector	Al-Arafah Islami Bank (In Million)	Trust Bank (In Million)	IFIC Bank (In Million)	Bank Asia (In Million)
Export	52202	38544	83846	74794
Import	76112	37880	71517	99414
Remittance	11650	10603	12724	21777

Regarding with other performance of AIBL. foreign exchange performance is good. AIBL has standard amount of export, import, & remittance comparison with other bank. IFIC Bank & Bank Asia has extraordinary performance on foreign exchange activities but AIBL expands their business incredibly in recent years gradually. The performance we will see in graph.

Fig: Comparative analysis of foreign exchange

Chapter-6

Findings,Recommendation,

And Conclusion

Findings

The 3 (three) month internship program has been going to be finished through writing a report. During the time of internship I have tried with my best to acquire theoretical and practical knowledge banking business. While working at Al-Arafah Islami Bank Limited in Jatrabari Branch, Dhaka, I have attained a newer kind of experience with investment procedure and general banking as well. After collecting and analysis data I have got some findings . These findings are completely my personal view of point, which is given below.

Ø For religious principles, peoples those who have strong believe on Islamic Shariah as well as rule of Quran and Sunnah, most likely of their family members and friends are choosing Islamic banking principles.

Ø I have seen not Islamic minded peoples but also another religious person open accounts and take loan from the Islamic bank.

Ø Peoples want to use Islamic mode of investment, but they have not sufficient knowledge about those mode of principles. So lack of knowledge of client, sometimes it is hard to employee to giving service smartly and it’s takes more time as well.

Ø Communication gap between employees in foreign exchange department need to be solved.

Ø Bank’s gives loan depends on customer relationship with the bank, otherwise in case of new client they take more time to understand client’s activities.

Ø Financial performance of Al-ARAFAH Islami bank need to be developed

Ø Islamic banks are exposed to less credit risk compared to conventional banks. Their credit performance is superior to that of conventional banks.

Recommendations

To increase the efficiency in customer service and interest of the Bank (Al-Arafah Islami Bank Ltd.) should try to develop the structural principals of Foreign Exchange Transaction. The other suggestions are as follows:

Personal relationship should be buildup with the customers.

Customer should be satisfied with the foreign exchange transaction charges and commissions.

The decoration of the branch or the department should be well decorated.

All Head office circular of the bank should be available in every branches.

The foreign exchange In charge or foreign exchange dealing officer need other bank visits to develop their activities.

The foreign exchange officers need training to increase their skills.

The foreign exchange officers should know the risk of foreign exchange transaction by proper training and workshop.

The foreign exchange officers should know the various government Import/Export policy.

The foreign exchange officers should know International laws and practices for successful foreign trade.

The foreign exchange officers should know UCPDC-600 properly because UCPDC-600 is the most important practice/law of the Export/Import transaction.

CONCLUSION

Modern Commercial Banking is exacting business. The reward are modest, the penalties for bad looking are enormous. And Commercial bank's are great monetary institutions, important to the general welfare of the economy more than any other financial institution. It has a vastly sobering and exacting responsibility.Al-Arafah Islami Bank Limited (AIBL) playing a vital role in financing import and exports of the country. Without Bank's co-operation, it is not possible to run any business or production activity in this age. Exports and import need finance in various stages of their activities. Export and import financing are letter of credit (L/C), payment against documents (PAD/MIB), loan against imported merchandise (LIM/MPI) etc. All these facilities are provided by AIBL. For this purpose Bank's consider the borrower's business standing, integrity, liability with the bank term and conditions of the L/C. There are lot of risks involved in foreign business. So, the Al-Arafah Islami Limited (AIBL) have to clearly justify the customers from a neutral point and gather the current information about the market. AL-ARAFAH ISLAMI Bank Ltd. is a new generation Bank. It is committed to provide high quality financial services/products to contribute to the growth of G.D.P of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country. The is not so far when it will be in a position to overcome the existing constraints and it may be expected that by establishing a network over the country and by increasing resources this bank will be able to play a considerable role in the portfolio of development of financing.

Bibliography

Report

Annual Report of AL-ARAFA ISLAMI Bank Limited (2009-11).

Annual report of IFIC Bank 2011

Annual report of TRUST Bank 2011

Annual report of Bank ASIA 2011

Website

http://www.aiblbd.com

http//google.com

Appendix

BALANCE SHEET OF AIBL AS AT 31 DECEMBER, 2011

Particulars	2011(Taka)	2010(Taka)
Asset
Non-current asset
Property,plant,equipment	35626536	56281865
Current Assets
Account Receivable	12268583	56281865
Investment	6129808847	3095364029
Membership cost	700000000	700000000
Advance,Deposit,Prepayment	7845740	100000
Preliminary Expenses	-	4567685
Cash and Bank balance	260211675	210394698
Advance income tax	139661458	641009
Total Asset	7285422839	4104967444
Equity and liabilities
Capital and Reserve
Paid-up capital	4000000000	4000000000
Retained Earning	465839762	39144612
Current liabilities
Borrowing from bank	2405755505
Accounts Payable	145459555	42336064
Provision for investment	16694065	-
Provision for taxation	251673952	23486768
Total equity and liabilities	7285422839	4104967444

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 2011

Particulars	2011(Taka)	2010(Taka)
Net Investment Income	584250665	62691955
Brokerage Commission	136608980	-
Documentation & Maintenance Fess	3126000	-
Other Operating Income	18527653	-
Total operating Income (A)	742513298	62691955
Hawla,Laga & CDBL Charges	19819366	-
Salary allowances& Contribution to P.F	23677002
Rents, Taxes, Insurance, Lighting etc.	9884202	-
Honorarium & Meeting Expense	596000	-
Law Charges	3000	-
Postage, Telegram, Telephone & Stamps etc	412580	-
Depreciation, Amortization & Repairs to Properties	11368549	-
Stationery, Printing, Advertisement etc.	783551	-
Audit Fees	100000	50000
Other Expenses	4292650	10575
Total operating expenses (B)	70936900	60575
Profit/(loss) before provision and Tax C = (A - B)	671576398	62631380
Provision for Investments	16694065	-
Provision for Taxation	228187183	23486768
Net Profit after Tax	426695150	39144612
Retained Earning Brought forward	39144612	-
Retained earning Carried forward	465839762	39144612
Earning per share(Tk 10)	1.07	0.10

Highlight on the Overall Activities of the Bank for the year – 2011

SL NO.	Particulars	2011	2010
1	Paid -up Capital	5,893,371,990	4,677,279,360
2	Total Capital	10,641,902,360	10,492,564,919
3	Capital Surplus(Deficit)	1,310,542,360	2,527,829,596
4	Total Assets	103,518,725,257	75,374,365,400
5	Total Deposits	82,447,188,444	53,184,360,164
6	Total Investment	73,433,810,827	53,582,960,723
7	Total Contingent Liabilities	21,482,781,684	23,436,873,855
8	Investment Deposit Ratio (%)	89.07%	100.75%
9	Ratio of Classified Investment	1.02%	1.14%
10	Profit after Tax & Provision	1,772,056,340	1,919,902,271
11	Amount of classified invest	751,100,000	610,475,871
12	Provision kept against CI	305,935,000	102,028,000
13	Provision Surplus / (Deficit)	-	50,000,000
14	Cost of fund (%)	11.08%	9.72%
15	Profit earning Assets	88,093,066,722	64,665,876,221
16	Profit Non-earning Assets	15,425,658,535	10,708,489,179
17	Return on Investment (ROI)	12.22%	7.92%
18	Return on Assets (ROA)	1.71%	2.55%
19	Income from Investment in Shares	105,394,687	33,138,660
20	Earning per Share (Taka)	3.01	3.26
21	Net Income per share (Taka)	3.01	3.26
22	Price Earning Ratio (Times)	12.57	20.53

Thursday, August 8, 2013

Internship report