Professional Documents
Culture Documents
on
L/C Operation of
Janata Bank
Internship Report on
Career Plan and development
Submitted to
Mr. Md Moqbul Ahmed
Assistant Professor
Department of Management Information Systems
University of Dhaka
Dhaka
Prepared by
Mohammad Mohiuddin
SL No-15
MBA 2nd Batch
Department of Management Information Systems
University of Dhaka
Date of Submission
30th September 2006
Letter of Transmittal
Table of Contents
Contents
Page No.
Executive Summary
VIII
1-3
2
2
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3
3
4-6
5
5
6
7-10
8
8
8
8
8
9
11-16
12
13
13
14
15
16
BIBLIOGRAPHY
List of Tables
Contents
Page No.
15
28
29
32
32
33
34
35
35
36
36
38
List of Charts
Contents
Page No.
16
22
31
31
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32
35
35
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38
Preface
An individual can expect to have a good understanding and knowledge on the various
methods of operations performed by the Janata Bank in case of Trade Finance operations,
i.e., Import and Export , going through this report. Everything is tried to include here in
precise form. This report is to be used only for the academic purpose. I have collected all
the necessary and relevant data and information from various primary and secondary
sources. The data and information is truly and strictly confidential and no one can use its
components in full or partial. I would like to give thanks to everyone who has helped and
encouraged me in the process of preparation of this report.
Acknowledgement
First of all I would like to thanks to the all mighty for special blessing in completing the
report. This project work is an accumulation of many peoples effort. So, with my honesty
I would like to show my gratitude to them who helped me through kind advice,
suggestions, directions and co-operations in preparing this report.
I am thankful to the Department of Mis, University of Dhaka for giving me such exposure
to the practical business world. My warmest thanks go to Mr. Md. Abul Kashem,
Assistant Professor of Dhaka University.
I am thankful also to my class-mates for their help in preparing this report.
Finally, I am thankful to my internal supervisor Mr. Md. Abul Kashem, Assistant
Professor of Dhaka University, for his appropriate suggestions, moral support and
invaluable co-operation from time to time in completing the internship program and
submitting the report.
However, the responsibilities of errors and omissions in the report, if any, lie with me.
Executive Summary
This internship report is prepared on the basis of one year long theoretical knowledge and one
months long practical experience at the Dilkusha Corp. Branch of Janata Bank. This internship
program and preparation of this report helped me a lot to learn about the practical environment
and situation of a financial institution and also make up a bridge between the theoretical and
practical aspects.
Bank provides the means and mechanisms of transferring resources over the country. Currently it
is playing an important role in Foreign Trade. Higher import demands in china and continued
higher domestic consumption in USA sustained the growth momentum resulting 10.2 % increase
in world trade volume.
Janata Bank has already established a world wide network and relationship in international
Banking through its 4 (four) overseas branches and 1221 foreign correspondents. The Bank has
earned an excellent business reputation in handling and funding international trade particularly in
boosting export & import of the country. The Bank finances exports within the frame-work of the
export policy of the country. It is one of the pioneers in promoting back to back Letter of Credit
for the RMG (Ready Made Garments) sector.
In order to avoid differences in interpretation of letter of credit terms, the International Chamber
of Commerce has formulated a set of rules to guide banks in the use of documentary letter of
credit, although the first attempt in this direction was made as early as 1933, the latest version is
contained in publication No. 290 which has come into operation from October 1, 1975.
In processing L/C, Janata Bank earns income through charging various activities relating to it
such as L/C opening charge, postage charge including Telex and SWIFT, amendment charge, and
miscellaneous charges which include issuance of Bank Certificate, advice etc. L/C opening charge
acts as the major source of income from import L/C.
In February the income from import L/C was highest and afterwards the income is decreasing
gradually. And again in October the income raises suddenly. In April the income from BTB
Export L/C is highest and afterwards the income is decreasing gradually. The charges charged by
Sonali and Janata Bank are almost the same in most services but PCB charges more than NCB.
The highest no. of import L/C opened in the month march and most of the L/C is opened during
month February to June. The highest no. of BTB Export L/C opened in the month February and
most of the L/C is opened during month January to May. China and India dominate the import
market. Accessories dominate the import market.
Correlation analysis shows that there is a high degree of negative correlation exists between
Import and Profit; a low degree of positive correlation exists between Export and Profit, and a
very low degree of negative correlation exists between Foreign Trade and Profit.
The initial part of the report contains the global & Bangladeshs economy, Janata Banks history,
operations & activities, financial condition and services. The main part of the report includes
theoretical overview of L/C, L/C related operations practiced in Janata Bank, analysis of gathered
information and finally recommendations depending on analysis.
INTRODUCTIO
N
INTRODUCTION TO THE INTERNSHIP REPORT
Chapter Hints
Chapter Contents
INTRODUCTION
TO THE INTERNSHIP REPORT
10
Research Design:
Data collection: Both primary and secondary data is used for this report writing.
Primary Data: Most of the information was collected from primary sources. This
includes the interviews with the managers and officials of the bank.
Secondary Data: This includes a number of books, journals, handbooks, annual
report and websites.
Research Approach and Instrument: In this research informal questionnaire was used
to interview the bank officials instead of structured questionnaire. Observation and
experience of month long internship served as a major source of information.
Sample unit and sample size: Only the L/C issued from January 2005 to December 2005
in the Dilkusha Corp. Branch of Janata Bank is taken as the sample unit and the sample
size includes all those L/Cs.
Report Organization:
The report is organized as follows:
The initial part of the report includes the global & Bangladesh economy and
overall organization; which describes overall global and national situation,
banking sector as well as the history, background, operations & activities,
financial conditions and the products & services offered by the Janata Bank at a
glance.
The later part is the main project part, which includes five chapters describing
theoretical overview, practice in Janata Bank, behavior analysis, recommendations
regarding L/C operation and overall profitability point of view.
CHAPTER 1 : GLOBAL AND BANGLADESH ECONOMY
CHAPTER 2 : OVERVIEW OF THE JANATA BANK
CHAPTER 3 : L/C OPERATION : A THEORITICAL REVIEW
CHAPTER 4 : L/C OPERATION : PRACTICED IN JANATA BANK
CHAPTER 5 : L/C OPERATION : ANALYSIS
CHAPTER 6 : RECOMMENDATION AND CONCLUSION
APPENDIX AND BIBLIOGRAPHY
11
CHAPTER 1
GLOBAL AND BANGLADESH ECONOMY
Chapter Hints
Chapter Contents
Global Economy
Bangladesh Economy
Banking Sector
12
Global Economy
The year 2004-2005 was eventful in the world scenario. Events like natural disaster,
political instability, surging oil price, declining exchange value of US Dollar had great
impact on world economy. Despite these impediments, world economy had grown by 4%
during the year of 2004-2005. Among the major factors in this growth were the on going
economic boom in china, surges in economic activities in Japan and the USA. During this
period European high income countries experienced less growth rate and slower
economic recovery. Higher import demands in china and continued higher domestic
consumption in USA sustained the growth momentum resulting 10.2 % increase in world
trade volume.
According to the global outlook 2005, a report published by World Bank, GDP growth
rate was 6.00 % in south Asian countries except India, compared to 5.6% in the previous
year. Productive growth in industrial sectors of Bangladesh & Pakistan, development of
services & agricultural sector of Nepal and Srilanka were the major contributors to such
growth.
The experts believe that global economic growth might slow down in 2006 and 2007.
Several factors may contribute to the expected slower growth. Some of the notable causes
for slower will be the investment cycle in the USA may reach its peak, the world demand
may grow much higher than supply resulting in substantial increase in prices of oil and
other essential commodities. As a result it may imply a decline in income. Central banks
around the world may continue to take more neutral stance in their monetary policies,
which may hinder the investment. Besides this chinas effort to achieve a sustainable pace
of growth should contribute to lesser demand in the medium term. Moreover predictions
are that chinas aggressive presence in the world trade may a continuous opportunity for
improvement.
Bangladesh Economy
During the year 2004-2005 the growth rate of GDP was 5.52% as against 5.20% of
previous year. Rising oil price and price hike in essential commodities could not weaken
13
the growth rate. Steady growth in the industrial and service sector contributed to this
achievement.
Growth rate in agricultural sector declined to 2.41% in financial year 2004 as against
3.29% of previous year. Despite favorable weather conditions there was significant
reduction of growth in crops and horticulture sub sector. As a result in financial year 2004
the growth of agriculture sector was hampered. The forestry and fishing sub-sector
marked a sharp growth due to increase in domestic demand. While growth rate remained
unchanged in animal farming sector.
Overall growth in the year 2004-2005 was substantial. Exports increased by 16.1% to US
$7603 million against US $6548 million of financial year 2003-2004. Ready made
garments sector had substantial contribution to this growth.
Import increase by 12.9% in financial year 2004-2005 over the previous year. Sugar
import increased by 6.3%, edible oil increased by 29.1%, fertilizer by 37.8%, capital
goods by 5.1%, plastic and rubber articles by 30.5%. While import of rice declined
significantly.
At the same time wage earners remittance by Bangladeshis working abroad increased by
9.7% resulting current account surplus of 0.20 billion. Consequently foreign currency
reserve increased significantly. Anti money laundering measures also contributed
significant increase in foreign remittance and foreign exchange reserve.
Broad money (M2) growth stood at 13.8% in financial year 2004-2005, higher than the
projected growth of 12.2% but lower than 2003-2004 growth o f15.65%. Despite various
adversities economic growth was substantial.
Banking Sector:
The banking sector of Bangladesh played an important role towards economic growth of
Bangladesh. From the beginning of financial year 2003 Bangladesh Bank took initiatives
in reforming financial sector. Steps for prevention of money laundering, loan write off
policy and effective measures to gain accountability and transparency made banking
operations more acceptable. As a result, the image of banking sector has been elevated.
Bangladesh Bank also identified five core risks areas for management of the banks and
L/C Operation of Janata Bank
14
provided necessary guidelines for implementation. Those are: Foreign Exchange Risk
Management, Asset Liability Management, Prevention of Money Laundering, Credit Risk
Management, Internal Control and Compliance. This initiative will bring overall
discipline in the sector and enhance operational profit.
15
CHAPTER 2
BANK
GLOBAL AND BANGLADESH ECONOMY
Chapter Hints
Chapter Contents
16
www.janatabank-
bd.com
Janata Bank established under Bangladesh Bank (Nationalization) Order 1972, is one of
the leading Government Owned Commercial Banks in Bangladesh. The Bank's
Authorized and Paid-up Capital as on 31st December 1994 was Tk. 800.00 crore and Tk.
259.40 crore respectively. Reserve Fund of the Bank as on 31st December 1994 was Tk.
12.20 crore. The Bank is governed by the Bangladesh Bank (nationalization) Order 1972
and also by its own internal regulations.
Branch network
Janata Bank is one of the largest Nationalized Commercial Bank of Bangladesh. Presently
the bank has been functioning with a network of total 904 branches. The Bank has been
functioning with a net work of Total 897 Branches including 4 Overseas Branches in
U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44
Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances.
Management system
The Bank's present Board of Directors comprises of One Chairman and Six Directors
appointed by the Government.
Financing IT sector
Financing of industry
Ready cash
Windows for SMEs
Loan to travel agencies
Loan to diagnostic center
NRB escrow account
L/C Operation of Janata Bank
17
Import-Export Business
Janata Bank has already established a world wide network and relationship in
international Banking through its 4 (four) overseas branches and 1221 foreign
correspondents. The Bank has earned an excellent business reputation in handling and
funding international trade particularly in boosting export & import of the country. The
Bank finances exports within the frame-work of the export policy of the country. It is one
of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made
Garments) sector.
Janata Bank always aims to increase its foreign exchange business. The Bank has been
doing international banking with all major Banks of the world. It has been, however,
handling bulk of the international businesses with the following multinational Banks:
Citibank N. A.
American Express Bank Ltd.
Standard Chartered Bank
HSBC.
The Chase Manhattan Bank
Through quite a good number of Authorized Dealer Branches and 1221 nos. foreign
correspondents world wide Janata Bank has been extending full range import and relevant
finance facilities.
To boost up country's Export, Janata Bank has been providing different kinds of
assistance to exporters. Some of which are as under: Providing Pre-Shipment and Post-Shipment Finance, Export Guarantee and
bonding facility etc.
Concessional rate of interest for exports Finance.
Back to Back L/C under bonded Warehouse facility
Sight & Unasked L/C against Firm Contract for import of raw materials.
Sight L/C under EDF
Exporter's Retention Quota A/C both interest bearing and non-interest bearing.
Export incentive Program.
Banking at Export Processing Zone
Scope for establishment of export oriented industry by 100% foreign investment
and by joint-venture
18
The sole bank to disburse Government Export Promotion Fund against export of
Computer Software & Data Entry Processing
Providing services to the exporter by utilizing most modernized technology like
Swift, Reuters, Internet, Fax etc. Any latest business information will be available
at their website; http://www.janatabank-bd.com/
Consultancy and advisory services by an expert group of officials.
Special export financing program towards computer software, data entry and
service.
Facilities Offered:
Opening of L/C at competitive/ reasonable margin and commission
Concessional rate of interests on import finance to the prime customers & interest
rebate facilities.
Import Items:
Capital Machineries and Industrial raw materials.
Fuel & Lubricants.
Intermediate goods.
Consumer durable, spare parts and equipments.
Consumer goods: Baby food, Petroleum, CDSO (Crude Degummed Soyabean
Oil), Oilseeds, Cement, Construction Materials, Fertilizer, Chemicals, etc.
Salient Features:
A Firm or Company having valid ERC, necessary infrastructural and technical
facilities and sufficient skilled man power related computer.
Member of BASIS or BCS.
Having Computer Literacy or related professional background.
Preference to the firm/company having prior experience
Satisfactory performance Certificate/Acceptance Letter from Counterpart abroad.
Valid Export Orders are in hand.
19
CHAPTER 3
L/C OPERATION : A THEORITICAL REVIEW
GLOBAL AND BANGLADESH ECONOMY
Chapter Hints
Chapter Contents
20
Letter of Credit
A letter addressed by a bank, at the insurance and responsibility of a buyer of
merchandise, to a seller, authorizing him to draw drafts to a stipulated amount under
specified terms and undertaking conditionally or unconditionally to provide eventual
payment for drafts.
Letter of credit is a documentary credit of a bank. This is a kind of pre-shipment
financing. Through this letter bank assures the exporter to give acceptance of his/her bills
or pay the value of the bill when importer fails to do so. In international trade, there is the
peculiar of distance and unfamiliarity between parties concerned exporter and importer.
If the importer fails to pay price, the exporter will find it difficult or too costly to recover
the amount. The importer is generally required to open a letter of credit with a certain
bank having branches or agent thereto in both the importing and exporting countries.
Thus the importer proves his creditworthiness to the foreign exporter by obtaining a letter
of credit from the bank and sending the same to the foreign dealer.
Trade between countries is mainly financed through letter of credit. The international
chamber of commerce has defined a letter of credit as:
Any arrangement however named or prescribed whereby a bank (the issuing
bank) acting at the request and in accordance with the instructions of a customer
(the applicant of the credit), is to make payment to or to the order of a third party
(the beneficiary ) or is to pay, accept or negotiate bills of exchange (drafts) drawn
by the beneficiary, or authorize such payments to be made or such drafts to be
paid, accepted or negotiated, by another bank, against stipulated terms and
conditions.
Letter of Credit is quite literally a letter that extends a line of credit to an individual or
business entity. A bank on behalf of one of its customers writes it. A letter of credit is a
banking mechanism that allows importers to offer secure terms to exporters.
Every Letters of Credit contain these elements:
A payment undertaking given by the bank (issuing bank)
On behalf of the buyer (applicant i.e.; importer)
To pay a seller (beneficiary i.e.; exporter)
A given amount of money
On presentation of specified documents representing the supply of goods
Within specific time limit
These documents conforming to terms and conditions set out in the letter of credit
Documents to be presented at a specified place.
Thus when a stipulation is incorporated in the sale contract that the goods shall be paid by
a bankers letter of credit , the seller need not to worry whether the goods will be cleared
by the buyer on arrival at the destination and the buyer need not block up his funds by
making payment in advance. As a matter of fact, a commercial letter of credit substitutes
the creditworthiness of the banker issuing the letter of credit since it is a promise by the
bank to pay or accept the bill, provided the exporter (the beneficiary) fulfills the terms
and conditions set out in the credit.
L/C Operation of Janata Bank
21
Buyer/importer: the buyer/importer, who is applies to the bank for the opening
of a letter of credit
Seller/exporter: the seller/exporter is the beneficiary of the letter of credit
Issuing Bank: the bank, which issues the letter if credit at the request of the
buyer, is the issuing bank. The buyer gives instructions regarding the terms
and conditions of the credit.
Notifying Bank: the correspondent bank situated in the same place as that of
the seller, which advices the credit to the beneficiary. But the notifying bank
does not commit itself to any liability under the credit. Generally, the services
of a notifying bank are utilized when the credit is advised to the seller through
a cable message.
Negotiating Bank: the bank which negotiates the bills or drafts under the letter
of credit. Generally, the same bank acts as the notifying and the negotiating
bank.
Confirming Bank: usually, the seller insists that a bank in his own country
must confirm the credit. Such a bank is known as the confirming bank. The
advantage of this confirmation from the sellers point of view lies in the fact
that he is assured of payment as soon as the shipment documents are presented
his own centre. It may be noted that, the primary liability lies with the
confirming bank, once the credit is confirmed by it, provided the seller fulfills
the terms and conditions of the credit.
Paying Bank: the bank on which the bill or draft is drawn. It can be the issuing
bank, the notifying bank or the confirming bank.
L/C Operation of Janata Bank
22
The following section will gives a more detailed overview of how these parties participate
in the L/C operations.
A Letter of Credit, simply defined, is a written instrument issued by a bank at the request
of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter
(Beneficiary) for goods or services, provided that the Exporter presents all documents
called for, exactly as stipulated in the Letter of Credit, and meets all other terms and
conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to
as a Documentary Credit.
23
24
25
Importer
Exporter
6
2
14
Ship of the
Goods
15
Issuing Bank
Advising Bank
12
4
7
Reimbursing
Bank
11
Negotiating
Bank
13
3
10
Confirming
Bank
26
CHAPTER 4
L/C OPERATION : PRACTICED IN JANATA BANK
GLOBAL AND BANGLADESH ECONOMY
Chapter Hints
Chapter Contents
27
Janata Bank has already established a world wide network and relationship in
international Banking through its 4 (four) overseas branches and 1221 foreign
correspondents. The Bank has earned an excellent business reputation in handling and
funding international trade particularly in boosting export & import of the country. The
Bank finances exports within the frame-work of the export policy of the country. It is one
of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made
Garments) sector. In Janata Bank, only authorized branches are allowed to open an L/C.
Account holder of the bank: first of all, L/C applicant must be a client of the bank.
If a new client comes in for opening L/C, he/she has to open an account with
Janata bank first.
Trustworthiness: this is the vital issue while considering about opening the L/C.
the past experience of dealings with that person is considered. For a new
applicant, his/her previous dealings with other banks are considered.
Volume of business: the volume of business is also a major factor to be
considered.
Post-import retirement: Post-import retirement is another factor that will have to
be considered for opening L/C.
Detailed analysis of financial condition: Detailed analysis of financial condition of
the applicant is required for the process, especially for a new applicant.
And finally the personal relationship of the applicant with the bank or its high
officials plays a vital role in opening L/C.
28
29
and fourth copies of LCAF are to be sent to concerned area of CCI&E office by
authorized dealer/Registration Unit of Bangladesh Bank. Fifth copy is kept as office copy
by authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF)
contains the following
Communication media:
Communication between the parties and bank involved in the process is very important
for the efficiency of L/C operation. Janata Bank has the facility to use the following
communication media:
postage for mailing
courier
cable / telex
30
of the products to be imported, margin and so on. The applicant shall have to
apply for the required forms of the bank.
Step 2: Discussion between Janata Bank and the party:
After receiving the application form, the Bank pays attention to the issues
mentioned below.
The products that are going to be imported are considered. Because there
are restrictions by the government on some products.
The quoted rates are specially analyzed as there also some restrictions by
the government.
Step 3: Collecting forms and depositing those with necessary documents:
In this step, the applicant collects the L/C application form, LCA Form and IMP
Form from the bank. These forms are to be filled up by the client. The forms and
all other necessary documents are then deposited at the desk of the dealing officer.
Step 4: Checking Documents:
All the documents are checked out by the dealing officer. He/she checks specially
the quoted rates, the terms and conditions of the indent or pro forma invoice and
the validity of the documents. Generally the person from whom the forms are
collected is engaged in checking out the documents.
Step 5: Putting L/C No:
After checking the documents and L/C No. is given. Generally the officer who
checks the documents puts the L/C No.
Step 6: Preparing offering sheet:
The offering sheet is prepared by the dealing officer. Usually the officer who
checks the documents prepares the offering sheet.
Step 7: Singing offering sheet:
The offering sheet is then signed by the officer having the authority to open the
L/C of the specified amount. If it is within the maximum limit of the amount (for
which the L/C is applied) of the SAVP or branch manager, he can sign it. But if it
is beyond his/her limit proposal must be sent to the head office, either for case-tocase sanction or for credit limit. Generally, in Janata Bank, SAVP or branch
managers are empowered to open an L/C without communicating with the head
office, if the L/C amount is within his / her limit.
Step 8: Typing the L/C:
After the approval of opening L/C is given, the L/C is typed in a structured
format.
31
Chart-2:
Flow Chart mentioning Steps in issuing an L/C in Janata Bank
Application in
companys letterhead
pad
Discussion between
the Bank and the party
Preparing offering
sheet
Checking Documents
Dispatching L/C
32
33
Import Finance
Janata Bank
However, post import finance is beyond the scope of this report. Thus the following few
sections will describe the import L/C processing of Janata Bank.
Import L/C The Process:
The whole process of L/C in Janata Bank completes in three stages:
L/C issuance
Lodgment
Retirement
L/C Issuance: This is the step where the importer opens an L/C with the bank.
This is the main part the report will focus on and will be discussed in detail later.
Lodgment: On receipt of the documents from the negotiating bank, the L/C
issuing bank will make entry the particulars of the documents in the Inward
Foreign Bills Register and prepare the voucher by converting the foreign
currency into Bangladeshi Taka. This stage is known as the Lodgment of import
bills.
34
Retirement: On receipt of the copy of lodgment from the bank, the importer will
deposit the required amount and take delivery of the shipping documents. This
stage is known as the Retirement of Import Bills.
Check list for Import L/C:
Janata Bank uses a checklist to verify the overall issuing process of import L/C. The
check list contains the following:
35
Export Finance
Janata Bank
Post shipment finance has not been included for discussion in this report. Thus the
following few sections deal with the means that Janata Bank uses for pre shipment
finance, i.e. PCC and BTB L/C.
Packing Cash Credit (PCC):
PCC is a short term credit with a fixed repayment date granted by the bank to an eligible
exporter. This loan is generally given on the basis of irrevocable L/C, but sometimes it
can be given without L/C on the basis of agreement which is given to valued constituents
or exporters.
PCC is given for the following purpose:
To buy raw materials
To process raw materials
To pay freight
To pay insurance
To pay inspection fees
To pay packing charge
Documents verified for granting PCC:
After the L/C is submitted to the bank counter, the bank starts to process all the
documents as per the L/C terms and conditions. Before sanctioning the PCC, the
following points are verified in Janata Bank:
Check whether the L/C is issued by the reputed bank (1st class bank).
L/C Operation of Janata Bank
36
Obtain the credit report of importer, especially when the applied loan amount is
large.
L/C expiry date is checked and PCC is not allowed after that date.
Stock report must be submitted regularly to the bank
Loans are given for the period from the time of purchasing raw materials up to
shipment of goods.
Bill of Exchange
Commercial Invoice
Bill of Lading
Air Way Bill
Rail Way Receipt
Insurance Policy
Certificate of Origin
Certificate of Manufacture
Inspection Certificate
Packing List
Clean Report of Finding (CRF)
37
38
.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.4%
Taka 300
.5%
.25%
Taka 250
Taka 100
At actual, Min. Taka 1500
At actual, Min. Taka 1500
At actual, Min. Taka 1500
Taka 250
Taka 250
Taka 100
Taka 500
Own party:
Taka 250
Other Bank party: Taka 500
Taka 500 + Actual Telex Charge
Taka 100
L/C Operation of Janata Bank
39
Stamp
Taka 150
Source: Primary Data
Total time mentioned here is not simple addition of the time required for basic activities.
Rather it is provided from the interview with the bank officials.
Relevant activities that affect the time structure:
Application for forms in company letterhead pad
Discussion between bank and the applicant
Filling in the forms
Dispatching the L/C
40
CHAPTER 5
L/C OPERATION : ANALYSIS
GLOBAL AND BANGLADESH ECONOMY
Chapter Hints
Chapter Contents
41
Opening
Charge
Postage
Income
Amendments
Miscellaneous
Amendments
Miscellaneous
42
10
11
12
Month
The chart shows that in February the income was highest and afterwards the income is
decreasing gradually. And again in October the income raises suddenly.
Month-wise Income from BTB Export L/C:
The following chart exhibits a comparison of month-wise income at Janata Bank,
Dilkusha Corp. Branch, from BTB Export L/C with mentioning the confidential income
amounts, during the period of January to December, 2005.
Table-5:
Month-wise income from BTB Export L/C
Chart-6:
Month-w ise income from BTB Export L/C
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
Ju
l
Au
g
Se
p
O
ct
N
ov
D
ec
Ja
n
Fe
b
M
ar
Ap
r
M
ay
Ju
n
0.00
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
The chart shows that income is increasing and decreasing gradually in wave form. In
April the income is highest and afterwards the income is decreasing gradually.
43
Janata Bank
.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.4%
Taka 300
.5%
.25%
Taka 250
Sonali Bank
.5%
.25%
Taka 250
.75%
.5%
Taka 300
.8%
.5%
Taka 300
.5%
.25%
Taka 250
Taka 100
Taka 100
Courier
At actual,
Min. Tk.1500
At actual,
Min. Tk.1500
At actual,
Min. Tk.1500
At actual, Min.
Taka 1500
At actual, Min.
Taka 1500
At actual, Min.
Taka 1500
Tk.100(Local)
Tk.300(Foreign)
At actual, Min.
Taka 1500
At actual, Min.
Taka 3500
At actual, Min.
Taka 3500
Taka 250
Taka 250
Taka 100
Taka 250
Taka 250
Taka 100
Taka 500
Taka 500
Taka 500
Taka 500
Taka 500
Taka 500
Taka 250
Taka 500
Taka 500 +
Actual Telex
Charge
Taka 100
Taka 150
Taka 250
Taka 500
Taka 500
Taka 750
Taka 1000
Taka 1000
Taka 100
Taka 150
Taka 200
Taka 150
Source: Primary Data
Telex
SWIFT
Amendment Charges
Value increased / decreased
Maturity extension
Others
Other Charges
L/C cancellation
Export L/C advising charge
Own party:
Other Bank party:
L/C transfer
Issuance of Bank Certificate
Stamp
.5%
.3%
Taka 400
.6%
.4%
Taka 500
.6%
.3%
Taka 400
.6%
.35%
Taka 400
The above table shows that, the charges charged by Sonali and Janata Bank are almost the
same in most services. But the costs charged by CBL vary in most cases from these two,
L/C Operation of Janata Bank
44
although not a great degree. In almost all cases, CBL charges higher than the two NCBs.
According to bank officials interviews, this is due to CBL being a PCB and Sonali and
Janata Bank being NCBs. the officials of CBL also claim that they provide much better
and faster service , which justifies charging higher costs.
90-120
50-60
Source: Primary Data
Total time mentioned here is not simple addition of the time required for basic activities.
Rather it is provided from the interview with the bank officials.
From the table the following decision can be made:
City Bank Ltd. as PCB works much faster than the two NCB mentioned
Putting L/C no. is the least time consuming activity in the process
Typing the L/C and checking the L/C are the activities that do not vary much from
bank to bank in terms of time
Typing the L/C is the most time consuming activity among the mentioned.
Relevant activities that affect the time structure:
Application for forms in company letterhead pad
Discussion between bank and the applicant
Filling in the forms
Dispatching the L/C
45
46
42
31
12
9
3
7
4
14
38
160
47
Import
192.43
203.69
172.54
197.20
155.01
920.87
184.17
17.91
320.92
Export
250.54
283.81
436.06
267.53
325.00
1562.94
312.59
66.49
4421.55
FrnTrd
442.97
487.50
608.60
464.73
480.01
2483.81
496.76
57.95
3358.76
Profit
4.50
4.76
7.49
5.80
22.70
45.25
9.05
6.91
47.69
Co-efficient
of Variation
9.73
21.27
11.67
76.30
Import
192.43
203.69
172.54
197.20
155.01
17.91
Export
250.54
283.81
436.06
267.53
325.00
66.49
FT
442.97
487.50
608.60
464.73
480.01
57.95
FT Growth Rate
10.05%
24.84%
-23.64%
3.29%
17.57%
48
Performance analysis
Import-Export Business
Table 12: Import, Export and Profit of 2001 to 2005
Amount in Crore Taka
The performance of the Janata Bank in the last five (5) years especially in the sector of
import and Export and comparison of the data with the net profit of the branch is shown
above and graphically presented below:
Graph 11:
Import, Export and Profit of 2001 to 2005
A statistical tool like correlation analysis is done here to determine the relationship
between the following:
Import business and profitability
Export business and profitability
Foreign Trade business and profitability
L/C Operation of Janata Bank
49
Correlation Analysis:
Correlation between Import and Profit:
Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Sum/Avg.
Import
X
192.43
203.69
172.54
197.20
155.01
184.17
(X- X )
x
8.26
19.52
(11.63)
13.03
(29.16)
Co-efficient of Correlation:
Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05
x2
68.16
380.87
135.35
169.68
850.54
1604.60
xy
x * y
2
(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65
r
2
y2
20.70
18.40
2.43
10.56
186.32
238.43
xy
(37.56)
(83.72)
18.15
(42.33)
(398.09)
(543.56)
543.56
1604.60 * 238.43
r = -0.878799573
Co-efficient of determination, r2 = 0.772289
X
250.54
283.81
436.06
267.53
325
312.59
(X- X )
x
(62.05)
(28.78)
123.47
(45.06)
12.41
Co-efficient of Correlation:
x2
3849.95
828.17
15245.33
2030.22
154.06
22107.74
(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65
Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05
xy
x * y
2
r
2
y2
20.70
18.40
2.43
10.56
186.32
238.43
xy
282.32
123.46
(192.62)
146.44
169.42
529.02
529.02
22107.74 * 238.43
r = 0.230422799
Co-efficient of determination, r2 = 0.053095
50
X
442.97
487.50
608.60
464.73
480.01
496.76
(X- X )
x
(53.79)
(9.26)
111.84
(32.03)
(16.75)
Co-efficient of Correlation:
Profit
Y
4.50
4.76
7.49
5.80
22.70
9.05
x2
2893.58
85.78
12507.74
1026.05
280.63
16793.78
xy
x * y
2
(Y- Y )
y
(4.55)
(4.29)
(1.56)
(3.25)
13.65
r
2
y2
20.70
18.40
2.43
10.56
186.32
238.43
xy
244.75
39.73
(174.47)
104.10
(228.66)
(14.54)
14.54
16793.78 * 238.43
r = -0.007266563
Co-efficient of determination, r2 = 5.28029E-05
51
Regression Analysis:
Calculation of Regression Function of Import
Amount in Crore Taka
Year
2001
2002
2003
2004
2005
Sum
Avg.
Import(X) Profit(Y)
192.43
4.50
203.69
4.76
172.54
7.49
197.20
5.80
155.01
22.70
920.87
45.25
184.17
9.05
XY
865.94
969.56
1292.32
1143.76
3518.73
7790.31
X2
37029.30
41489.62
29770.05
38887.84
24028.10
171204.91
Slop, b
XY n X Y
X n X
b -0.33875
Intercept,
a Y bX
a 71.43938
= a + bX
= 71.43938 + (-0.33875)*X
Export(X) Profit(Y)
250.54
4.50
283.81
4.76
436.06
7.49
267.53
5.80
325.00
22.70
1562.94
45.25
312.59
9.05
XY
1127.43
1350.94
3266.09
1551.67
7377.50
14673.63
X2
62770.29
80548.12
190148.32
71572.30
105625.00
510664.03
Slop, b
XY n X Y
X n X
Intercept,
a Y bX
a 1.570000
= a + bX
= 1.570000 + 0.023929*X
52
FrnTrd(X) Profit(Y)
442.97
4.50
487.50
4.76
608.60
7.49
464.73
5.80
480.01
22.70
2483.81
45.25
496.76
9.05
Slop, b
XY n X Y
X n X
Intercept,
a Y bX
XY
1993.37
2320.50
4558.41
2695.43
10896.23
22463.94
X2
196222.42
237656.25
370393.96
215973.97
230409.60
1250656.20
a 9.48011
= a + bX
= 9.48011 + (-0.00087)*X
So, if the bank has a profit target of Tk. 20.00 crore in next year,
The bank is required to generate the following:
Regression Equation of Import, Profit(y)
Regression Equation of Export, Profit(y)
= 71.43938 + (-0.33875)*X
= 1.570000 + 0.023929*X
Target Import,
20 = 71.43938 + (-0.33875)*X
X = 51.43938 / 0.33875
X = 151.85 Crore
20 = 1.570000 + 0.023929*X
X = (-18.43) / (-0.023929)
X = 770.195 Crore
Or, the combination of Import and Export, Instead of achieving only Import Target or
only Export Target.
53
CHAPTER 6
RECOMMENDATION AND CONCLUSION
Chapter Hints
Chapter Contents
Overview of Findings
Recommendations
Conclusion
54
55
Overview of Findings:
The whole process of Letter of Credit is highly dependable on the personal skills
of the officers engaged in the process.
In processing Letter of Credit almost all activities charges lower than the private
commercial banks.
For regular and old client, Letter of Credit issuance does not take more than an
hour. But for new clients, it generally takes around one to two hours, provided no
discrepancy found in documents deposited.
Relationship and introduction with the client plays a vital role in processing Letter
of Credit, especially the time factor.
Janata bank takes more time in issuing Letter of Credit in comparison with the
PCBs.
More than half of the total Foreign Trades income is come from opening charges
of Letter of Credit. Other sources of income from Letter of Credit includes:
postage charges, amendments charges, advise charges etc.
China and India are the major countries from where exports come against the
Import L/C.
Stability analysis shows that there is a high degree of ups and downs in volumes
of export and import. Growth rate of Foreign Trade is not increasing at a desirable
rate. It fluctuates year to year.
56
between Export and Profit, and a very low degree of negative correlation exists
between Foreign Trade and Profit.
57
Recommendations:
From the analysis and observation of the author, following recommendations have been
formulated in order to smooth operation of Import-Export Business and to make the L/C
processing more efficient:
Since the import-export business have the highest contribution to the profitability
of the bank, it should take special attention.
Since the whole process is largely depend on human skill, properly planned
training program should be arranged and implemented for the improvement of
technical and conceptual skills of the dealing officers.
Steps should be taken to improve the coordination between the officers involved
in the L/C issuing process.
L/C information should be kept in proper and organized manner. Most of the
functions are still done manually. Integrated software can be introduced for this
purpose.
58
Stationary goods
Conclusion
L/C as a mode of financing in foreign trade acts as a pre-import financing tool for the
importer and a pre-shipment financing tool for the exporter. Like all other commercial
banks, L/C issuance is a very important function that Janata Banks offers. Presently the
bank has been functioning with a network of total 904 branches. The Bank has been
functioning with a net work of Total 897 Branches including 4 Overseas Branches in
U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44
Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances.
The most widely used L/C in all braches is irrevocable documentary L/C and the highest
number of L/C opened is under Back to Back L/C, especially for RMG sector. Opening
charge for L/C processing constitutes highest portion of Janata Banks income from L/C.
there is much scope for Janata Banks Dilkusha Branch to improve its current L/C
processing system to make it more efficient.
59
APPENDIX
Details of Import Income from January05 to December05
Amount in Crore Taka
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Total
Commission
4.36
8.8
10.4
13.32
7.94
13.08
5.58
3.58
4.79
5.21
0.42
4.28
81.76
PAD
1.06
25.07
15.66
2.24
1.32
0.38
0.6
0.25
0.42
14.14
12.65
4.61
78.4
Ex. Earning
0.25
0.8
0.57
0.4
0.6
0.33
0.3
0.06
0.22
1.68
1.25
0.45
6.91
Other
6.19
7.77
1.36
2.54
4.02
4.01
5.13
1.36
1.75
16.53
0.31
2.87
53.84
Total Income
11.86
42.44
27.99
18.5
13.88
17.8
11.61
5.25
7.18
37.56
14.63
12.21
220.91
Import
192.43
203.69
172.54
197.20
155.01
920.87
Export
250.54
283.81
436.06
267.53
325.00
1562.94
FT
442.97
487.50
608.60
464.73
480.01
2483.81
Profit
4.50
4.76
7.49
5.80
22.70
45.25
60
BIBLIOGRAPHY
Books:
Annual report 2001-2005, Janata Bank
Branch Performance Report 2001-2005, Janata Bank, Dilkusha Branch
Import &Export Policy, 2003-2006
Gupta, S.P., Gupta, Business Statistics, 12th revised edition
Shekhar, K.C. & Lekshmy Shekhar, Banking theory and practice, 18th Ed.
Websites:
www.janatabank-bd.com
www.tdcommercialbanking.com
61