Executive Summary

The trade financing practice of Bank Al Falah Limited, Motijheel Islamic Banking Branch
includes a wide range of activities. Several departments of the bank are directly interconnected in
the trade financing activities of the bank. As the volume of trade finance is increasing every day,
more and more complex issues are coming both for the traders and financers like banks. The ever
growing complexity in the trade financing landscape is providing the edge for the banks to come
up with new trade financing facilities. This report will solely focus on the trade financing
practice of Bank Al Falah Limited, Motijheel Islamic Banking Branch. The major post import
trade financing facilities provided by Bank Al Falah Limited, Motijheel Islamic Banking Branch
are PAD (Payment against Document), LTR (Letter against trust receipt) and HP (Hire
purchase). But LC based financing or non funded financing is the major source of profit for
BAFL, Motijheel Islamic Banking Branch. The biggest dilemma for the banks in financing LC is
deciding the level of margin for opening LC. Higher margin distracts clients while lower level of
margin exposes banks to higher level of risks.

Bangladesh, mostly an import based country, has the highest level of foreign trade payment with
China where India holds the second place. According to the September, 2015 foreign trade
statistics published by Bangladesh Bureau of Statistics, the total volume of export in Bangladesh
for the month was 207.71 billion taka where the volume of import was 347.50 billion TK. The
above statistics show that Bangladesh has been undergoing a trade deficit of around 139.79
billion taka for the time taken into consideration.

HSBC is the leader of overall trade finance volumes among the foreign banks operating in
Bangladesh where Sonali Bank holds the leading position among the government owned banks
of Bangladesh. Among the private commercial banks of Bangladesh, the Exim Bank Limited
tops the list of foreign trade financing volume. A notable fact about the comparison among the
banks of Bangladesh has been exposed by this report. The share of government bank in the
overall volume of trade financing is on the fall and the local private banks and the foreign private
banks are going up with their comparative shares in the total bulk. Renowned foreign banks like
Citi, HSBC and SCB are doing well in the sector because of their better manpower and stronger
global network with their branches all over the world.
The analytical part of the report intends exposing the most important trade finance service factor
for Bank Al Falah Limited, Motijheel Islamic Banking Branch in providing trade finance
services to its trade finance customers. The limit provided to particular customer, the extent of
profit charged from the customer and the average time required for the approval of a particular
clients trade finance facility application are taken the measures of the quality of service
provided by Bank Al Falah Limited, Motijheel Islamic Banking Branch.

The degree of trade finance service availed by each of the selected customers is taken as the
dependent variable. Using linear regression analysis, it has been found that the derived
regression equation of the analysis has always demonstrated that the independent variable Profit
Charged by the bank has the strongest negative slope, as shown by those equations. The 2013,
2014 and 2015 regression equations showed 0.89, 0.81 and 0.88 negative slope of the variable
Profit charged respectively with the dependent variable Trade Finance Volume Availed. So,
the general picture of the sampled data and regression analysis is- Higher the profit charged from
a customer, the lower the volume of the trade finance service availed by a particular customer.

The multiple regressions done by STATA have shown a similar result to the previous ones. -0.73
slope with the independent variable Profit charged by BAFL has again showed that the
decision of clients availing trade finance largely depends on the cost they have to pay to the
bank. The basic statistics of the regression analysis showed that there was minimal amount of
standard error in all the four years with the values of standard error around 1.60 to 1.70. The R
square values of the four years demonstrated that more than 60% of the values of the sample
fitted the model of the analysis.

The informal sectors of foreign trade and improper supply of foreign funds hamper the trade
financing for all the commercial banks in Bangladesh. Moreover, some firms have a practice of
breaching the contract with the banks. These things leave the bank in some financial losses and
the whole industry with lower level of credibility. But on the other side, the rapid rise in faster
money transferring methods with lower costs has made the work of both the parties easier than
before.