INTERNSHIP REPORT ON

FOREIGN EXCHANGE DIVISION OF MERCANTILE BANK LIMITED

Supervised By
Mostofa Mahmud Hasan Lecturer Department of Business Administration (Finance) Stamford University Bangladesh

Submitted By
FATEMA- TUZ- ZOHRA BBA 27th Batch ID # BBA.02707961 Section-D (Finance) Department of Business Administration

Stamford University Bangladesh

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page i of xviii

Date of Submission: 12/10/2009

INTERNSHIP REPORT ON
FOREIGN EXCHANGE DIVISION OF MERCANTILE BANK LIMITED

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page ii of xviii

October 11, 2009 Mostofa Mahmud Hasan Lecturer Department of Business Administration Stamford University Bangladesh Subject: Submission of internship report Honorable Sir, I am very glad to inform you that I have finally completed the internship study successfully, which was a partial fulfillment of the requirement for the Bachelor of Business Administration program. The topic of my internship study is Foreign Exchange Division of Mercantile Bank Ltd. I enjoyed very much by preparing this study as well as it was a worthwhile experience for me to work in the challenging environment of a leading private Commercial Bank. I am undeniably thankful to you & my Department for giving me the opportunity to obtain practical skills as well as to learn how to cope with the practical situations, which is very much valuable for my future career. Finally I assure you that I have tried my best to make a systematic and informative summary based on my practical work. If you need further clarification, I am always ready to answer your questions. Yours Sincerely, Fatema-Tuz-Zohra ID No-BBA.02707961

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Department of Business Administration Stamford University Bangladesh.

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Internship Report

I here announce that the extensive study entitled GENERAL BANKING & FOREIGN EXCHANGE DIVISION OF

MERCANTILE BANK LIMITED

Prepared in partial accomplishment of the Requirement for the award of the degree

Bachelor of Business Administration From

STAMFORD UNIVERSITY BANGLADESH

Is my original work and not put forward for The award of any other degree / diploma / fellowship Or other similar term or honor

Fatema-Tuz-Zohra ID No-BBA.02707961

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page v of xviii

STAMFORD UNIVERSITY BANGLADESH To Whom It May Concern

This is to certify that the internee report on General Banking & Foreign Exchange Division of Mercantile Bank Ltd. For the degree Bachelor of Business Administration (BBA) major in Finance from Stamford University Bangladesh carried out by FatemaTuz-Zohra, ID #BBA.02707961 under my supervision. No part of the internship report has been submitted for any degree diploma, title, or recognition before.

--------------------------------------------Mostofa Mahmud Hasan Lecturer Department of Business Administration Stamford University Bangladesh.

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page vi of xviii

Hods Declaration
The Internship report, Entitled General Banking & Foreign Exchange Division of Mercantile Bank Ltd.. Submitted by Fatema-tuz-Zohra, ID No-BBA.02707961, Batch no- 27 (D), is a student of the Department of Finance, Stamford University Bangladesh, has been accepted as satisfactory for the partial fulfillment of the requirement for the degree of Bachelor of Business Administration and approved as its style, method and contents.

_______________________________ Md. Ifte Kharul Alam Assistant Professor & Head of Finance Department of Business Administration Stamford University Bangladesh

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page vii of xviii

ACKNOWLEDGEMENT First of all I would like to thanks all mighty Allah for giving me the patience and proper time to complete the internship study successfully. It is pleasure to take this occasion to thank a few people who have, assisted, encouraged, directed and supported throughout the internship program. I heartily thank all the officials of the Mercantile Bank Limited, Engineers Institution Branch for their supporting as well as co-operating me as an intern in their organization. After that I especially thanks to Mr. Md. Sdruzzaman (Executive Vice President & Manager) and my supervisor of that branch for guiding me throughout the internship program. And I uniquely thanks to the Mr. Zia Uddin Ahmed (FAVP & Sub-Manager) of Engineers Institution Branch to give the full co-operation and all sorts of support during the program. Ms. Sharmin Shahid, Ms. Sadia Afroz, Ms. Taslima Akter, Mr. Sadthzad Bin Haq, Mr. Anisur Rahman, Mr. Ferdos, Mr.Dewan al Amin Al mutakabbir, Tahmim alamin, and each & everyone was very much sincere to give me the knowledge of General Banking and Documentary Letter of Credit and briefing about Lodgment process in Back to Back L/C Department regardless their shortage of time. Finally, I want to give my special thanks to the Academic supervisor Mostofa Mahmud Hasan (Lecturer, Stamford University Bangladesh) for his support and enormous help throughout this Internship program, especially his guidelines throughout the period of preparing the report. I would like to convey my best regards to all officials of the Engineers Institution Branch, MBL.

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page viii of xviii

EXECUTIVE SUMMARY
Banking system of Bangladesh has gone through three phases of development Nationalization, Privatization and lastly Financial Sector Reform. Mercantile Bank Limited (MBL) started its journey in the financial sector of the country as an investment company back in May 20, 1999. The company operated up to 1999 with 9 branches and thereafter with the permission of the Central Bank converted in a full-fledged schedule private commercial bank in June 2, 1993 with paid up capital of Tk. 39.00 crore to serve the nation from a broader platform. The whole report has been prepared based on the information taken from the division of Mercantile Bank Limited, i.e., foreign Exchange Division. General Banking comprises of account opening, bills, remittance, clearing, cash and computer sections. Through these sections, it establishes Banker customer relationship, collects bills for customers, remit funds of customers from one place to another, honor cheque drawn on this branch. General Banking department provides these services in a faster and better manner. Foreign Exchange department plays a vital role in facilitating export and import of the country. It comprises of Export, Import and Foreign Remittance sections. Through these sections, it opens Letter of Credit, negotiates foreign bills, advises Letter of Credit, and provides different types of loans like, Loan against Trust Receipt, Loan against Imported Merchandise, Packing Credit etc. to its customers. The practical activities of different desks what I have done is outlined in this Report. Various rules and regulations, policies and procedures relating to different activities have also been enumerated here. Though foreign remittance is one of the major parts of banks income but the loans and advances and other loan schemes play a vital role in success of Mercantile Bank Limited. Mercantile Bank Ltd. Has offered the clients deposit scheme, loan scheme, remittance service and the like. From 1999 to 2009, it has made strong initiative in banking sector.

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TABLE OF CONTENTS
CONTENTS
Acknowledgement Executive Summary
CHAPTER-ONE: INTRODUCTION 1.1. Background of the study 1.2. Objective of the study 1.3. Scope of the study 1.4. Limitation of the study 1.5. Methodology Used 1.6. Time Schedule CHAPTER-TWO: BANKING OVERVIEW 2.1. Beginning of Banking 2.2. Banking History of Bangladesh 2.3. Number and Types of Banks Operating in Bangladesh 2.4. Banking Laws and Practices in Bangladesh CHAPTER-THREE: OVERVIEW OF MERCANTILE BANK LTD. 3.1. Historical Background of MBL 3.2. Vision, Mission & Objectives of MBL 3.3. Corporate Information of MBL at a Glance 3.4. Organization Structure of MBL 3.5. Corporate Structure of MBL 3.6. Management Hierarchy of MBL 3.7. Performance of MBL 3.7.1. Capital 3.7.2. BIS Capital Adequacy Ratios 3.7.3. Funding Structure 3.7.4. Statutory Reserve 3.7.5. Deposits 3.7.6. Loans and Advances 3.7.7. Import Trade 3.7.8. Export Trade 3.7.9. Foreign Remittance 3.7.10. Treasury Operation and Fund Management 3.7.11. Earning Base in Assets 3.7.12. Asset Portfolio 3.7.13. Information Technology 3.8. Financial Review 3.8.1. Operating Profit

Page No.

2 2 3 3 4 5 7 7 9 10 12 13 14 15 16 17 18 18 18 19 19 20 20 21 22 22 22 22 23 24 24 24

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3.8.2. Total Income 3.8.3. Interest Income 3.8.4. Interest Expenses 3.8.5. Net Interest Income 3.8.6. Net Interest Margin (NIM) 3.8.7. Non-Interest Income 3.8.8. Total Expenses 3.8.9. Non-Interest Expenses 3.8.10. Net Profit before Tax 3.8.11. Provision for Income Tax 3.8.12. Profit after Tax 3.9. MBL Time Line 3.10. Resources and Facilities of MBL 3.11. Financial Highlights of MBL 3.12. Head Office & Branch Network of MBL 3.13. MBL, Engineers Institution r Branch, Dhaka (At a Glance) CHAPTER-FOUR: GENERAL BANKING DEPARTMENT 4. General Banking Department 4.1. Account Opening Section 4.1.1. Types of Account of MBL at a Glance 4.1.2. Other Term Deposit Accounts 4.1.2.1. Double Benefit Deposit Scheme (DBDS) 4.1.2.2. Family Maintenance Deposit (FMD) 4.1.2.3. Monthly Savings Scheme (MSS) 4.1.2.4. Quarterly Benefit Deposit Scheme 4.1.2.5. 1.5 Times Benefit Deposit Scheme 4.1.2.6. Advance Benefit Deposit Scheme (ABDS) 4.1.3. Requirements of Opening an Account 4.1.3.1. Documents Needed for Opening Each Account Separately 4.1.4. Documents that are Given to the Account Holders 4.2. Issuing Cheque Book to the Customers 4.3. Transfer of an Account 4.4. Closing of an Account 4.5. Remittance Section 4.5.1. Payment Order/Pay Order (PO) 4.5.2. Demand Draft (DD) 4.5.3. Telegraphic Transfer (TT) 4.6. Online Banking 4.7. Clearing and Bills Section 4.7.1. Type of Clearing 4.7.1.1. Outward Clearing Bills 4.7.1.2. Inward Clearing Bills 4.8. Dispatch Section 4.9. Cash Section 4.10. Data Entry Section 4.11. Accounts Section

24 25 26 27 27 27 28 29 30 30 31 32 33 36 37 42

45 45 47 48 48 49 50 51 52 53 54 55 56 56 57 58 58 59 61 65 67 68 68 68 71 72 73 75 75

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CHAPTER-FIVE: FOREIGN EXCHANGE DEPARTMENT 5.1. Foreign Exchange Department 5.2. Documentary Credit / Letter of Credit (L/Cs) 5.3. Legal Framework 5.4. Forms of Documentary Credit 5.5. Documents Used in L/C Operation 5.6. Different Accounts Related to Foreign Exchange Transaction 5.7. Parties Involved in the Process of Letter of Credit 5.8. Bank as a Party of Documentary Credit 5.9. Authorized Dealer 5.10. MBL, Engineers Institution Branch as an Authorized Dealer 5.11. Import Section 5.11.1. Top Ten L/C Opener 5.11.2. List of the Major Countries of Foreign Exchange Business 5.11.3. L/C Position of MBL, Engineers Institution Branch at a Glance 5.11.4. Import Procedure in Flow Chart 5.11.4.1. Import Registration 5.11.4.2. Desire to Import 5.11.4.3. Purchase Contract 5.11.4.4. Settlement of the Means of Payment 5.11.4.5. Proposal for Opening of L/C 5.11.4.6. Application for L/C Limit 5.11.4.7. Application for Opening L/C 5.11.4.7.1. L/C Application Form 5.11.4.7.2. The Letter of Credit Authorization Form (LCAF) 5.11.4.7.3. The Import Permits (IMP) Form 5.11.4.8. Preparation of L/C by Banker 5.11.4.9. Accounting Treatment in Case of L/C Opening 5.11.4.10. Amendment of L/C 5.11.4.11. Adding Confirmation 5.11.4.12. Submission of Necessary Documents by Exporter 5.11.4.12.1. The Negotiation Process of Import L/C 5.11.4.12.2. The Documents Sent to the Issuing Bank 5.11.4.13. Making the Payment of Foreign Bill through the 5.11.4.14. Scrutiny of the Documents 5.11.4.15. Lodgment 5.11.4.16. Retirement 5.11.4.17. Payment of Imports 5.11.4.18. Post-Import Financing 5.12. Export Section 5.12.1. Back-to-Back L/C 5.12.1.1. Payment for Back-to-Back L/C 5.12.1.2. Reporting to Bangladesh Bank 5.12.2. Export L/C

78 79 80 80 81 84 85 85 87 87 89 89 90 91 94 95 95 95 96 96 96 97 97 99 99 100 101 102 103 103 104 105 105 106 109 110 111 112 113 114 115 116 116

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5.12.2.1. Export Procedure in Flow Chart 5.12.3. Test Key Arrangement 5.13. Foreign Remittance Section 5.13.1. Remittance Position of MBL, Engineers Institution Branch at a Glance 5.13.2. Foreign Inward Remittance 5.13.2.1. Telegraphic Transfer (TT) 5.13.2.2. Foreign Demand Draft (FDD) 5.13.2.2.1. Purchase 5.13.2.2.2. Sending for collection 5.13.2.3. Endorsement of US$ in Passport CHAPTER-SIX: ANALYSIS 6.1. Qualitative Analysis 6.1.1. SWOT Analysis 6.1.1.1. Strength 6.1.1.2. Weaknesses 6.1.1.3. Opportunities 6.1.1.4. Threats 6.2. Quantitative Analysis CHAPTER-SEVEN: FINDINGS, RECOMMENDATION & CONCLUSION Findings Recommendation Conclusion BIBLIOGRAPHY APPENDIX

116 118 118 119 121 123 123 124 125 125 127 127 127 128 129 130 131 137 138 139 140 141

LIST OF FIGURES
PARTICULARS
Fig 1: Organization Structure of MBL Fig 2: Management Hierarchy of MBL Fig 3: Accounts of Mercantile Bank Ltd. Fig 4: Account Opening Procedure Fig 5: Remittance Fig 6: Flow Chart of Pay Order Fig 7: Payment procedure of Pay Order Fig 8: Flow Chart of Demand Draft Fig 9: Flow Chart of Telegraphic Transfer Fig 10: The settlement process when cheques drawn on another branch Fig 11: The settlement process when cheques drawn on another bank Fig 12: The collection process if the bill is drawn on a branch of MBL Fig 13: The collection process if the bill is drawn on another Bank and there is a PAGE NO

15 17 46 56 59 60 61 63 66 69 69 69 70

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branch of MBL Fig 14: The collection process if the bill is drawn on another Bank but there is no branch of MBL Fig 15: Settlement process of Inward Clearing Bills Fig 16: Documentary Credit Agreement Fig 17: Bank as a party of Documentary Credit Fig 18: Foreign Exchange Department of Mercantile Bank Limited Fig 19: Foreign Exchange Department of MBL, Engineers Institution Branch Fig 20: Types of Importers Fig 21: L/C confirming process Fig 22: Negotiation process of Import L/C Fig 23: Sending of documents Fig 24: The Letter of Credit Cycle Fig 25: Flow Chart for back-to-back L/C Fig 26: Foreign Remittance Section of MBL

70 72 80 86 88 88 89 103 104 105 106 115 118

LIST OF TABLES
PARTICULARS
Table 1: Capital Adequacy (BDT in million) Table 2: Funding Structure (BDT in million) Table 3: Deposit Mix (BDT in million) Table 4: Sector-wise Loans & Advances Mix (BDT in million) Table 5: Earning Base in Assets (BDT in million) Table 6: Asset Portfolio (BDT in million) Table 7: Operating Profit (BDT in million) Table 8: Total Income (BDT in million) Table 9: Interest Income (BDT in million) Table 10: Interest Expenses (BDT in million) Table 11: Non-Interest Income (BDT in million) Table 12: Total Expenses (BDT in million) Table 13: Non-Interest Expenses (BDT in million) Table 14: Financial Highlights (BDT in million) Table 15: The growth of MBL, Engineers Institution Branch (in Lakh Tk.) Table 16: Account details of Mercantile Bank Ltd. Table 17: Mode of Double Benefit Deposit Scheme Table 18: Benefits of Family Maintenance Deposit Table 19: Benefits of Monthly Savings Scheme (Amount in TK.) Table 20: Benefits of Quarterly Benefit Deposit Scheme Table 21: Benefits of 1.5 Times Benefit Deposit Scheme PAGE NO

18 19 20 21 23 23 24 25 25 26 28 29 30 36 42 47 49 50 51 52 53

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Table 22: Documents needed for each Account Table 23: Commission and VAT on Pay Order Table 24: Charges for Online Banking Table 25: Top 10 Importer in MBL, Engineers Institution Branch Table 26: Top Importing countries of MBL, Engineers Institution Branch Table 27: L/C position from 2004 to 2008 Table 28: L/C position from 01.01.2009 to 31.03.2009 Table 29: Yearly Remittance Position Table 30: Yearly Remittance position proportionately Table 31: Return on Assets (ROA) Table 32: Return on Equity (ROE) Table 33: Net Interest Margin Table 34: Net Non-interest Margin Table 35: Net Operating Margin

55 61 68 90 90 91 92 119 120 131 132 132 134 134

LIST OF GRAPHS
PARTICULARS
Graph 1: Funding Structure Graph 2: Deposit Mix Graph 3: Sector-wise Loans & Advances Mix Graph 4: Asset Portfolio Graph 5: Total Income Graph 6: Interest Income Graph 7: Interest Expenses Graph 8: Non-Interest Income Graph 9: Total Expenses Graph 10: Non-Interest Expenses Graph 11: The growth of MBL, Engineers Institution Branch Graph 12: L/C position from 2004 to 2008 Graph 13: L/C Amount (Tk.) from 2004 to 2008 Graph 14: Income (Tk.) from L/C from 2004 to 2008 Graph 15: L/C position of 2009 Graph 16: Yearly Remittance Position Graph 17: Proportion of Remittance Graph 18: Amount of Inward Remittance Graph 19: Return on Assets (ROA) Graph 20: Return on Equity (ROE) Graph 21: Net Interest Margin Graph 22: Net Non-interest Margin PAGE NO

19 20 21 23 25 26 27 28 29 30 43 91 92 92 93 119 120 121 131 132 133 134

General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xv of xviii

Graph 23: Net Operating Margin

135

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