1. Introduction

1.1 Origin of the Report:

This report has been prepared as a requirement of the internship program. The report was

based upon the organization Standard Chartered Bank. My organization supervisor was

Mr. Tawfiq Ali, Senior Relationship Manager Financial Institutions, and my institution

supervisor is Dr. Iftekhar Ghani Chowdhury, Professor and Director, Institute of Business

Administration, University of Dhaka. The topic, which was decided for doing the report,

was duly approved by my institute supervisor. The report will definitely increase the

knowledge of other students to know the banking industry of Bangladesh, and the various

services SCB is providing to sustain as leading foreign bank in Bangladesh.

1.2 Objective of the Report :

This literature is written on the foreign banking sector’s effectiveness in Bangladesh and

the role of banks for growth of international trade related businesses in Bangladesh. The

report is divided into two parts. In the first phase, it was all about organization part of

SCB. On the project part, it focused on the “Operational Process and Products of

Financial Institution that assists the local banks in international trade business." together

with the study on the “Opportunities of Local Bill Discounting for Non-Corporate

Entities". In addition, in my report, I tried to show the role of other banks in aiding

international trade. On the organization part, the objective was to find the financial aspect

and various activities of the bank. On the project part, the effectiveness of various

activities of Financial Institutions. And, lastly I discussed the feasibility and practical

market issues about new ventures like opportunities for local bill discounting for non-

corporate entities were studied. As policies and strategy formulated at the core level will

dictate and guide the activities of the acceptability of the new product, so critical analysis

in determining the success or failure of the product is very significant.

1.3 Scope of the Report:

The scope of the report was to find the financial aspect of the operation of the bank. In

addition, the report was done to find the effectiveness of the Financial Institutions

Department’s various services Further more, the report also focused on the feasibility

study and practical market issues about new ventures and operational procedures of

Financial Institutions. The scope of this report is limited to the overall descriptions of the

bank, its services, and its position in the industry, and its competitive advantage. The

scope of the study is limited to organizational setup, functions, and performances.

1.4 Methodology of the Report:

Sample Information

Samples are collected from the institutional clients of SCB’s Financial Institutions

Department. Here, the samples had been picked up on a judgmental basis. For the

organization part, much information had been collected from different published articles,

journals, brochures and web sites. All the information incorporated in this report has been

collected both from the primary sources and as well as from the secondary sources.

Primary Source of Data

Collecting data directly from the practical field is called primary source of data. The

method that was used to collect the primary data is as follows:

Observation Method:

Observation method may be defined as systematic viewing according to concise Oxford

Dictionary “accurate watching, nothing of phenomena as they occur in nature with regard

to cause and effect and mutual relationship”. I have observed many of the activities of

Financial Institutions Department.

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Other Primary Sources are:

Discussion with officials of SCB

Face to face conversation with the Institutional clients.

Discussions with customers over the telephone & responding to their

query.

Secondary Sources of Data

The secondary data has been collected from the MIS of Standard Chartered Bank. To clarify

different conceptual matters, internet and different articles published in the journals &

magazines have been used.

Secondary Sources are:

Annual Publication of Export Promotion Bureau

Annual Reports of SCB

Other published documents of Bangladesh Bank.

Data Collection:

Both secondary and primary data are used for preparing this report. But the research was

mainly based on the clients’ survey. Information was collected directly from the customers

who are directly dealing with the Standard Chartered Bank through Financial Institutions

Department.

1.5 Limitations:

Limitation, which I have faced while doing my internship report are discussed below:

* As, I had more dependence on the primary sources, so there might be some level of

inaccuracy with those collected informations. Though, adequate verification and cross-

checking was used, to minimize the error level.

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* Confidential information regarding past profit or product cost, financial information

was not accurately obtained. Alike all other banking institutions, SCB is also very

conservative and strict in providing those information. In those cases, I have relied upon

some assumptions, which in result have created certain level of inaccuracy. Still, I had

tried my best in obtaining those sensitive informations, as much as possible.

* Next, many of the analysis on the obtained data are based upon my sole interpretation.

This in result might bring some biases, as lack of knowledge and depth of understanding

might hinder me to produce an absolute authentic and meaningful report

* Time constraint was another limitation restricting this report from being more detailed

or analytical. The Relationship Mangers at the operation or strategic level of the

concerned department are awfully busy with meeting their targets. So, it was very

difficult for me to get them free and obtain some practical ideas regarding their

expectation and opportunities regarding my topic.

* Above all, this internship report was prepared just at the closing month of December.

So, it was very hard for me to accommodate time for preparing this report. Mostly, our

office timings at SCB are from early morning till 8 p.m. During office hours it's simply

hard to manage time for working with the report. And, working with the report after

regular office hours is quite hectic.

4

Banking Sector

In

Bangladesh

5

2. Overview of Banking

Whoever, being an individual firm, company or corporation generally deals in the

business of money and credit is called bank. In our country, any institution, which

accepts, for the purpose of lending or investment deposits of money from public,

repayable on demand or otherwise, and with transferable by checks draft order and

otherwise can be termed as a bank.

The purpose of banking is to ensure transfer of money from surplus unit to deficit units.

Bank in all countries work as the as the repository of money. The owners look for safety

and amount of interest for their deposits with Banks. Entrepreneurs try to obtain money

from the banks as working capital and for long-term investment. These entrepreneurs

welcome effective and forward-looking advice for investment. Banking sector thus owe a

great to the deposit holders on the hand and the entrepreneurs on the other. They are

expected to play the role of friend, philosopher, and guide for the deposit holders and the

entrepreneurs.

Since liberation, Bangladesh passed through fragile phases of development in the banking

sector. The nationalization of banks in the post liberation period was intended to safe the

institutions and the interest of the depositors. Those handling the banking sector have

borne the burden of putting banks on reliable footings. Despite all that was done, some

elements of irregularities appeared. With the assertion of the role of the Central bank, The

Bangladesh bank started adopting measures for putting banking institutions on right

track. Yet the performance of public sector management of banks left some negative

effects in the money market in particular and the economy in general. The agility among

the borrowers manipulates the banking sector as a whole. In effect, a default culture

appeared on the scene.

The opening of PRIVATE and FOREIGN participants to the banking sector was intended

to obtain desirable results from banking. The authorization of private banks was designed

6

to create competition among the banks and competition in the form of efficiency with and

the productivity in enterprises funded by banks. Unfortunately, for the people, at large

banking sector is yet to obtain the credit for efficiency, credibility, and growth.

The clever, among the user of banking services, have influenced the management of

banks, for obtaining short-term and long-term loans. They sometimes showed inflated to

get money for investment in business and industry. Few diverted their loan money to

purposes different from the loan proposals, and invested in non-profitable units have

failed to repay their loans to the banks. For this reason new entrepreneurs are not getting

capital while defaulting entrepreneurs have started obtaining either relief in the form of

rescheduling of the repayment program or additional inevitable money for diversified

units.

2.1 The Banking Sector in Bangladesh:

Domestic banks can be divided into four main groups: Nationalized Commercial Banks

(NCBs); Private banks established in the early 1980s; and private banks established in

1999:

2.1.1 Nationalized Commercial Banks (NCBs) In general terms; NCBs are large,

operationally inefficient and technically insolvent. They are used as vehicles of

government directed lending. These banks enjoy an enormous and stable customer

deposit base, which provides a cheap source of funding. In addition, most large

government related business is routed through these banks;

2.1.2 Private Banks, 1980s- set up to service the sectors not being addressed by the

larger NCBs. Not subject to state directed lending but have generally suffered from

related lending to directors and their extended families;

2.1.3 Private banks, 1995 – six new licenses were granted. These are the better managed

banks with strong capital base and good asset quality and under a much improved

regulatory regime. All the banks clustered in this group have successfully raised capital

7

from secondary market and all the shares are now traded in the stock exchange at

premium.

2.1.4 New private sector banks. Ten new banks have been granted licenses over the

year 1999. While some bankers complain that the country is over-banked, the more

commonly held view, including that of the World Bank, is that there is adequate scope

for these banks to survive given currently untapped gaps in the market, fat in existing

interest margins (currently circa 5%), and efficiency/ service level disparities. It is

estimated that up to 70% of the Bangladeshi economy remains un-banked. While this

appears to imply that the newer banks may move downstream in terms of asset quality

but in reality the last two sets of new banks are successfully competing with NCBs

(Nationalized Commercial Banks) and foreign banks on the top end market segment.

Generally asset quality is poor with the level of non-performing loans (NPLs) at

worryingly high levels. Across the whole banking sector, classified loans, as reported by

Bangladesh Bank (BB) in December 2002, the Central Bank, were 34.93%. As a

percentage of their own total loan portfolio, non-performing loans accounted for 38.55%

of the NCBs loan book, and 22.01% of private banks (both categories). In October 2002,

the provisioning requirements changed for past due loans from 180 to 90 days, now

requiring a 20% provision. Generally, provisioning levels are weak, impairing capital. It

is however necessary to understand why the banks carry such high levels of non-

performing loans. Firstly, the legal position of banks' recourse is weakened once a loan is

written-off; and secondly, BB imposes a six-year moratorium on write-offs. As the legal

system is slow and time consuming, this results in NPLs remaining on the books for

longer than would otherwise be the case in other countries. There is also a significant

proportion of NPLs, which is due to non-payment by Government or Government owned

agencies.

Lower credit growth in 2002, compared to deposits, has meant that the banks now have

excess liquidity. With investment rates in call, money market and government bonds

8

remaining static at their lowest levels, some banks are now cutting back on their long-

term deposit rates and are refusing to accept large deposits.

Long-term interest rates have traditionally been lower than short-term rates. This inverted

yield curve is a fall out from the source of long term lending. Long term lending was

traditionally extended by the NCB's, usually for non-commercial loans, thus setting a low

benchmark for longer-term funds.

Clearly the banking industry is in a very poor state and it will take years to clean up. The

Government and BB have been working with the World Bank to introduce reforms,

including related party lending, restricting lending concentrations to 15% of the capital

base, capital adequacy and bankruptcy laws. The World Bank has indicated that there are

funds available to assist individual banks improve their capital bases, but this depends on

them first making full provision for NPLs. Some banks have also successfully raised

capital through IPOs (Initial Public Offerings). BB has reaffirmed its intention to

continue extension of support to banks through rediscounting. However care should be

exercised when taking comfort from BB's (Bangladesh Bank) assertion that it will not

allow any bank to fail. While this pledge has held true to date, in effect it means that BB

will allow a technically insolvent bank to continue in operation with BB guidance and

"technical" support but BB will not provide a capital injection or write-off government

related bad loans.

9

Organization Part

10

3.Organizational Overview

Standard Chartered Bank derives its name after two banks – Standard Bank of British

South Africa and the chartered Bank of India, Australia and China. The merger took

place in 1969. Standard Chartered Bank is regulated by the Bank of England and is a

clearing bank in the United Kingdom.

The new millennium brought with it two of the largest acquisition in the history of the

bank- the acquisition of the Grindlays Bank from the ANZ group for a consideration of

$1.34 billion and acquisition of the Chase Consumer Banking Corporation in the Hong

Kong for $ 1.32 billion. These acquisitions demonstrate Standard Chartered Bank’s firm

commitment to the emerging markets.

Standard Chartered employs 29,000 people in over 500 offices in more than 50 countries.

The group provides consumer-banking services to individuals and small to medium size

businesses, and offers Wholesale Banking capabilities to corporate and institutional

clients. With 150 years in the emerging markets the group has unmatched knowledge and

understanding of its customers in its markets. Standard Chartered recognizes its

responsibilities to its staff and to the communities in which it operates. Their 150 years of

history gives them a deep better understanding of their markets, their customers, and the

local communities in which they operate>It is a strong platform for future growth.

Standard Chartered is holding leading positions in dynamic markets. They are in some of

the world’s fastest growing markets including he United Arab Emirates, India, China, and

the markets of South Asia. They are present in many of their markets for several

generations and have become a trusted partner to businesses and individuals. In other

words, they are trusted and well respected provider of financial products and services.

They have built up an enviable knowledge of local markets in Asia, Africa, the

Americans and the Middle East. In many cases, they have had a presence for more than a

century. Their first two branches were in Calcutta and Shanghai and we have been

operating continuously in China for the last 144 years.

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3.1 Business Activities of the Global Standard Chartered Bank:

The bank provides a full range of products and services all around the world, some of

which are mentioned here:

3.1.1Global Consumer Finance:

There are seventy-six branches and finance centers under this division in about the

countries with a workforce of 1616 employees. Some of the services provided by this

divisions are unsecured personal loans, credit cards and retail store cards, vehicle related

leases, etc.

3.1.2 Personal Banking:

There are about 410 branches with a workforce of 12,000 employees working under this

division in 28 countries. Some of the services provided by this division are various kinds

of insurance and loans, account maintenance, travelers cheques and money exchange etc.

3.1.3 Global Corporate and Institutional Banking:

There are 350 branches under this division. This division provides services in 42

countries. The services provided by this division are International Trade Management,

Institutional banking, Treasury, Custody and Cash Management.

3.1.4 Global Custodial Service:

There are 17 offices under this division and about 900 staff members, operating in 14

countries and headquartered in Singapore. Standard Chartered Equator fulfils standard

Chartered Bank’s strategic commitment to provide custody and clearing services in the

Greater Asia. Standard Chartered Bank has one of Asia’s leading custodians over 40

years. Equator’s focus is on the followings:

Commitment to equity

Dedication to the customer needs

Sustained investment in people and systems.

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3.1.5 International Trade Management:

Principle services of this division are to the people are Import Letter of Credits(L/C),

Import Bills for Collection, Back to Back Letter of Credit, Direct Export Bills for

Collection, Bulk Letter of Credit Collection, Bonds and Guarantees.

3.1.6 Global Cash Management:

The division is operational in all countries where the group has Corporate & Institutional

Banking division. Standard Chartered Bank recognizes the importance of Cash

Management to corporate and institutional customers and offers a comprehensive range

of services and liquidity management. Services provided worldwide by this division with

stress on Asian delivery.

3.1.7 Global Institutional banking:

Throughout Standard Chartered Bank’s network of more than 600 offices in over 40

countries, it is very well positioned to provide a wide range of services to institutional

clients: commercial, merchant & central banks; brokers and dealers; insurance

companies; fund managers and others. Offices of emerging markets of Asia, Sub-

Saharan, the Middle East and Latin America are complemented by the branches in the

developed countries such as USA, UK and Japan and bank’s membership of the clearing

systems in those countries. The Institutional banking group has a network of offices in 25

countries throughout Asia, North America, Europe, Africa and The Middle East.

3.1.8 Global Electronic Banking:

Electronic Banking provides various types of support through a wide range of operating

systems, sweeping transaction accessories with the provision of reporting features or

other special functions.

13

3.2 Standard Chartered Bank -- The History

Standard Chartered is the world’s leading emerging market’s bank headquartered in

London. Its businesses however, have always been overwhelmingly international. Here is

the summary of the main history of the Standard Chartered Bank.

3.2.1 The early years

Standard Chartered is named after two banks which merged in 1969. They were

originally known as the Standard Bank of British South Africa and the Chartered Bank of

India, Australia and China. Of the two banks, the Chartered Bank is the older having been

founded in 1853 following the grant of a Royal Charter from Queen Victoria. The

moving force behind the Chartered Bank was a Scot, James Wilson, who made his

fortune in London making hats. James Wilson went on to start The Economist, still one

of the world's pre-eminent publications. Nine years later, in 1862, the Standard Bank was

founded by a group of businessmen led by another Scot, John Paterson, who had

emigrated to the Cape Province in South Africa and had become a successful merchant.

Both banks were keen to capitalize on the huge expansion of trade between Europe, Asia

and Africa and to reap the handsome profits to be made from financing that trade. The

Chartered Bank opened its first branches in 1858 in Chennai and Mumbai. A branch

opened in Shanghai that summer beginning Standard Chartered's unbroken presence in

China. The following year the Chartered Bank opened a branch in Hong Kong and an

agency was opened in Singapore. In 1861 the Singapore agency was upgraded to a

branch which helped provide finance for the rapidly developing rubber and tin industries

in Malaysia. In 1862 the Chartered Bank was authorized to issue bank notes in Hong

Kong. Subsequently it was also authorized to issue bank notes in Singapore, a privilege it

continued to exercise up until the end of the 19th Century. Over the following decades

both the Standard Bank and the Chartered Bank printed bank notes in a variety of

countries including China, South Africa, Zimbabwe, Malaysia and even during the siege

14

of Makeking in South Africa. Today Standard Chartered is still one of the three banks

that print Hong Kong's bank notes.

3.2.2 Expansion in Africa and Asia

The Standard Bank opened for business in Port Elizabeth, South Africa, in 1863. It

pursued a policy of expansion and soon amalgamated with several other banks including

the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British Kaffarian Bank

and the Fauresmith Bank. The Standard Bank was prominent in the financing and

development of the diamond fields of Kimberly in 1867 and later extended its network

further north to the new town of Johannesburg when gold was discovered there in 1885.

Over time, half the output of the second largest goldfield in the world passed through the

Standard Bank on its way to London. In 1892 the Standard Bank opened for business in

Zimbabwe, and expanded into Mozambique in 1894, Botswana in 1897, Malawi in 1901,

Zambia in 1906, Kenya, Zanzibar and the Democratic Republic of Congo (D.R.C.), in

1911 and Uganda in 1912. Of these new businesses, Botswana, Zanzibar and the D.R.C.

proved the most difficult and the branches soon closed. A branch in Botswana opened

again in 1934 but lasted for only a year and it was not until 1950 that the Bank re-opened

for business in Botswana. In Asia the Chartered Bank expanded opening offices

including Myanmar in 1862, Pakistan and Indonesia in 1863, the Philippines in 1872,

Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some 34 years after the Chartered

Bank appointed an agent in Sri Lanka it opened a branch in 1892 to take advantage of

business from the tea and rubber industries. During 1904 a branch opened in Vietnam.

Both the Chartered and the Standard Bank opened offices in New York and Hamburg in

the early 1900s. The Chartered Bank gaining the first branch license to be issued to a

foreign bank in New York.

3.2.3 The Impact of War

Even the First World War offered opportunities for expansion when the Standard Bank

set up a branch in Tanzania shortly after British troops occupied the formerly German

15

administered Dar Es Salaam in September 1916. Both banks survived the inter-war years

but the world trade slump led to the closure of operations in the Canary Islands, Liberia,

the Netherlands, and Equatorial Guinea. Disaster struck the Chartered Bank's office in

Yokohama, Japan, when it was destroyed by an earthquake in 1923 killing a number of

staff. The Second World War particularly effected the Chartered Bank when Japan

occupied numerous Asian countries.

3.2.4 The Post War Years

After the Second World War many countries in Asia and Africa gained their

independence. This led to local incorporation in some countries, particularly in Africa.

Other operations such as those in Iraq, Angola, Myanmar and Libya were nationalized,

while in Indonesia the Jakarta office was destroyed in an attempted coup d'etat. In 1948

the Chartered Bank opened in Bangladesh and during 1957 it acquired the Eastern Bank.

The Eastern Bank gave the Chartered Bank a network of branches including Aden,

Bahrain, Beirut, Cyprus, Lebanon, Qatar and the United Arab Emirates. The Chartered

Bank also entered into a joint venture to form the Irano-British Bank which opened for

business in 1959. The bank grew rapidly and had 24 branches when it was nationalized in

1981. By the mid 1950s the Standard Bank had around 600 offices in Southern, Central

and Eastern Africa. Its network grew substantially in 1965 when it merged with the

former Bank of British West Africa which had some 60 branches in Nigeria, 40 branches

in Ghana and eleven branches in Sierra Leone in addition to operations in Cameroon and

Gambia. Despite these acquisitions and expansion into new countries such as Mexico,

South Korea and Oman (1968), both the Standard and Chartered Bank networks were

comparatively small. Both viewed the future with some trepidation as the need to protect

themselves from acquisition became ever more apparent. Standard Chartered PLC In

1969 the decision was made by the Standard Bank and the Chartered Bank to undergo a

friendly merger thus forming Standard Chartered PLC. It was one year later that the

descendants of the "Chartered Bank of India, Australia and China" were finally permitted

to open a representative office in Sydney, Australia. Standard Chartered subsequently

acquired the UK based Hodge Group, in which it already had a minority shareholding,

16

and the Wallace Brothers Group. The Hodge Group brought to Standard Chartered an

extensive network of UK offices specializing in installment credit and industrial leasing,

and after a period of rationalization its name was changed to Chartered Trust Limited.

Standard Chartered's operations in Jersey emerged from the integration of other Hodge

Group businesses with those of Wallace Brothers Bank (Jersey), Limited.

Standard Chartered decided, after the merger, to expand the Group outside its traditional

markets. In Europe a number of offices were opened including Austria, Belgium,

Denmark, Ireland, Spain and Sweden as well as several major cities in the UK. Standard

Chartered also opened offices in Argentina, Canada, Colombia, the Falkland Islands,

Panama and Nepal. In the USA a number of offices were opened and three banks were

acquired. These included the Union Bank of California which gave Standard Chartered a

presence in Brazil and Venezuela. The opening of a branch in Istanbul in 1986 was

overshadowed by a far more dramatic event when Lloyds Bank of the UK made a hostile

take-over bid for Standard Chartered. Standard Chartered won its right to remain

independent but entered into a period of considerable change.

By the late 1980s Standard Chartered already had considerable exposure to third world

debt. To this were added provisions against loans to corporations and entrepreneurs who

could not meet their commitments. Standard Chartered reviewed its operations and

decided to focus on its core strengths of Consumer Banking, Corporate & Institutional

Banking and Treasury in its well established operations in Asia, Africa and the Middle

East. This led to a series of divestments notably in Europe, the United States and Africa.

During this time staff numbers were reduced; businesses not considered core were sold or

closed; associate holdings disposed of; unprofitable branches closed and back office

functions consolidated. In addition expensive buildings were sold with the proceeds

reinvested in the business, and the senior management team was radically changed and

strengthened.

3.2.5 Standard Chartered in the 1990s

Even within this period of apparent retrenchment Standard Chartered expanded its

network, re-opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993

17

and Myanmar in 1995. With the opening of branches in Macau and Taiwan in 1983 and

1985 plus a representative office in Laos (1996), Standard Chartered now has an office in

every country in the Asia Pacific Region with the exception of North Korea. In 1998

Standard Chartered concluded the purchase of a controlling interest in Banco Exterior de

Los Andes (Extebandes), an Andean Region bank involved primarily in trade finance.

With this purchase Standard Chartered now offers full banking services in Colombia,

Peru and Venezuela. In 1999, Standard Chartered acquired the global trade finance

business of Union Bank of Switzerland. This acquisition makes Standard Chartered one

of the leading clearers of dollar payments in the USA. Standard Chartered also opened a

new subsidiary, Standard Chartered Nigeria Limited in Lagos, acquired 75 per cent of the

equity of Nakornthon Bank, Thailand; and agreed terms to acquire 89 per cent of the

share capital of Metropolitan Bank of the Lebanon.

3.2.6 Global presence of Standard Chartered Bank

Standard Chartered Bank has its prominence presence in total of 48 countries:

Africa Asia Pacific Latin America

Middle East & South Asia

UK & USA

BotswanaCameroonGambiaGhanaKenyaSierra LeonSouth AfricaTanzaniaUgandaZambiaZimbabwe

AustraliaBrunei DarussalamCambodiaChinaHong KongIndonesiaJapanLaosMacaoMalaysiaMyanmarPhilippinesSingaporeSouth KoreaTaiwanThailandVietnam

ArgentinaBrazilColombiaMexicoPeruVenezuela

BahrainBangladeshIndiaIranNepalOmanPakistanQatarSri LankaUAE

Falkland IslandsJerseyUKUSA

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3.3 Standard Chartered in Middle East & South Asia (MESA)

The MESA region performed well in year 2002. The region accounts for approximately

eleven percent of the group’s revenues.

The integration of Grindlays was successfully completed and the group is now one of the

leading international banks in each of its chosen markets in the region. The contribution

of the Group’s business in the United Arab Emirates reflects the businesses. Standard

Chartered now holds leadership positions in most of its key product segments in the

UAE. The average number of employees in the Middle East and other South Asia region

in 2002 was 2995.

3.3.1 Standard Chartered in Hong Kong

Hong Kong remains the Group’s largest market, generating one third of the Group’s

revenue. They have a network of 74 branches. Standard Chartered has been transacting

business in Hong Kong since 1858 and they issue bank notes there. In 2002, Standard

Chartered became the first FTSE 100 Company to launch a new dual primary listing in

Hong Kong. This will make the Group more accessible to Asian investors and will

enhance the Group’s regional profile. The average number of employees in Hong Kong

in 2002 was 4,677.

3.3.2 Standard Chartered in Singapore

Standard Chartered has been doing business in Singapore for 144 years and has 20

branches and offices, the largest branch network among foreign banks. The business in

Singapore accounts for approximately eleven percent of the Group’s revenues. Standard

Chartered has Qualifying Full Bank Status, which has enabled expansion of the

distribution network. In 2002, Asian banker magazine named Standard Chartered the

‘Best Retail Bank in Singapore’. The average number of employees in Singapore in 2002

was 2,451.

19

3.3.3 Standard Chartered in Malaysia.

Standard Chartered is the oldest bank in Malaysia, where there is a network of 29

branches. Malaysia is another of the group’s core markets with broadly based business as

a result of long established franchises. The group continues to expand its Shared Service

Center that was opened in 2001 and carries out operations and processing activity. The

Centre in Kuala Lumpur has contributed significantly to improvements in the Group’s

processing and service efficiency. The average number of employees in Malaysia in 2002

was 1981.

3.3.4 Standard Chartered in other Asia Pacific

The group has more than 80 branches and 14 offices in 14 countries across the region. In

China, Standard Chartered has one of the largest branch networks of any foreign bank

and is well positioned for growth and opportunities. The group is developing its

Consumer Banking business and has opened branches in Shanghai and Shenzhen. In

Thailand, the integration of Nakornthon Bank was successfully completed in 2002.The

average number of employees in other Asia Pacific in 2002 is 4851.

3.3.5 Standard Chartered in India Region

Standard Chartered is the largest international bank in India and, following successful

completion of the integration of Grindlays, has a combined customer base of 2.4 million

in Consumer Banking and over 1200 corporate customers in Wholesale Banking. The

group launched its business in Mauritius in 2002 to provide Wholesale Banking services

to corporate clients .The shared service centre in Chennai continues to develop rapidly as

more services and processes are migrated from other countries. The average number of

employees in the India region in 2002 was 5251.

20

3.3.6 Standard Chartered in Africa

Standard Chartered continues to be one of the leading banks in sub Saharan Africa. The

group offers consumer banking and wholesale banking services in 13 African countries

with a network of 149 branches and offices. Standard Chartered recently launched

operations in the Ivory Coast and re-entered Nigeria. Business in East Africa has

performed well. Despite difficulties in Zimbabwe, the group’s business in Africa has

delivered good results. The average number of employees in 2002 was 5009.

3.3.7 Standard Chartered in United Kingdom and the Americas

Businesses in the United Kingdom and the Americas provide services to leading

multinationals and major financial institutions, which trade or invest in Asia, Africa, the

Middle East and Latin America. In 2003, the businesses in the Americans were

extensively restructured to improve efficiency for future growth. The Group also operates

a growing off shore banking business based in Jersey. The average number of employee

in the United Kingdom and Americas in 2002 was 2098.

3.4 The Acquisition of ANZ Grindlays by Standard Chartered:

The main idea behind acquisition and merger is making an investment and usually

involves more than mere cash. When two separate legal entities merge every organization

aspect of both companies are expected to change be it internal or external. Such

management decision is taken for a variety of reasons but the ultimate aim is to add up to

shareholder's wealth. For banks operating in the consumer and wholesale banking sector,

earning depends largely on the interest margin as well as the service charges. For this

increasing customer base is a major concern, for banks operating in foreign countries,

increasing customer base is not easy since they have to compete with local banks which

in many cases are backed by government. This especially true in Southeast Asia where

governments have quite a strict control on the financial market and the institutions.

21

The government and autonomous banks largely dominate our country's banking sector.

Thus, competing them in interest figure becomes for both foreign and local and foreign

banks. The only way to attract customer is through providing high quality service. Also

they have to be very innovative in financial products since they have to compete the

government again in highly profitable saving instrument sand low-interest loans.

Standard Chartered Bank, the largest and one of the oldest foreign banks in the country

has been successfully doing business in corporate and consumer banking sector for years.

It has introduced many new financial consumer and corporate products like money

builder in the market. Recently the bank attracted a great deal of attention through it's

acquisition of another foreign bank operating in Bangladesh "ANZ Grindlays" from

August 2001, the two competing banks will complete the merger process and operate

from the same platform. This is a concept for a country like Bangladesh where merger of

two large distinct organizations is still far-fetched. However with it's increasing customer

base the service quality seems to have declined.

22

23

3.5Operating and Financial Review: Summary of Global Performance in 2002

The results for the year ended 31 December 2002 reflects a strong performance with

profit before tax upto 16 percent from $1089 million to $1262 million. Revenue

momentum has been sustained despite tough market conditions, pressure on margins and

a low interest rate environment. Costs have been reduced by $28 million without cutting

investments in growth businesses and re-engineering the bank. Provisions for bad debts

and contingent liabilities were $19 million lower, mainly due to tight control on risk in

wholesale banking where new provisions were lower and recoveries were higher than in

2001.

The results were adversely impacted by increased Consumer banking bad debts from

bankruptcies in Hong Kong, the economic deterioration in Argentina in the first quarter

and the difficult economic environment in Zimbabwe, but benefited from a gain on the

unwinding of a swap relating to the preference shares purchased in December.

In February 2002 the Urgent Issues Task Force of the Accounting Standards Board

(UTIF) issued guidance on the application of accounting standards to capital instruments

that have characteristics of both liabilities and shareholder’s funds. The group has

complied with these requirements and as a result has reclassified its Trust Preferred

Securities and step up Callable Perpetual Trust Preferred Securities from “minority

interests- non equity” to “liabilities” and moved the cost of this capital from “minority

interests- non equity” to “interest payable”.

Revenue has grown up three percent to $4,539 million and reflects strong momentum in

Consumer banking outside of Hong Kong. Total Group revenue has felt the impact of

three significant factors in 2002.Firstly, the deliberate action taken to trade revenue to

improve the risk profile of the business. Secondly, the deteriorating conditions and hyper-

inflationary environment in Zimbabwe depressed revenue by $64 million. Thirdly, the

Group unwound certain interest rate swaps hedging the $ 659 million of preference

shares, which were repurchased in December with again of $57 million.

Net interest income increased by six percent driven largely by volume growth, lower

funding costs and better spreads in Consumer Banking and strong earnings on assets and

liability management in Wholesale Banking. The Group also benefited by $57 million

24

from the unwinding of interest rate swaps relating to the Group’s average interest earning

assets rose by $2.9 billion compared to 2001.

Net fees and commissions receivables have increased by one percent to $991 million

compared to $977 million in 2001.The focus on a more sophisticated product set within

Global Markets generated higher fees in the Americas and the United Kingdom. In other

Asia Pacific, India and MESA growth was largely in unsecured lending in Consumer

banking offsetting the impact of bankruptcy containment actions in Hong Kong.

Dealing profits have fallen by $ 50 million or eleven percent. Hong Kong, India and

MESA performed well, increasing revenue by $22 million through strong trading.

However, in addition to the hyper inflationary adjustment and translation losses relating

to Zimbabwe, lower spreads and reduced volumes in a number of countries led to a fall in

revenue.

Total operating revenues were reduced by $ 28 million to $2557 million compared to

$2585 in 2001.The benefits of the concentration and operational efficiency programs

continue and the integration of Grindlays has led to higher than targeted cost synergies.

This improvement is despite a $41 million charge in Latin America as a result of

refocusing the strategy, and has been achieved while continuing to invest for future

growth. The cost income ratio for 2002 was 53.6 per cent, compared to 55.8 per cent in

2001 on a normalized basis.

The net provisions for bad and doubtful debts and contingent liabilities were $19 million

lower than 2001 at $712 million. Wholesale banking improved its position year on year

by $ 292 million, despite a $75 million charge for Argentina. This was achieved through

a pro-active focus on risk management with a charge of $287 million in 2002 compared

to $121 million in 2001.

Post Tax return on equity (normalized) was 13.4 per cent, up from 12.0 percent in

2001.This has been achieved through growing high return businesses, cost efficiency and

active capital management.

25

SCB

in

Bangladesh

26

3.6 Standard Chartered in Bangladesh

The Chartered Bank opened in Chittagong in 1948, which was, at that time, the eastern

region of the newly created Pakistan. The branch was opened mainly to facilities the

post-war re-establishment and expansion of South and South East Asia. The Bank opened

its first branch in Dhaka in 1966 and shifted its headquarter from Chittagong to Dhaka

after the birth of the Republic of Bangladesh in 1971.

At present the Bank has ten branches in Dhaka, it also have one offshore banking unit

inside the Dhaka Export Processing Zone at Savar, one branch in Narayanganj, three

branches in Chittagong, one branch in Khulna, one branch in Sylhet, one branch in

Bogra. In the year 1999 Standard Chartered has acquired the operation of Grindlays Bank

in the Middle East and South East Asian countries. Former Grindlays Bank started its

journey in Bangladesh in 1905 under the name of Grindlays Bank (when it forbears the

National Bank of India opened in Chittagong). Standard Chartered Bank took-over the

operation of ANZ Grindlays Bank in Bangladesh as a part of acquisition of the South

East Asian and Middle East operation of the Australia and New Zealand Banking Group.

Standard Chartered Bank (SC) become the highest bidder quoting about AU$2.5 billion

(US$1.5 billion) after ANZ Banking group decided to sell its subsidiary, the ANZ

Grindlays Bank operating mostly in the Middle east and South East Asian countries. The

SC with its 18 branches and booths across Bangladesh has employed more than 600

people. The acquisition has enabled Standard Chartered Bank (SC) to access 500,000

new customer and 40 branches in India, and this made them one of the biggest bank in

this region.

27

After acquisition, Grindlays Bank is a part of Standard Chartered Group. The Bank

presently has 18 outlets in 5 cities serving over 1,25000 customers. The network of SCB

Bank in Bangladesh includes:

10 Branches in Dhaka city

1 Branch in Savar EPZ (recently started with full banking operations)

1 Branch in Narayanganj

3 Branches in Chittagong

1 Branch in Khulna

1 Branch in Sylhet.

1 Branch in Bogra

Recently the bank opened a new branch in Bogra to reach out the in northern part of the

country .The network of SCB engage itself for providing best quality banking service in

retail, commercial and corporate banking segments. The countries top Enterprises;

Multinational, Local Corporation and Financial institutions are served by SCB. With total

asset based of BDT 17.5 billion and annual turnover of BDT 1.78 billion, SCB in

Bangladesh is among the top performing multinational bank.

28

Products

&

Divisions

of

SCB

29

3.7 Product Division

There are different divisions for targeting different type of customers. Mainly consist of

two divisions, that is Consumer Banking Division (C B) and other is Corporate Banking

Division named Corporate and Institutional Banking (C & I).

Consumer banking division meets the needs of individual customers with various

products like Savings Account, Extra Value Savings Account, Access Account,

Call Deposit, FCY Deposit, NFCD Fixed Deposits, RFCD Account, Personal

Loans, Auto Loans, Flexi loans, Cash Line, Installment loans, etc. This

department also deals with other savings instruments like education savings

scheme, rainy day scheme, marriage day scheme, millionaire scheme (some

printed brochures are enclosed in the Appendix)

Corporate and institutional banking meets the needs of companies, banks and

other financial institutions. Standard Chartered provides a full range deposit and

loan products to it's corporate clients. Rapid decision-making is an important

feature of SCB’s services to international and domestic companies doing business

in Bangladesh. All accounts are assigned to a Relationship Manager to look after

client needs. Each relationship manager keeps close contact with the client

obtaining in-depth knowledge of the client's business and providing timely advice.

This division’s products include network banking and borrowing services like

working capital loan, long term loans, short term loans, margin account,

commercial large loans, real estate apartment loans, heavy transport buying loans,

real estate mortgage loans, construction loans, restaurant loans, and above all it

includes all international trade related services like L/C issuing, L/C amendment,

L/C Transfer, L/C Confirmation, Negotiation, Bank Guarantees, etc. These

products are only served to the corporate clients of the bank, and those are mostly

local corporate, large and local corporations, multinational national companies.

List of some of them are given in the appendix section.

30

The Relationship between Respective Customers to Different Departments of SCB

Companies Banks and

other

Financial

Institutions

This focus allows the business to develop an in-depth understanding of the banks

customer’s evolving requirements. This in turn enables SCB to develop the products and

services that help them to stand out from the competition. Treasury provides support to

the customers of both these business and develops customers (both individual and

organizational) of its own.

3.8 The Division of SCB Bangladesh

The bank is divided into several divisions and business units, which are also further sub-

divided. The divisions are mainly based on some service lines designed for and provided

to targeted customers, other divisions and units are there to support the business activities

of the major service based divisions. The following is the list of the divisions of SCB in

Bangladesh. Note that the divisions are little different compared to the major areas of the

Group.

31

IndividualOrganization

Consumer Banking Corporate & Institutional Banking

Treasury

3.9 Major Business Units

3.9.1 Corporate Banking Group

Standard Chartered Bank offers its local customers a wide variety of financial services.

All the accounts of corporate clients, which mainly comprise the top local and

multinational companies operating in Bangladesh, are assigned a Relationship Manager

(RM) who maintains regular and close contact to cater to their needs. The objective of

this department is to maintain a thorough knowledge of the client's business and to

develop positive relationships with them. This is maintained through interactions to offer

timely advice in an increasingly competitive business environment. The expertise of the

Financial Institution (former Institutional Banking) and Treasury groups is also available

whenever required. The unique Off-shore Banking Unit (OBU) in Savar offers a full

range of facilities to overseas investors, and recently that Savar Branch have expanded

many of its activities. The Corporate Banking Group in Bangladesh has displayed a spirit

of community involvement by working with NGOs to underwrite soft loans. Standard

Chartered Bank offers its corporate customers:

The wide varieties of lending needs are offered with skilled and responsive

attention.

Project finance and investment consultancy.

Syndicated loans.

Bonds and Guarantees.

Local and International Treasury products.

The trade finance of Standard Chartered Bank takes care of the commercial activity

related issues, particularly those related to import and export finance services. Some of

the services are:

Trade finance facilities including counseling, confirming export L/Cs and issuing of

import L/Cs, backed by its international branch and correspondent loan network Bond

32

and Guarantees Project finance opportunities for import substitution and export oriented

project

3.9.2 Treasury Division

The foreign exchange and money market operation of the Standard Chartered Bank in the

world is extensive. Exotic currencies happen to be one of its special areas of strength. A

24 hour-service is provided to customers in Bangladesh through the Bank's network of

dealing centers placed in the principal of the world. The Bank's treasury specializes in

offering solutions to those who wish to manage interest rate and currency exposures that

result from trade, investment and financing activities of other dynamic economies of the

region. Treasury operations are developed in line with changing market conditions to

provide the best services to its customers. According to BAFEDA (Bangladesh Foreign

Exchange Dealers Association), Standard Chartered Bank presently controls 42% of the

local foreign exchange market's traded volume.

3.9.3 Financial Institution Department (Former Institutional Business

Group)

Financial Institution Department (former Institutional Banking) is a specialized banking

unit of Standard Chartered, providing products and services to the specific needs of other

banks and financial institutions. It assists the local banks by taking care of their cross-

border business through the worldwide Standard Chartered Bank networking over 40

countries. It offers various services like L/C Confirmation, Negotiation, Inter and intra

Bank Guarantee, Local Bill Discounting, L/C Advising, L/C Transfer, L/C amendment

advising, Reimbursement Undertaking and Authorities, Fund Transfers, Export proceeds,

BDT Draft Drawing, International Payments (T T’s), Account Services (Vostro Account

Management)

3.9.4 Consumer Banking Division

Superior retail banking services comprising a wide range of deposit and loan products are

offered by the Standard Chartered Bank to its individual customers. The Consumer

33

Banking division constantly faces challenges and meets them by developing new

products and services to fulfill the specific requirements of local and foreign customers.

Bank offers a 24-hour service in Bangladesh through its Moneylink ATM network and

Phone-link Phone Banking services. The below mentioned type of accounts are served by

the Consumer Banking Division.

Personal Current Account

Personal Savings Account

Personal Access Account

Consumer Fixed Deposit Account

Personal Call Deposit Account

Non-resident Foreign Currency Deposit Account

Resident Foreign Currency Deposit Account

Convertible Taka Account

Foreign Currency Accounts for Foreign Nationals

Foreign Currency Accounts for Bangladeshi Nationals

Escrow Account

Private Non-Resident Taka Account

3.9.5 Card Division

Card is the latest area that has been identified for rapid development. The bank is the one

of the acquirers of three major cards in Bangladesh. Two of the credit cards are VISA and

MASTER CARD and the one is the charge card known as Japan Credit Bureau (JCB).

Standard Chartered Bank is the subsidiary or secondary agent of the credit cards and a

primary agent of JCB.

SCB started its cards operation in 1989 as a part of retail banking. Initially, SCB’s card

market was very small, with only 30 merchants. But seeing the economies and the

consumers’ attitude towards the credit card has given the opportunity to expand their

market base by acquiring high quality merchants in the chosen segment. The bank is the

34

first to introduce the TAKA CREDIT CARD. The card is issued basically to a person’s

name and the specific person can use the card in anywhere in Bangladesh.

3.9.6 Custodial and Clearing Service

Headquartered in Singapore, Standard Chartered Equitor fulfils the group's strategic

commitment to the provision of custodial service in Asia. Equitor's customers are

primarily foreign global custodians and broker/dealers requiring cross border information

as well as sub-custodian services. Standard Chartered Bank, Bangladesh is responsible

for the planning in Bangladesh, but the overall management of the custody business is

based on Equitor's international business strategy.

Supporting Departments

3.9.7 Information and Technology Department

This department is instrumental in the running of all the computerized operations of the

bank. They help in the implementation and generation of computerized reports. Another

major duty of the department is to maintain communication with the rest of the world.

3.9.8 Operation

Operation is part of the support division, which helps to run the businesses of the bank in

a smooth and controlled manner. Since it helps mainly in processing the works of the

business units, any mistakes made can be easily detected and on time.

Following are the main functions of the operations department:

Central operations deals with the closing and opening of accounts and other payment

and account related processing of the Personal Banking division

35

Treasury operations help to deal with the processing works of the treasury division.

Loan Administration Unit (LAU) deals with the processing of the Corporate Banking

division.

Operations also have a department that deals with internal projects that arises from

the need to deal with certain problems or to make certain changes.

3.9.9 Legal and Compliance

In the UK, Standard Chartered Bank is regulated by the Bank of England, while in

Bangladesh local banking laws regulate it and rules set by the Ministry of Finance and

Bangladesh Bank. It also encourages its staff to conform to an internal culture of ethical

behavior and sensitivities to the culture and religion of the country.

Some of the key areas that the Legal & Compliance department has to take care of are:

any kind of legal issues, to advise the CEO regarding all matters and the management on

legal and regulatory issues, correspond regulatory compliance issues to MESA Regional

Head of Compliance, and supervise internal control (e.g. internal audit).

3.9.10 External Affairs

This department deals with advertising, public relations, promotions, partial marketing

which involves disseminating new products and services to customers and above all

ensuring service quality.

36

Human

Resources &

Structure of

SCB

37

3.10 Human Resources Division

This department manages recruitment, training and career progression plan. Standard

Chartered Bank highlights the importance of developing its people to create a culture of

customer service, innovation, teamwork and professional excellence. SCB recruits people

by two ways. One is a “Management Trainee” that has a probation period of six months

and after the probation period the trainees will be counted as an officer and they will do

the different kinds of managerial works and another is “Non Management Trainee” which

does not have any fixed probation period. Time required for training is department on the

recruited person’s performance. In case of non-management trainee, two ways of

recruitment is taken place. They are (a) taken by signing a contract with some outside

organization for three months and after three months the contract may be renewed or not

depending upon the employee’s performance. These people coming through outside

contract are called “Out Source”. (b) Taken by signing a contract with the bank for the

three months and after three months the contract may be renewed or not depending on

his/her performance. These people coming through bank contract are called “In source”.

3.10.1 Controlling Structure at SCB

Alike all other big multi-national companies, management in SCB consists of planning

organizing, directing, controlling all of the resources of an organization. The goal of

Standard Chartered Bank is to be the "Bankers of First Choice." Towards that goal, the

overall planning in the Organization is done at the headquarters level in Dhaka by a

Management Committee (MANCO), headed by the CEO and consisting of the business

heads like Corporate Banking, Consumer Banking, Treasury, Global Markets, and from

the support divisions the heads of Human Resource, Operations and Finance

Departments. They meet once a month, or when special situations arise, to plan the

strategic decisions. The decision making, although apparently based on a top-down

approach, leaves room for participation down to the level of department heads, which are

responsible for carrying out the planning of their department within the broad guidelines

set by MANCOM.

38

Among the broad strategic objectives are:

Creating a congenial work environment

Modernization of the management information system to achieve full automation by

drastically cutting down the paper works in long term.

Focusing on service quality and consume needs

Recruiting and maintaining top grade, efficient employees

To invest in those technological systems which will upgrade and enhance financial services

Creating an excellent brand image of the bank.

3.10.2 Personnel Policies:

The number of officers exceeds the number of clerk, which is a straight contrast to local

banks specially the nationalized commercial banks. Standard Chartered Bank pays great

attention to recruiting high quality staff through proper evaluation and improving their

skills through structured training. Reward and punishment base on strict performance

evaluation and opportunities of promotion both in country and abroad are two important

features of the personnel policy of Standard Chartered Bank.

3.10.3 Recruiting, Training and Career Progression:

The recruitment process is based on references, advertisements and internships. Entry

point screening is done both by the written and oral test. The medical record of the

potential employee is very important and those suffering from potentially life threatening

and performance deterring diseases are not hired, even if they were otherwise qualified.

The placement of the staff is done in two ways. Either the employee undergoes a

management trainee program with a probation period of nine months and is categorized

as an officer leading to various managerial jobs, or is recruited at a non-management

level as banking assistance or support officer. There is a structured training framework

for all the employees, and a channel for moving people from national to international

positions. International graduate recruitment and personal skill development for entry-

level employees are a part of the human resources development efforts at Standard

Chartered Bank.

39

3.10.4 Planning, Organizing, Directing and Controlling

The top down planning approach is mostly followed at Standard Chartered Bank. The top

managers have the authority to decide how they will achieve their goal because SCB

group worldwide decides the goal. The Business Bank mainly does planning and Retail

Bank Division, IT Department provides all the assistance and information that is required

to create and execute long term and short term planning. Planning and IR Department

provides all the assistance and IT and other infrastructure in order to reduce the

paperwork IT has taken a plan to achieve the long tern plan. One branch manager in each

of it is managing SCB’s all branches. The performance of each branch is solely

dependent on the branch manager. Management is partly authoritative and participant at

the top level of SCB But every one has some assigned work to do for the day and they

cannot deny this. Sitting arrangement is created in such a way that co-workers can sit

close to each other and have sharing of their work and at the same time can have easy

contact with each department coordinator/ Head. The work environment is very friendly.

The room contains sufficient amount of light and is always cooled by high capacity air

conditioners.

40

3.10.5 Five Values of Standard Chartered Bank

Standard Chartered Bank has five values and these values are key to their success. These

value determine how the employees achieve their goals, the way they work together and

how it feels to be a part of Standard Chartered Bank. In brief these values are:

1. Courageous: Being courageous is about confidently doing what’s right. Often the

task may seem insurmountable but with courage and tenacity, the odds can be

overcome. A truly courageous act both inspires and builds character.

2. Responsive: How we response to our customer will influence their belief in our

commitment to them. A proactive response is often unexpected and more effective for

that. It clearly demonstrates our willingness to go beyond the unexpected.

3. International: As a member of global village we view the world from the widest

perspective. We are all global citizens and the world is full of new opportunities and

exciting possibilities. We also deliver world class products and services.

4. Creative: Creativity belongs to those of us who are excited by challenges and

engage them in fresh thinking and an open mind. Creative thinkers are not limited by

convention but allow their minds to soar beyond predictable solutions.

5. Trustworthy: Trust is the foundation of every successful relationship. We trust

because we believe in the sincerity of our promise. Building trust can take forever.

Losing takes only moments.

41

3.10.6 Chain of Command:

Standard Chartered Bank in Bangladesh follows a hierarchy pattern of command. The

chief Executive Officer (CEO) for the country reports to the Regional Manager, MESA

(Middle East South Asia) in Dubai. All other departmental Heads at the headquarters

report to the CEO. A manager or Senior Manager reports to the divisional heads. The

respective Branch Managers or Branch Sales and Service Managers (BSSM) are

responsible for the performance of their unit. Each branch is organized functionally along

line divisions with some support facilities and the manager assigns tasks to his / her

subordinate personnel and supervises their performance.

Organograms of different division of the bank is given in the next few pages separately.

42

Chain of Command

Chief Executive Officer(CEO)

Head of Consumer Banking

Head of Corporate &Institutional Banking

Chief Operating OfficerHead of Global Market

Head of Finance

&Administration

Head of Human

Resources

Head of Institutional

Banking

Head of GSAM

Senior Credit Officer Head of Legal and

Compliance

Head of Information

TechnologyHead of Corporate &External Affairs

43

Head of Consumer Banking

Product Secured, Unsecured, Liabilities Branches Direct Sales CreditDevelopment Product sales in all channels Phone banking Product development CollectionProduct Launch Product Marketing & ATMs Marchant Acquiring Marketing campaign for all channels Priority Banking Customer ServiceMarket Intelligence DSE Management Relationship Management Tele Sales Tele Sales Branches SQ Product/Fee Pricing

Head of Consumer Banking

Manager Service Quality(SQ) Manager Business Finance

Officer Compliance & ControlSupport Executive

Head of Product Development& Marketing Services

Head of Banking Products

Head of Distribution &Priority Bank

Head of Cards Head of Credit & Collection

Officer

44

Finance and Administration Division

Dispatch Operator

Head of Finance and Administration

Manager Finance Operation Manager Business Finance Head of Administration

Finance Officer Finance Officer – Business Support Senior Admin Officer

Officer

45

Human Resources Division

Head of Human Resources

Head of Human Resources Operation

Officer – HR Operation Officer – HR Admin

46

Legal and Compliance Division

CORPORATE AFFAIRS

Officer

Head of Legal & Compliance

Compliance Advisor Officer –Audit and Compliance Manager – Legal Support

Head of Corporate Affaires

47

Treasury Division

Corporate Dealer

Dealer – Money Market Foreign Exchange Dealer

Head of Global Market

Head of Money Market and ALM

Head of Foreign Exchange Trading

Head of Sales

48

Information Technology ( I T )Division

Product Specialist Technical Analyst System Security Administration Senior Technical Analyst Product Specialist System Controller

Shift Leader

Head of I.T

Manager IT Product Support Manager Manager Communication & Infrastructure Support

49

Corporate and Institutional Banking

Sr. Relationship Manager Sr. Relationship Manager Relationship Manager Sr. Relationship Manager Relationship Manager Relationship Manager Relationship ManagerSr. Credit Analyst Credit Risk Manager Credit Risk ManagerSr. Sales Supporting Credit Risk Officer Credit Risk Officer

Sr. Business Dev. Manager Sr. Relationship Manager Business Dev. Manager Relationship Manager(Trade, Projects, Cash, Trade, Manager --FI, Sales Support

Sales) Manager – FI, ChittagongProduct Manager Officer- FI Sales Support Manager Electronic Banking

Head of Corporate and Institutional Banking

Executive Assistant

Head of Local Corporate Head of Network Banking Head of Structured Finance Head of Chittagong Corporate

Head of Financial InstitutionsHead of Cash & Trade Head of Custody and Clearing Service

50

Service Delivery

Account Service Trade Risk Control & Recon ATM Cards Cash Foreign Exchange Item Processing Credit Money MarketAsset Operations and Docs Documentation Security Bonds Admin Chittagong Service Delivery

Officers Officers Officers

Chief Operating Officer

Head of Consumer Service Delivery Head of Corporate Service Delivery

ManagerManager

Head of Global Market Service Delivery

Manager

51

SWOT

Analysis

Of

SCB52

3.11 SWOT Analysis

The acronym for SWOT stands for

STRENGTH

WEAKNESS

OPPURTUNITY

THREAT

The SWOT analysis comprises of the organization’s internal strength and weaknesses

and external opportunities and threats. SWOT analysis gives an organization an

insight of what they can do in future and how they can compete with their existing

competitors. This tool is very important to identify the current position of the

organization relative to others, who are playing in the same field and also used in the

strategic analysis of the organization.

3.11.1 Strength

SCB’s Banking Experience for more than 55 years provides SCB the strength of

being the market leader in the foreign banking sector. This strength of SCB is

totally unmatched by any other multinational bank in Bangladesh, as the long term

success of a bank heavily depends on its reputation while dealing with every

sensitive commodity like money.

SCB is the first bank in Bangladesh to issue Money link (ATM) card. As the

market leader, they showed the most substantial corporate strength among the

foreign banks by grabbing the opportunity that exists in the market.

In Bangladesh SCB has wide range of customer base and is operating efficiently

in this country.

SCB has a bulk of qualified, experienced and dedicated human resources.

SCB has the reputation of being the provider of good quality services to its

potential customers

53

3.11.2 Weakness

SCB has fewer branches than their competitors. Such as SCB have only 18

branches whereas Uttara Bank Limited has 198 branches and 12 regional offices.

SCG has more and high fees and charges compared to its rivals. Such as minimum

balance fee, ledger fee etc. as a result SCB is loosing its customers.

SCB often has problem with market share as ATM machines. Customers often

complain that the ATMs are out of order.

SCB hasn’t that much good market share as other multinational bank. It’s as

because SCB’s marketing strategy is not aggressive they always follow defensive/

conservative strategy. This may be considered as weakness.

3.11.3 Opportunity

The population of Bangladesh is continuously increasing at a rate of 7.3% per

annum. The country’s growing population is gradually and increasingly learning

to adaptation of consumer finance. As the bulk of our population is middle class,

different types of products have very large and easily pregnable market.

The activity in the secondary financial market has direct impact on the primary

financial market. Investment is a national socio economic activity. And activity in

the national economy controls the bank.

Bangladesh have a huge consumer base for maintaining several accounts. So SCB

has the opportunity to keep these customers by reducing its current fees and

charges.

54

3.11.4 Threat

In today’s economy, substantial amount is remaining idle and currently the

investment in the secondary market by foreign is relatively low. These economic

situations of the country indicate political threats.

Increased competition by other foreign banks is also another threat to SCB. At

present HSBC and CITI Corp are posing significant threats to SCB regarding

retail and business banking respectively. Furthermore, the new comers in private

sector Prime Bank, Dutch Bangla Bank, EXIM Bank, BRAC Bank, Southeast

Bank, Mercantile Bank, Social Investment Bank, Islami Bank are also coming up

with very competitive force.

55

Opening Procedures

&

Charges

of

Various Products

56

3.12 Consumer Products of SCB

In the consumer market, SCB is well reputed for introducing innovative and lucrative

offers and products to its customers. SCB’s products have always been a master

blaster in the banking market.

3.12.1 Personal & Joint Account

For opening a personal or a joint account one needs to submit a valid passport or any

identification attached with photo, one passport size photograph and needs to be

introduced by any account holder of SCB whose account is minimum six months old.

To open the account the person needs to fill up a form mentioning his name, address,

telephone number, date of birth, occupation etc. as well as mode of operation and

specimen signature. Account holder must appoint a nominee with photograph and

signature who also must attest nominee’s signature and photo.

3.12.2 Current Account

To open a Current Account one has to deposit a minimum of Taka.50, 000. And

account holder of those account need to have average balance of Taka 50000 at all

time, otherwise a charge of Taka 500 will be debited. And the closing charge for those

accounts is Taka 250, and if it is closed before six months, the charge will be Taka

500.

Current Accounts (Local Currency & Foreign Currency): Minimum balance required Interest RateBDT 50,000 or equivalent No interest is paid

3.12.3 Savings Account

To open a Savings Account one has to deposit a minimum of Taka. 100,000 and Taka

300,000 for extra value savings account (EVSA). And account holder of those

account need to have average balance of Taka 100,000 at all times, otherwise a charge

of Taka 500 will be debited. And the closing charge for those accounts is Taka 200,

57

and Taka 300 for EVSA accounts. If the A/C is closed before six months, the charge

will be Taka 500 and Taka 1000 for EVSA.

Average Balance Interest RateAverage balance below BDT 100,000 00.00%Average balance BDT 100,000 to 500,000 04.50%

Average balance BDT 500,000 to 1,000,000 05.00%

Average balance BDT 1,000,000 05.50%`

3.12.4 Short Term Deposit (STD) Accounts:

Minimum balance for maintaining a STD (Short Term Deposit) or Call Deposit Account

is required BDT 250,000. Interest Rate on this type of account is 4.00% to 6.00% (Rate

varies on amount). The main reason for big clients to maintain this type of account is just

to earn interest on big amount on a daily basis.

3.12.5 Access Account

Access account is quite new feature of SCB that allows customers to have an account

with SCB without any charges that are present in other types of accounts. Access

account differs from its other account services in the way that it requires no minimum

deposit size and hence it doesn’t provide any interest. The advantage is that students /

people of medium income level trying to avoid high bank charges can use this account

to meet emergency cash requirements. The account holders do not get any facility of

cheque book and cannot withdraw more that Taka. 20, 000 in a day and also cannot

overdraw their account. The charges include Taka. 150 per year and Taka. 250 for

government excise duty. And the closing charge for those accounts is Taka 200.

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3.12.6 Resident Foreign Currency Deposit (RFCD)

Specially designed foreign currency account for resident Bangladeshis. Offers

wonderful opportunity to build a deposit base in foreign currency. Helps make for

overseas commitments and dues like credit card bills, traveling expense, recreation

tours, etc. This service is offered in currencies like USD, GBP and Yen. The interest

that SCB offers is very competitive, but the deposit can only be made in foreign

currency. The withdrawals can only be made in local currency. It offers fund

Remittance in LCY and FCY to any place in and out of the country.

3.12.7 Foreign currency current account

Applicable to Bangladeshis working abroad, it can be opened in USD, GBP and Yen

without restriction on transaction frequency. Can be operated through nominees, in

absence of the account holder. Fund remains in foreign currency and is freely

remittable. The deposit can be made in foreign currency only (Cash, TC or Drafts or

transfer from other FCY account). But cash withdrawals can only be made in local

currency only. Fund can be used to make investment in Wage Earners' Development

Bond

3.12.8 Non - Resident Foreign Currency Deposit (NFCD)

* A short-term foreign currency deposit account suitable for Bangladeshis living

abroad, offering most competitive interest rates available in both local and

international markets. The interest paid in this account is in foreign currency, it can be

opened for a term of 1 months, 3months, 6 months and 12 months. The interest rates

are tiered (based on amount and term), but payable on maturity, but automatically

renewable. It can be used as security against personal/commercial loan

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3.12.9 Account Statement Charges

The charge for holding statements is BDT 1000 per annum per account, and for

Additional/ Duplicate statement (Per cycle) is BDT 200 per statement. Photocopy of

statements is Taka 1000.

3.12.10 ATM Card Charges

The annual fees for ATM card is Taka 150 per card, and the charge in case of

damaged or lost card is Taka 300 per card. And phone banking is absolutely free.

3.12.11 Charges for Cash and Travelers Cheque Foreign Currency

For issuance of FCY cash, customers need to pay 1% of the transaction plus Taka

200/= per passport. And for issuance of Travelers cheque 1% of the transaction plus

Taka 200/=. The charge for encashment is absolutely free in case of travelers cheque

issued by SCB.And encashment for other bank’s issued T.C is 0.25% of the

transaction value or minimum BDT 500. SCB also provides encashment facility for

non-customers, is 0.25% of the transaction value or Taka 1,000.

3.12.12 Charges for maintaining Student file

For customers, opening student file for SAARC countries, they charge BDT 3500 per

student, per annum plus Taka 500 per remittance. This is a centralized system. No

matter where the customers conduct his/her banking, for opening and maintaining

student file, he/she is bound to come to SCB Kakrail Branch, which is at 109, Kakrail.

That branch exclusively deals with Student File. And, the charge for other countries is

Taka 5000 per student file plus Taka 500 per remittance. This opening of student file

is not available for non-customers.

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3.12.13 Fixed Deposit Account

For a fixed deposit account a person needs to deposit a minimum of BDT 100,000.

After the maturity of the fixed deposit the depositor will get the principal along with

the interest. The interest rate for this fixed deposit varies with the amount and period.

The rate increases as the amount and time period increases.

Fixed Deposit (effective from 1st February 2003):

Local currency for Consumer Customer

Tenor Minimum amount required

BDT 10M & Below

BDT Over 10M

3 Months BDT 100,000 7.00% 7.75%6 Months BDT 100,000 7.50% 8.25%12 Months BDT 100,000 7.75% 8.50%2 Years BDT 100,000 8.25% 8.75%3 Years and above BDT 100,000 8.50% 9.00%

But the above deposit rates may be increased by 1.00% for priority/Wholesale clients at

the discretion of the Management. In that case, the branch sales and services manger

needs to obtain approval from HOC&I and HOCB for C&I and CB deposit respectively

with regard to above discretionary interest rates.

3.12.14 Lending Rates For Consumer Banking:

a. Money Builder 12.00% to 14.00%

b. Cash Line (Loan) 11.00% to 13.00%

c. Cash Line (Overdraft) 12.00% to 14.00%

d. Instalment Loans:

i. Type A (100% Covered) 13.00% to 15.00%

ii. Type B (50% to 99% Covered) 15.00% to 17.00%

iii. Type C (30% to 49%) 17.00% to 19.00%

e. Personal Loan 18.00% to 20.00%

f. Supra National Organizations Personal 07.00% to 09.00%

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3.13 Company Account

3.13.1 Sole Proprietorship Account

Just like the personal and joint account, an account opening form and one passport

size photograph is required. The customer also needs to submit a copy of his trade

license, Sole proprietor Declaration From and signature. The account holder must

attested nominee’s signature photo.

3.13.2 Partnership account

Just like the sole proprietorship account, an account opening from and one passport

size photograph is needed. Account holder must appoint a Nominee’s signature and

photo. Moreover the customer is required to provide the following documents:

Required Certified copy of the Partnership Deed of the firm.

Certificate of Registration of the firm.

List of partners with their address.

Latest copy of Balance Sheet.

Extract of resolution of the partners of the firm for opening the account and

authorization for its operation duly certified by the firm’s Managing Partner.

List of names with appointments and specimen of the persons who are authorized

to operate the account duly certified by the Managing Partner of the firm.

3.13.3 Limited Company Account

To open a limited liability company account the customer is required to submit the

following documents:

Certified copy of the memorandum and articles of association of the company.

Certificate of incorporation of the company.

Certificate from the Joint Stock Registrar that the company is entitled to

commence business.

Latest copy of Balance Sheet.

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Extract of Resolution of the Board / General Meeting of the company for opening

the account and authorization for its operation duly certified by the Chairman or

Managing Director of the company.

List of names with appointments and Specimen signatures of the persons

authorized to operate the account and request the bank to open a letter of Credit /

Guarantee duly certified by the Chairperson or Managing Director of the

company.

Corporate Investment Deposits:

Tenor BDT 10M & Above1 Months 7.00%

Fixed Deposit Local currency For Corporate Customer:

Tenor Minimum amount required

BDT10M & Below

BDT Over 10M

3 Months BDT 100,000 7.25% 7.50%6 Months BDT 100,000 7.50% 8.00%12 Months BDT 100,000 7.75% 8.25%2 Years BDT 100,000 8.00% 8.50%3 Years and above BDT 100,000 8.50% 8.75%

Fixed Deposit foreign currency for Corporate Customer:

The rates are based on the international market rates, which are available at the

bank regularly.

3.13.4 Lending Rates For Corporate Banking:

1) Agriculture:

a. Overdraft 09.50% to 11.50%b. Short Term Loan 09.00% to 11.00%

2) Large & Medium Scale Industry (Term Loans):

One to Three Years:

a. Multinational Corporate Clients 10.00% to 12.00%b. Large Local Corporate Customers 11.00% to 13.00%c. Local Corporate Customers 12.00% to 14.00%d. Small Corporate Customers 13.00% to 15.00%

Four to Five Years:

63

a. Multinational Corporate Clients 11.00% to 13.00%b. Large Local Corporate Customers 11.50% to 13.50%c. Local Corporate Customers 12.50% to 14.50%d. Small Corporate Customers 13.50% to 15.50%

3) Working Capital:

a. Multinational Corporate Clients:

Overdraft 09.75% to 11.75%Short Term Loan 09.00% to 11.00%Revolving Promissory Note 08.00% to 10.00%

b. Large Local Corporate Customers:

Overdraft 11.00% to 13.00%Short Term Loan 12.00% to 14.00%Revolving Promissory Note 08.00% to 10.00%

c. Local Corporate Customers:

Overdraft 12.00% to 14.00%Short Term Loan 12.00% to 14.00%Revolving Promissory Note 10.00% to 12.00%

d. Small Corporate Customers:

Overdraft 11.50% to 13.50%Short Term Loan 13.00% to 15.00%Revolving Promissory Note 11.00% to 13.00%

4) Export (Packing Credit) 07.00% to 09.00%

5) Other Commercial Lending:

a. Multinational Corporate Client 11.00% to 13.00%b. Large Local Corporate Customers 12.00% to 14.00%c. Local Corporate Customers 14.00% to 16.00%d. Small Corporate Customers 15.50% to 17.50%e. Fully Secured Customers:

Overdraft 10.00% to 12.00%Fully Secured Overdraft-Industrial Bond 09.25% to 11.25%Short Term Loan 09.00% to 11.00%

6) Small and Cottage Industry (Term Loans):

a. Local Corporate Customers 09.00% to 11.00%b. Marginal Credits 12.00% to 14.00%

7) House Building/Real Estate: 13.00% to 15.00%

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3.14 Tele Banking Services

Tele banking service allows the account holders to make inquiries and service

requests over the telephone. To get this Service all a customer needs to do is to fill up

a Tele-Banking form mentioning his name, account number, contact address, and

telephone number. After the application TIN (Telephone Identification Number) is

given to that customer. TIN is a personal security password, which a customer can

change at any tine. A person who requests service through Tele Banking is required to

take delivery of the service by nominated branches within two days of requests. If a

customer fails to receive this service within two days the request will be cancelled and

Taka. 200 will be charged from his personal account

3.14.1 Services Provided by Tele Banking Facility

Inquiries Relating to Requests for Advice of

Account Balance Balance Certificates Stop payment

Exchange Rates Account Statements Change of address

Interest Rates Access Card Activation Lost Cheque Books

Issue of Cheque Books

Fund Transfer

Pay Order

3.15 Speed Cheque Deposit

The Speed Cheque Deposit system saves a customer’s precious time by allowing him

to drop the Cheque in the Speed Cheque Deposit Box. All a customer needs to do is to

complete the Cheque deposit slip and keep the counterfoil. To complete the Cheque

deposit slip a person has to mention the account number of the Cheque, the name of

the bank with branch, cheque number and amount. After finishing writing the cheque

deposit slip the customer needs to staple the cheque with the slip and drop it inside the

box.

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3.16 Money Link (ATM) Card

SCB Launched Automated Teller Machine (ATM) in Bangladesh in the year of 1998.

A person can access his personal, current and savings account 24 hours a day by using

a Money Link Card or ATM card in this machine. This card can be used for cash

withdrawal, cash / cheque deposit, fund transfer between accounts, balance inquires,

statement requests etc. Apart from SCB Money Link cards (ATM) it also accepts both

local and International Master Card and VISA Credit Cards. Taka 150 is charged per

ATM card for a period of 1 year. For security reason a person cannot access his

account without his PIN (Personal Identification Number).

3.17 Credit Card

Types of credit cards

1. Gold Master Card

2. Silver Master Card

3. VISA Silver Card

Requirements

1. Completed credit card application form.

2. One copy of passport size photograph.

3. Minimum monthly income of Tk. 10,000 for Master and VISA

Card Silver.

4. Minimum monthly income of Tk. 55,000 for Master Card Gold.

5. Documents (e.g. Salary Certificates, Income Tax Certificates, 6months bank statement, Photocopy of passport or other

Documents).

6. For foreigners, work permit from the ministry is required.

3.17.1 Features of Credit Card

Wide Acceptance: SCB Credit Card is accepted at more than 3,000 outlets

around the country. One can use his/her card for everyday purchases as well as

for high value purchases. Its wide range of merchants include hotels,

restaurants, airlines & travel agents, departmental stores, hospital and

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diagnostic centers, jewelry shops, electronic and computer shops, leather

goods, mobiles and ISP’s and many more. This number is increasing everyday

to cater to customers growing needs.

Easy Credit: With SCB Credit Card customers have the convenience to pay

as little as 5% of their outstanding on the card account every month, thus

having the power and flexibility to plan their payments. Minimum monthly

payment is 5% of the cardholders closing balance or Tk. 500 whichever is

higher. If the closing balance is more than Tk. 500 it must be paid in full.

Instant Cash Advance: SCB Credit Card gives its customers to access to cash

up to 50% of the credit limit. Customer can withdraw cash advance from all

SCB and SCG ATM around the country, thus having access to cash 24 hours a

day. Besides, cash advance can also be taken from any of its branches across

the country.

Safe and Secure: Customer does not need to carry cash anymore if he/she is

carrying SCB Credit Card. If someone last his/her card can be protected from

the financial charges from the moment he/she reports to the bank.

Air Accident Insurance: SCB Credit Card gives the customer free air

accident insurance coverage up to Tk.100,000 (Silver Card) and Tk.500,000

(Gold Card). This coverage is also applicable for supplementary cardholders.

Supplementary Card: Customers can apply for supplementary card(s) for

their spouse, parents, sisters, brothers, friends of children over 18 years of age.

All charges on the supplementary card are reported on the monthly statement.

Besides, for customer’s peace of mind one can assign monthly spending limit

on each Supplementary Card. From March 2002 first supplementary card is

free for lifetime.

3.17.2 SCB Credit Card Features

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Details Gold Master Card Silver VISA/Master Card

Annual Fee for Primary Card Tk. 3,000 Tk. 5,000

Joining Fee Nil Nil

1st Supplementary Card Fee Free Free

Additional Supplementary Card Fee Tk. 2,000 Tk. 1,000

Over Limit Fee Tk. 500 Tk. 200

Replacement Fee Tk. 500 Tk. 200

Interest Rate on Outstanding 2.5% Per Month 2.5% Per Month

Returned Cheque Fee Tk. 500 Tk. 500

Duplicate Statement Fee Tk. 50 Tk. 50

Certificate Charge Tk. 100 Tk. 100

Outstanding Cheque Processing Fee Tk. 100 Tk. 100

Sales Slip Retrieval Fee Tk. 100 Tk. 100

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Ratio

Analysis

of

SCB

69

3.18 Ratio Analysis

Ratio analysis is an analytical tool that can be applied to a bank’s financial statements

so that management and the public can identify the most critical problems inside each

bank and develop ways to deal with those problems. Some selected ratios are

analyzed here to give an insight about Standard Chartered Bank. For limited

information some are analyzed very briefly.

3.18.1 Return on Equity:

ROE (in %) = Net income / Shareholders equity.

1999 2000 2001 2002

33.59 42.21 46.77 31.20

The figure shows that the growth rate was positive in 2000 and 2001 but declined in

2002. Since the growth rate of equity was much higher than that of net income,

overall ROE declined in 2002. The 105% growth in retain earnings was the notable

reason for the 62.52% growth of equity as compared to 8.42% growth of net income

in 2002. It can be inferred that Standard Chartered Bank retained this amount in order

to boost their investment which was in declining trend in 2000 and 2001. But they

took a conservative and a risk averse approach to boost investment and hence income

from it. They increased their investment only in Government securities which gave

them low return (but least risky) whereas their investment in stock market remained

stagnant, where they could earn more (but the risk was also high). The balance sheet

of 2002 supports this fact as investment grew by 140% but income from investment

grew by 62%. On the other hand their non-interest expenses rose by 144%, which also

pull their net income down.

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3.18.2 Return on Assets:

ROA (in %) = Net income / Total asset.

1999 2000 2001 2002

2.62 3.19 2.81 1.61

Declining trend in 2001 and 2002. Same reason as above – high growth in assets as

compared to low growth in net income. Low growth in net income can be justified by

Standard Chartered Bank’s high growth in non-interest expenses, which grew by

144% in 2002. The salaries & allowances account grew by 113%, advertisement cost

by 143%, repair & maintenance cost by 117%. One reason for increasing this cost was

high competition in banking sector. Standard Chartered Bank tried to win this

competition by recruiting & retaining their creative personnel through attractive salary

& compensation package, intensive promotional campaign, adopting new software

and computer systems etc. These activities substantially increased the cost and

lowered the net income.

3.18.3 Net Interest Margin:

Net Interest Margin (in %) = (Interest income – Interest expense) / Total assets.

1999 2000 2001 2002

4.72 5.04 4.97 4.50

Net interest margin was relatively stagnant over the years. The key reason was the

growth rate of the spread between interest income and interest expense was not

satisfactory as compared to the growth rate of total assets. One way to overcome this

stagnancy is to invest more in loans and advances which will yield more interest

income rather than investing in Government securities. From this Standard Chartered

Bank can maximize their spread between interest income and interest expense by

using the same assets and boost their net interest margin ratio.

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3.18.4 Net Non Interest Margin:

Net Non Interest Margin (%) = (Non-interest Income – Non-interest Expense) / Total

Assets.

1999 2000 2001 2002

0.84 1.34 1.07 0.27

Though a rise in 2000, 20% decrease in 2001 and 74% decrease in 2002. Major

reason was the spread between non-interest income and non-interest expense went

down. Standard Chartered Bank’s other income gone down sharply in 2002 (-

73.85%). Some reasons behind this may be sluggish recovery of bank charges, low

income from the credit cards and locker services, less capital gain from sale of shares,

low service charges on remittances but the real cause is “Competition”. For e.g. a

student can open a file in AB Bank with only Tk.1200 whereas the charge for the

same in Standard Chartered Bank is Tk.5750. If anyone wants to send remittances

through demand draft or telegraphic transfer from Standard Chartered Bank the

charge is Tk.1250 and Tk.1956 whereas the charge for the same in IFIC bank or AB

Bank is half of Standard Chartered Bank. The yearly charge for Standard Chartered

Master/Visa silver card is Tk.1500 and for Gold card Tk.3000. But for Prime Bank

Master Silver card the yearly charge is Tk.500 and for Gold card Tk.1000. So why a

customer should bank with Standard Chartered Bank where he is getting the same

service from others in a more valued and cost saving way? That’s why Standard

Chartered Bank’s other income is decreasing year by year.

On the other hand Standard Chartered Bank’s non-interest expenses is going up. To

improve quality the management spent heavily on training, seminar and workshop.

Expenses on business development and advertising also gone up. And the cumulative

effect of all those factors pulled the non-interest income down.

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3.18.5 Earning Spread:

Earning spread (%) = (Total interest income / Total earning assets) – (Total interest

expense / Total interest bearing liabilities).

1999 2000 2001 2002

5.82 6.19 5.87 5.62

The spread measures the effectiveness of the bank’s intermediation function in

borrowing and lending money and also the intensity of competition in the bank’s

market area. Greater competition tends to squeeze the differences between average

asset yield and average liability costs. If other factors are held constant, the bank’s

spread will decline as competition increases, forcing management to try to find other

ways to make up for an eroding earning spread.

Standard Chartered Bank’s earning spread decreased by 13% in 2001 and 10% in

2002. Their asset liability growth rate is harmonious but interest paid on deposits gone

up because of competition. While local banks were giving 8.5% - 10% interests on

fixed deposits, Standard Chartered Bank was giving only 7%. When they observed

customers are moving away from their banks, specially in 2002, they started giving

7.50% to highest 9.50% (for more than Tk.10,000,000) while the interest on loans are

kept more or less industry standard. And the overall effect is reflected in earning

spreads.

3.18.6 Asset Utilization Ratio:Asset Utilization Ratio (%) = (Interest income + Non interest income) / Total asset

1999 2000 2001 2002

13.16 12.60 10.98 10.68

This earning measure can be broken down into two components, the average interest

return on assets and the average non-interest return on assets. As competition for

loans and other income generating has grown and many loans turned sour, banks have

shifted their attention to increase their non-interest income.

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Standard Chartered Bank’s asset utilization ratio is decreasing – not in an alarming

manner but they should be aware of this. Especially on their investment functions.

The growth rate of non-interest income and income from loans is well enough to keep

pace with the growth of assets except the investment. As I mentioned above, their

investment is yielding very low income and therefore they need to rethink where to

put the money to maximize the value.

3.18.7 Earning Base in Assets:Earning Base in Assets (%) = Total earning assets / Total assets

1999 2000 2001 2002

82.59 81.64 84.04 82.34

The ratio shows how much of the total assets are contributing to the profits. For

Standard Chartered Bank the ratio shows a relatively stable situation. The reason is

earning assets (investment, loans, money at call and short notice, balance with other

banks) has not been increased as compared to total assets. Since all the earning assets

are mostly financed by interest bearing liabilities, the deposited/ borrowed amount is

significant for the bank. So it can be assumed that if deposit amount goes up, the

bank’s investment, loans & advances will also go up. But with the increase of

deposits, the bank also has to put more money at the vault of Bangladesh Bank and

Sonali Bank to fulfil the reserve requirement of Central bank. As a result it was very

tough for Standard Chartered Bank to increase earning assets from the deposits.

The other way to increase earning assets (from balance sheet perspective) was to

retain more from the net income. For that, net income has to be increased substantially

which Standard Chartered Bank failed to do so. The factors pulling down the net

income are mainly:

a. High tax

b. High expenses.

c. Low income from the investment.

Since I have mentioned earlier about investment and expenses (and more will be

discussed in recommendation part), I would like to say about taxes here. Net income

can be boosted in several ways (discussed in the recommendation part). One is

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controlling the tax. But the banks are entitled to pay highest taxes in the market (for

e.g. in the budget of 2002-2203, companies listed in stock exchange will have to pay

30%, non-listed 37.5% and banks 45%). As a result, though Standard Chartered Bank

was boosting their profit before taxes, high tax bracket (along with high expenses &

lower income from investment) pulled their profit after tax comparatively lower. And

the final outcome was the stagnancy in the growth rate of earning assets.

3.18.8 Net Bank Operating Margin:Net Bank Operating Margin (%) = (Operating income – Operating expenses) / Total

assets.

1999 2000 2001 2002

5.56 6.38 6.03 4.77

This ratio says how effectively management is running its operations by using assets

to generate income and expenses. This ratio is in decreasing mode in 2001 & 2002.

The vital reason is upward moving tendency of overhead expenditures. Standard

Chartered Bank’s printing, repair, maintenance, postage and telephone cost was

significant over these periods. Printing and stationary cost went up by 63% in 2001

and 143% in 2002, repair & maintenance cost went up by 250% in 2001 and 117% in

2002. Other operating income account also gone down by 73.85% in 2002 whereas

other operating expense went up by 144% in 2002. As a result the net non-interest

income in 2001 increased by only 8.88% and in 2002 it decreased by 52.96%. And the

final effect is decreasing net operating margin.

So to boost up this ratio, Standard Chartered Bank should adopt a stringent

policy to control overhead/ non-interest expenses and find out ways to earn more as

non interest income.

3.18.9 Net Profit Margin:Net Profit Margin (%) = Net income after taxes / Total operating revenue.

1999 2000 2001 2002

19.92 25.35 25.55 15.08

This ratio reflects effectiveness of expense management, cost control and service

pricing policies. We find it relatively stable in 2000 and 2001 but decreased by

15.08% in 2002. The effect of operating expenses and taxes is obvious for this lower

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trend. Provision for taxes increased by 107% in 2002 and interest paid on deposits

increased by 106% in 2002. As a result, though provision for loans decreased by 23%,

the net income increased only by 8.42%.

3.18.10 Equity multiplier:Equity multiplier (in x) = Total assets / Total equity.

1999 2000 2001 2002

12.81 13.22 16.67 19.37

This ratio reflects the leverage or financing policies; the sources chosen to

fund the assets. The percentage growth rate of assets, liabilities and equities are given

below:

%

Increase

of

FROM 99-

2000

FROM

2000-

2001

FROM

2001-2002

Assets 18.56 36.56 88.82

Liabilities 18.87 38.88 90.50

Equity 14.91 8.29 62.52

It is obvious from the table that equity accounts for less than 20% in financing

assets. This is a common issue for all the banks. Since banks lend the same fund what

they borrow from the savers, liability contributes most in financing assets. Since the

liability is higher risk is also higher. It gives the management high pressure to make

good loans. Because if they have to write off a loan, they have to write it off from the

equity portion. So there may be a chance to have a negative equity which may put the

bank under severe control and regulations adopted by the Central Bank.

3.18.11 Tax management efficiency:Tax management efficiency (%) = Net income after taxes / Net income before taxes.

1999 2000 2001 2002

54.91 52.12 51.23 35.47

This ratio indicates a company’s efficient use of tax management tools (such

as buying tax exempt Govt. bonds) and thus controlling the tax effect to boost net

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income. This ratio for Standard Chartered Bank was relatively stable 1999, 2000,

2001 but decreased in 2002. It can be inferred that since earning before taxes

increased by 56% in 2002, Standard Chartered Bank fell in the higher tax bracket and

thus paid higher taxes. As I have mentioned earlier, banks are entitled to pay the

second highest amount (tobacco companies pay the highest amount of taxes, for e.g.

BAT’s taxes account for 9% of the total tax collection by the Government) to the

national exchequer in the form of taxes. Since it is the Government who fixes the rate

of tax and monitors it, Standard Chartered Bank has least to do in managing taxes. In

foreign countries, to control the taxes companies usually purchase tax exempt

municipal bond. But in our country this type of bonds are not available.

3.18.12 Expense control efficiency:Expense control efficiency (%) = Net income before tax & security gains / Total

Operating revenue

1999 2000 2001 2002

36.29 48.63 49.87 42.52

It is a measure of operating efficiency and expense control. It indicates the amount of

revenue survive after operating expenses are removed. For Standard Chartered Bank

this ratio was stable in 2000 and 2001 but not so satisfactory in 1999 and 2002.

Particularly in 2002 the salaries and allowances increased by 113%, rent, taxes,

insurance cost increased by 50%, advertisement rose by 143%, other operating

expenses rose by 144%, repair, maintenance by 233%. Mainly for competition

Standard Chartered Bank increased these expenses.

They increased the salary structure to get the most energetic, visionary personnel from

the market. They increased advertisement to create awareness among the customers

and to let people know who they are, what value-yielding product they are offering,

their benefits etc. Moreover to retain customers, top management arranged family

day, customer weeks in which the premium clients were invited and awarded gifts.

These activities increased the overall expenses. But one thing is important to mention

here that these expenses might be seen as an investment by Standard Chartered Bank

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to increase the image and customer values. May be they were sacrificing their profits

by these activities but they were strengthening their customer base. So it will not be a

surprise if there is boost in the net income of 2003 / 2004.

3.18.13 Average asset yield:Average asset yield (%) = Total interest income / Total earning assets.

1999 2000 2001 2002

11.69 10.71 8.73 8.60

This indicates management efficiency on how they price their assets to generate

income. The trend is declining over the years. Three reasons can be worth

mentionable:

a. Standard Chartered Bank usually doesn’t give long-term loans. This is also true

for other foreign banks. Usually they grant loans for a maximum maturity period

of three years. Since the maturity period is short, risk is low and return is also low.

b. Lack of interest in investing in the stock market. Their stock market investment is

only 0.15% of Government security investment. So logically the earning from

investment is low.

c. Political turmoil, lack of good governance and macroeconomic unstability is the

third reason of such declining trend. Loan defaulters can get away from

punishment under political shelter. So Standard Chartered Bank doesn’t give long

term loans. And stock market of Bangladesh is an inefficient and unstable

organization which discourages the management to invest there.

3.18.14 Average Liability cost:Average liability cost (%) = Total interest expenses / Total interest-bearing liabilities.

1999 2000 2001 2002

5.87 4.51 2.86 2.98

This ratio indicates the cost of sources to finance the assets. The ratio for

Standard Chartered Bank shows a declining trend, which is good in the sense that they

are getting cheap sources to finance their assets. But it can be seen only as a short-

term gain and in the long run it is alarming also. Since every local bank is giving more

interests on deposits and investors also have found that depositing money in the bank

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is the safest investment, rationally they will move to banks which will offer them

maximum value on their deposits. In that case Standard Chartered Bank might lose

their individual customers and they may face lack of sources to finance their assets

instead of their “cheap sources”.

Liquidity Indicator:

3.18.15 Cash Position Indicator:

Cash Position Indicator (%) = Cash and deposit due from other banks / Total

assets.

1999 2000 2001 2002

0.01 6.95 3.66 0.04

A greater proportion implies that the bank is in a stronger position to handle

immediate cash needs. For Standard Chartered Bank this ratio represents severe ups

and downs. This ratio drastically falls below 1% in 1999 and 2002. The main reason

is that in these two years the bank’s balance sheet shows nil amount of “money at call

and short notice”. This indicates a serious liquidity crisis. If this liquidity crisis

remains in 2003, the bank may has to borrow money from other bank’s at a high call

money rate (for e.g. during Eid) which in turn will increase interest cost of the bank.

3.18.16 Capacity Ratio:

Capacity Ratio (%) = Net loans and advances / Total assets.

1999 2000 2001 2002

61.39 62.19 71.61 71.19

This is a negative liquidity indicator because loans and advances are most illiquid

assets of a bank. In 1999 and 2000 it was an average of 62.5% and in 2001 and 2002

it was an average of 71.5%. It means that their liquid asset is going down which might

be alarming in case of short-term necessity.

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Findings&

Recommendation

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3.19 Drawbacks found in SCB’s various customer services.

At SCB, customers often feel problem with the ATM card, when a credit card is

retained in the ATM due to technical failure, the customer is requested to take

delivery of the card on the next working day. It is not possible, for SCB to return the

card on the same day. This creates inconvenience for the customer, as this unable

them to withdraw their fund at that point in time. It is found that in most branches of

SCB, there is huge queue waiting for deposit or withdrawals. SCB have also arranged

isolated queue for the account holders only. But, even these have not helped much, as

still now huge queue is observed at the Branches. For opening an account different

forms have to be filled out with the same information like name, address, nationality,

date of birth, etc. Many customers complained found that SCB sometimes delay in

issuing cheque book, ATM, PIN, Telephone Identification Number (TIN) for their

customers, and this in result creates huge inconvenience for the account holders. More

significantly, account holders often complain that they do not receive the statement

for their account, as per the instruction.

Above all, most of the customers complain that SCB charges very high charge for

their services. This in result, have discouraged many prospective customers to start

relationship with SCB. On an average it is found that most of the account holders who

are closing their account, are due to the fact of high fee and charges. Everyday three

to four accounts are closed in every branch due to high charges.

3.19.1 Findings and Recommendation

SCB is a well-known international bank with a reputation to live up to. It is high time

to improve the performance of the SCB branches before more damage in the form of

customer dissatisfaction occurs. A set of recommendation is set forth below to

improve customer service.

Every local branch should be authorized to handle all problems in connection

with the retention of credit cards by ATM.

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More manpower is required to handle the manifold problems associated with

customer service.

The bank personnel should explain the speed cheque box purpose more clearly

because many customers are afraid to use it.

The bank should do away with the procedure of asking the same information

from the customers more than once in connection with opening a bank

account.

The bank should issue chequebooks, ATM, statement, PIN and TIN on time.

The bank should immediately revise its tariffs to retain its customers.

The branch officials should go through training and other motivational

programs more often that would liven up their spirit of work to a great extents

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Operational Process and

Products of F.I

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4. Financial Institution Department

Standard Chartered has an established presence in Asia for almost 150 years and have

an extensive network throughout the region, and have built up a wealth of experience

in the servicing and financing of trade for both local corporate customers and number

of correspondent banks.

Financial Institution Department (Former Institutional Banking Group) of SCB,

Dhaka Commenced business from 1995. FI markets Trade and Payment products

through its strong Global Network. Within a short span of time FI has tremendously

increased it’s market share in Bangladesh. At the end 2002 FI has expanded

relationship with 34 local banks and managed approximately 29% of market share.

Financial Institution’s credit exposure is largely on the trade finance sector of local

banks.

4.1 Nature of Business:

Leveraging on the world-wide network of SCB branches, FI provides trade related

services i.e. advising & confirming, negotiating and discounting of letters of credit,

reimbursement and fund transfer under letters of credit and account services i.e.

deposit of export proceeds, term and overnight investment of excess cash.

The bulk of the business relates to the Ready Made Garment Industry (RMG), oil and

other commodities and capital equipment. Almost entire business is true trade with

tenors less than 180 days. Over 50% of bank limits are used for the import of raw

materials from the Far East for the RMG industry, whereby garments are made up in

Bangladesh and then shipped out to Europe and the US against export L/Cs.

4.2 Establishment of new correspondent relationship

FI-Bangladesh is responsible for promoting correspondent banking tie-ups with local

banks and financial institutions with a view to maximizing the overall revenues

globally from each relationship. That’s why ‘Agency Arrangement” are generally

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initiated by Relationship Managers (RM’s) of FI-Bangladesh. Consideration is given

to account profitability, reputation of the customer and future growth prospect of the

relationship before establishing any agency arrangement.

Agency arrangement means establishment of correspondent relationship

between two separate banks situated in two different countries. Agency arrangement

is established in order to channelise foreign exchange transactions of the two banks

under the arrangement with ultimate goal to ease and promote the business of the

banks, in broader sense, of the two countries involved. Common business transactions

done through agency arrangement are-

Establishment of L/C

Collection Items

L/C Reimbursement

Add Confirmation of L/Cs

Credit Lines etc.

While approving the setting up of a new correspondent relationship with

another institution, it is the responsibility of the local FI RM to confirm the bona fide

existence and regulated status of the concerned institution. After receiving a formal

request from the customer, an assigned RM negotiates the terms & conditions with the

prospective customer. These agreed terms and conditions are then incorporated in the

agency agreement, which also outlines the modus operandi of the arrangement.

Following documents are also collected from the customer which are kept in safe

custody by FI-Bangladesh:

i. Copy of Bank’s License.

ii. Article and Memorandum of Association.

iii. Certificate of Incorporation.

iv. Copy of the Statute.

v. List of authorized signatories (Signature Booklet).

The signature booklets are also distributed to major SCB branches after consulting

with the customer. FI, RM may waive the need to obtain any one of the above

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documents if he is otherwise satisfied about the credentials of the new correspondent.

Telegraphic test Keys and SWIFT Authenticator Keys (BKE) are to be established

once agency arrangements are finalized. FI-Bangladesh will request Agency

Arrangement, London to issue Text keys or swift Authenticator Keys for mutual use

and to forward keys directly to the customer.Products of Financial Institution

Department:

4.3 The key products of Financial Institution Department are divided into two

categories.

4.3.1 Risk Products

L/C Confirmation

Negotiations

Inter and intra Bank Guarantee

Local Bill Discounting

4.3.2 Non-Risk Products

L/C Advising

L/C Transfer

L/C amendment advising

Reimbursement Undertaking and Authorities

Fund Transfers

Export proceeds

BDT Draft Drawing

International Payments (T T’s)

Account Services (Vostro Account Management)

4.4 Description of Products:

RISK PRODUCTS:

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4.4.1 L/C Confirmation

When the beneficiary or the seller receives the letter of credit from the issuing bank

he wants to be sure that he must get paid after delivering the goods. In this case the

seller wants the confirmation of payments from the advising bank. Standard Chartered

Bank, when acts as an advising bank gives the add confirmation to the seller that this

letter of credit is authenticate and the payments will be made after full filling all the

terms and conditions of the letter of credit, so Standard Chartered is prepared to add

its confirmation to the letter of credits advised through its network, subject to credit

and country limits being available.

4.4.2Negotiation

As the letter of credit is a freely negotiable financial instrument, any bank in the

seller’s country can be a negotiating bank. Negotiation of a letter of credit mean after

delivering the goods to the buyers and full filling all the terms and conditions of the

letter of credit, the seller presents the documents to a bank, like Standard Chartered.

Then, it will examine all the documents as per the letter of credit. If the documents are

correct and up to date the negotiating bank pays the seller or its like just purchases the

documents from the seller. Standard Chartered advising and negotiation fees for each

market are based on local practices and applicable regulatory guidelines. This is

subject to periodic review and revision.

4.4.3 Inter and Intra bank guarantee

By this risk product Standard Chartered gives facilities to both the local and

international corporate customers. This types of inter and intra bank guarantees gives

the buyers a certainty over receiving pre-agreed payments if a suppliers fails to meet

its contractual obligations. Standard Chartered’s Financial Institution Banking issues

guarantees and advance payments guarantees against counter guarantees received

from correspondent banks worldwide.

4.4.4 Local Bill Discounting

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Standard Chartered understands the working capital needs of a company and offers

Discounting of letter of credit at when a seller gets an usance or deferred letter of

credit from a buyer, the seller may wants to get the money for acquiring goods in

advance or production cost earlier than the credit expires.

Standard Chartered Bank’s Financial Institution banking offers discounting of bills of

exchange/drafts that have been accepted by the letter of credit issuing bank under

local letter of credit, master export letter of credit. By this type of service Standard

Chartered facilitates the manufactures or suppliers to manage their cash flow more

effectively and get access to bank easy finance.

NON-RISK PRODUCTS:

4.4.5 L/C Advising

When a corporate customer process a letter of credit from a local bank favoring the

buyers in the different country the letter of credit has to be advised to the sellers or

beneficiary. It means after the contract between the buyer and seller, the buyer issues

a letter of credit from his bank to the seller’s bank to notify that he wants to buy the

goods. But, in this case the seller’s bank does not know the buyer’s bank. When the

buyers and sellers are in the different countries, the risk of the non-payment is high

and the authenticity of the letter of credit also major issue.

In these situation international or global banks or any other nominated banks, like Standard

Chartered Banks takes the responsibility to advise the letter of credit to the sellers or seller’s

bank. The beneficiary receives the letter of credit promptly and the authenticity is checked

though the seller can start the process to deliver the goods right in time to the buyers.

Add instructions & send to SCB

Payments

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Exporter

Standard Chartered Bank

sing Beneficiary Advising

beneficiary

Processing documents Payments

Collecting payments

Processing

Documents

L/C application

Goods

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Issuing Bank

Importer

Negotiating Bank

4.4.6 L/C Amendment:

Parties involved in a L/C, particularly the seller and the buyer, can not always satisfy

the terms and conditions in full as expected due to some obvious and genuine reasons.

In such a situation, the credit should be amended.

In case of favorable credit, it can be amended or cancelled by the issuing bank at any

moment and without prior notice to the beneficiary. But in case of irrevocable credit,

it can neither be amended nor cancelled without the agreement of the issuing bank,

the confirming bank (if any) and the beneficiary. Amendment of a L/C is required for

the following reasons:

i) If the value of the L/C ha been increased or decreased.

ii) If the expiry date of the L/C has been extended

iii) If the name of reimbursing bank mentioned wrongly, etc.

4.4.7 Reimbursement Undertaking and Authorities

On the other side the buyer is also concern that when and how to pay the seller. Letter

of Credit Reimbursement helps the buyer simplify a complex trade finance problem;

how to settle payment when the issuing bank is not a correspondent of the beneficiary

bank. When the sellers opens a letter of credit, incorporate a reimbursement

instruction into the terms of the letter of credit allowing a beneficiary bank anywhere

in the world to claim payments from the Standard Chartered branches in the country

where the issuing bank has established its account relationship.

When the buyer uses a letter of credit along with that simply send a separate

reimbursement Authorization to Standard Chartered to effect reimbursement,

preferably in a written paper. Standard Chartered Bank offer the flexibility to stipulate

an exact or an approximate amount, as well as choosing whether the claim may or

may not be restricted. On the receipt of a claim from any bank from the beneficiary,

Standard Chartered will be processed on the day received or on the following day

depending on the agreement.

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4.4.8 Fund Transfers

Fund transfer is a non-risk product which helps the buyers and sellers to settle their

payments intensely according to the letter of credit directly to the beneficiary’s

account any where in the world. Standard Chartered continuous link service gives

customers to send their funds in any where in the world at any time.

4.4.9 Export proceeds

To an exporter it is very important to keep control over his goods until he is confident

enough that he is going to receive payments from the buyers or importers. Standard

Chartered Export proceeds collection service take charge of the process document

transfer adding greater whole transaction.

In this process Standard Chartered will collect all the documents from the exporter

and arrange for them to be held at the exporter disposal during the transaction period.

Once the process is complete Standard Chartered will liaise with the buyer’s bank on

behalf of the exporter, arrange the documents to be transfer to that bank and collect

the payment.

4.4.10 Discounting

Discounting of letter of credit at Standard Chartered Bank mean, when a buyer or

beneficiary get an usance letter of credit from a buyer, he may wants to get the money

for acquiring goods in advance or production cost earlier than the credit terms. By this

type of service Standard Chartered facilitates the manufactures or suppliers to manage

their cash more effectively.

4.4.11 Vostro Accounts

Financial Institution Department, Bangladesh maintains Vostro Accounts of banking

and financial institutions worldwide, customer maintaining such account can remit

funds throughout the country through the Standard Chartered Bank branch network as

well as through- Chartered Bank's local correspondent relationships.

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4.4.12 Nostro Accounts

In order to increase and promote the correspondent banking business worldwide, F.I

uses Nostro accounts to Bangladeshi banks and financial institutions in almost all

spanning the Standard Chartered Bank global network. Group branches and sides

provide full clearing and payment services in the UK, USA, Hong Kong, Malaysia,

Singapore and many African countries. Worldwide payments services are facilitated

by a network of branches supported by electronic cash management (available in

select locations), fund transfer system and membership of SWIFT.

4.4.13 Account Services

F.I offers the full range of services available under Trade Finance to its customers.

The Standard Chartered Bank network in China, the Far East, the Middle East, the

Indian sub-continent, Africa, UK and USA makes SCB the natural choice of

correspondents for advising, confirming, and negotiating their letters of credit in these

territories.

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4.5 Operational Process of Products

Issuing a Letter of Credit:

Before issuing a L/C, the buyer and seller located in different countries, concludes a

‘sales contract’ providing for payment by documentary credit. As per requirement of the

seller, the buyer then instructs the bank-the issuing bank-to issue a credit in favour of the

seller (beneficiary). Instruction/Application for issuing a credit should be made by the

buyer (importer) in the issuing bank’s standard form. The credit application which

contains the full details of the proposed credit, also serves as an agreement between the

bank and the buyer. After being convinced about the ‘necessary conditions’ contained in

the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a

credits the opening bank then proceeds for opening the credit to be addressed to the

beneficiary.

• Reimbursement Authorities:

Reimbursement authorisation means an instruction or authorisation, independent of

the credit, issued by an Issuing Bank to a Reimbursing Bank to reimburse a claiming

Banker if so requested by the issuing bank, to accept and pay a time draft drawn on

the reimbursing Bank. In fact, FI of Standard Chartered Bank Dhaka acts as a

corresponding bank of Reimbursing Bank i.e. Standard Chartered Bank, New York.

Performing as the corresponding bank of Reimbursing Bank (SCB, New York), the FI

of SCB, Dhaka, acts on the instruction and under the authority of the Issuing Bank.

In case of Reimbursement Authority, these should be a reimbursement claim from the

Claiming Bank to the Reimbursing Bank (SCB, New York). Except as provided by

the terms of its Reimbursement undertaking, a Reimbursing Bank (SCB, New York)

is not obligated to honor a Reimbursement Claim.

Local bank’s branches in Bangladesh send reimbursement authorizations (RAs) to FI

Unit at Dhaka. These RAs are either collected by nominated courier service or sent

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directly by the branch. On many occasions FI peon collects RAs from branches of

customer banks.

All RAs are to be signed by two authorized signatories of the concerned bank branch.

Signatures appearing in the RAs are to be verified by any Group Signatory using

Authorized Signature Booklet of the banks and/or List of Authorized Signatories

received from branches.

RAs should contain L/C number, L/C Expiry, Amount, Charges, the account to be

debited and in some occasion the name of the claiming bank. Prior to

process/forwarding, FI clerk checks these details and in case of any clarification,

contacts the concerned branch.

As it is a legal requirement that all Reimbursement Authorizations and

Reimbursement Amendments must be issued in the form of an authenticated tele-

transmission that’s why Swift/Telex usually sends Reimbursement Authorizations

(RAs) to respective network offices. RAs are sent through swift MT 799. RAs are

also sent by courier.

Processing of RA:

Where courier service is used for onward transmission of RAs:

Original copies are sent to receiving group office e.g. SCB NY, Attn. Trade

Reimbursement Dept. And copies are retained for future reference.

Where RAs are sent by SWIFT:

FI- ops clerk prepares the reimbursement authority in MT 1999 on behalf

of the local bank.

FI-Ops officer verifies the message.

Any of the Relationship Managers authenticates & sends the message.

The following morning FI receives the original/copies of the SWIFT

message.

Clerk sends a copy of the message to the concerned bank.

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Another copy of the transmitted message is filed along with the original

RA received from the local bank.

Where RAs are sent by Telex:

Having completed the above, clerk prepared an authority on behalf of the

local bank.

Clerk takes a print out of the message, checks and puts his initial on the

print-out. At the same time he also saves the file in a diskette for

communications room.

Manager/RM FI checks the print-out against instructions received and puts

his signature in full on the print out and sends the same to communications

room for dispatch.

Communication room authenticates and dispatches the RA message.

The following morning FI receives the original copy of the dispatched

message and ensures it agrees with the original instruction. Checking

clerk/officer initials the copy.

Clerk sends a copy of the message to the concerned bank.

The original transmitted copy is filed along with the original RA received

from the local bank.

• Fund Transfer:

Fund Transfer or payment Instruction means an instruction issued by an Issuing Bank

to a Reimbursement Bank to debit its respective account directly on the value date

mentioned in it. Payment services are facilitated by this product of FI. In case of fund

transfer there need not to be claimed. On the value date the instruction of the issuing

bank is executed.

Local banks branches in Bangladesh send Fund Transfer (FT) Instructions to FI Unit

at Dhaka. These FTs are either collected by our nominated courier service or sent

directly by the branch. On many occasions FI peon collects FTs from branches of

customer banks. All FTs are signed by two authorized signatories of the concerned

bank branch. Signatures appearing in the FTs are to be verified by any FI-Ops Staffs

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using Authorized Signature Booklet of the banks and / or List of Authorized

Signatories received from branches.

The FTs contain L/C number, Amount, Value date, Beneficiary details, Ordering

customer, Charges, the account to be debited etc. FI clerk checks the FTs for all these

details and in case of any incomplete information/clarification, he/she contacts the

concerned branch. Any subsequent amendments are made through an authorized

signatory of the concerned bank and this is further verified at our end. Having

completed the above clerk inputs the Fund Transfer-Connect paying particular

attention to the amount, currency, value date and other beneficiary details.

TRANSACTION FLOW

Fedwire

MT202 Book TRF

Chips

Processing of Fund Transfer:

Where FTs are sent by SWIFT

The FTs are inputted in SWIFT format MT 202

FI-Ops officer verifies the message

Any of the Relationship Managers authenticates the message and sends it.

The following morning FI receives the original/copies of the swift message.

Clerk sends a copy of the message to the concerned bank.

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Import Customer

L/C

Importer’s Bank

SCB New York

U.S. Correspondent

Bank

Standard Chartered

Bank

U.S. Correspondent

Bank

SCB Dhaka

L/C Beneficiary Bank’s Account

L/C Beneficiary Bank’s Account

L/C Beneficiary Bank’s Account

Another copy of the transmitted message is filled along with the original FT

Instruction received from the local bank.

Where FTs are processed by Telex:

After inputting details clerk takes a printout of the same, checks and puts initial on

the computer print-out.

At the same time he also saves the file in a diskette.

FI-Ops Officer checks the printout against instructions received and puts his

signature in full on the printout and sends the same to communications room.

Communications room authenticates and dispatches the FTs to the receiving bank

e.g. SCB NY, Attn. Fund Transfer Department.

Original FT Instructions received from customer banks are retained at FI Dhaka.

Transmitted copy of FTs are checked against the original copies, signed by FI-Ops

officer and retained at FI Dhaka.

A duplicate copy is sent to the concerned bank branch originating the FT.

• L/C Confirmation

A confirmation of a Letter of Credit is a conditional undertaking given by the

Confirming Bank to the Beneficiary (Exporter), to pay or negotiate/accept Bills of

Exchange (Drafts), if the stipulated documents are presented to the Confirming Bank

in Compliance with the terms and conditions of the L/C such confirmation, authorized

by the Issuing Bank, Constitutes a second, separate conditional guarantee of payment

from the confirming Bank to the Beneficiary. In this regard SCB only consider adding

its confirmation to irrevocable Documentary L/Cs. Here silent confirmation is not

considered by SCB, Dhaka.

As Beneficiary wants to be more secured that’s why it wants confirmation from SCB

centre. At this point Trade Approval System (TAS) raises. To get confirmation, the

Beneficiary at the counter of SCB Centre request them to add its confirmation so that

he/she could be more secured SCB centre then raises TAS and sends it to SCB,

Dhaka for approval. TAS is a formal electronic application for approval which

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contains all the details of a particular documentary credit SCB, Dhaka, at its counter

approve TAS by considering some quantitative & qualitative factors.

Transaction Process

On receipt of the instructions to confirm a letter of credit, the processing unit must

ensure that:

The letter of credit is authentic.

Sufficient Product limits are available in the name of the Issuing Bank and

Country-including any tolerance allowed with regards to amount.

The terms of the L/C are clear and unambiguous.

Clarification is sought immediately from the Issuing Bank where necessary.

The reimbursement instructions are clear and concise.

The beneficiary agrees to the payment of confirmation fees (when they are for his

account). This is particularly important in certain Asian markets.

When the forwarding the confirmed letter of credit to the beneficiary, it is critical that

the amount confirmed and the period of confirmation is clearly stated. In cases where

discrepancies are found in documents under a usance Confirmed L/C, which are

subsequently accepted by the Issuing Bank, SCB must:

Obtain approval from the original approving units to extend the confirmation

period if appropriate (e.g. the L/C has expired or the amount has exceeded);or

Consider whether it still wishes to extend the confirmation period. If not, the L/C

beneficiary must be advised that SCB’s confirmation has fallen away at the same

time as they are advised that the Issuing bank accepts the discrepancies.

Risk:

The main purpose of a Confirmation is to remove the Bank and Country Risk

associated with the transaction from the beneficiary, with the Confirming Bank

undertaking these risks. A Confirmation also gives the beneficiary the opportunity to

obtain non-recourse, post-shipment finance against compliant documents.

Accordingly, the exporter should request the establishment of an irrevocable,

Confirmed Documentary Letter of Credit.

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The main risks that (SCB) undertakes with this product are summarized as follows:

Risk Description

Country Issuing Bank’s

Credit Issuing Bank

Operational Documentary

The transactions should reflect the nature/size of the customer’s business and the

terms of trade for the industry.

The maximum tenor for this product is :

Validity period: 180 days

Usance Period: 180 days

Combined validity and usance period : 270 days

Any exceptions must be documented and require separate appropriate credit approval.

The main risks that SCB undertakes:

Risk

Country Risk Bank Risk Operational Risk

Country Risk:

This is the risk that SCB undertakes on the country of the L/C Issuing Bank once the

Credit has been issued and confirmed.

Formal approval of the associated Bank and Country risks must always be obtained

from the centre(s) responsible for providing such approvals prior to the customer

being advised that SCB has added its confirmation to the transaction.

Exposure should be booked as a contingent liability against the Issuing Bank and

Country in question. The ability to confirm our own branch paper has always been

presumed to be implicit, due to the fact that a branch issued the letter of credit in the

first instance, and consequently the Bank would stand behind the paper.

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Bank Risk:

This is the risk that SCB undertakes on the L/C Issuing Bank once the L/C has been

issued and confirmed.

Confirmation of a sight L/C is considered lower risk than confirming a usance L/C of

similar value, similar total duration and issued by the same Issuing Bank.

Sight L/C

Day1 Day 180

L/C confirmed Documents present on

L/C expiry date

In the above example, the Confirming Bank has a 180-day confirmation contingent

liability risk. If the L/C Issuing Bank (or its country of domicile) fails during the 180-

day period, the Confirming Bank may not suffer loss if documents subsequently

presented are found discrepant.

180 days Usance L/C

Day 1 Day 20 Day 180

L/C Confirmed Documents Documents presented on

Presented L/C expiry date.

In this example, assuming compliant documents are presented on day 20, the

confirming Bank must pay at maturity even it the L/C Issuing Bank (or its country of

domicile) fails between day 20 and day 200. This is due to the fact that from day 20

the Confirming Bank’s undertaking has become unconditional. In the event of an

Issuing Bank failing to reimburse the proceeds of a bill under compliant documents,

the FI Relationship Manger for this bank must be informed immediately for further

action to be taken.

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Operational Risk:

The key operational risks are:

Where SCB is the Confirming Bank it has a duty to check the documents and ensure

their conformity with the L/C; in other words, SCB is exposed to Documentary risks,

and any payment effected is “without recourse” to the beneficiary once SCB certifies

the documents as clean. Procedures for handling the checking of documents must be

in accordance with existing operational processes and internal guidelines.

There is a risk that a Confirmation could be issued without approval when approval is

required. all Service Delivery areas must ensure that approval to confirm L/Cs is

requested and obtained on case by case basis in accordance with laid down procedures

and relevant Group Instruction Circulars.

Other Risk:

SCB also faces inherent risk when it adds confirmation to a L/C where the

reimbursement clause states that the Issuing Bank only agrees to reimburse the

Confirming Bank to receipt of compliant documents at its own counters. SCB can

choose either not to confirm, or confirm the

L/C subject to conditions agreed with the beneficiary.

If the Confirming Bank fails to spot any adverse terms or ambiguous clauses in the

L/C, the Bank may not be able to obtain payment from the Issuing Bank. Therefore,

the Confirming Bank should ensure that the L/C is scrutinized for any ambiguities

before Confirmation is agreed.

Discounting of Drafts

SCB can offer Corporate Customers without recourse discounting of local currency

bills of exchange and drafts that have been accepted by the buyer’s bank (the

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Accepting Bank). Such drafts are hereinafter called “Accepted Drafts” and are

transferable to a third party.

Transaction Process:

A typical transaction would be:

a) Customer sells goods or services to its Buyer. The buyer issues a draft drawn on

its bank and asks its bank to “Accept” it. The date for payment of the Accepted

Draft will reflect the agreed payment terms between customer and the buyer.

b) The buyer sends to customer the Accepted Draft.

c) Customer requires SCB to discount the Accepted Draft on a without recourse

basis.

d) Upon request to discount the Accepted Draft, SCB telex request via SWIFT the

Acceptance Bank to confirm by authenticated telex/SWIFT that proceeds are to

be remitted to SCB on due date (specifying the due date).

e) At presentation on maturity, the Accepting Bank honors the Accepted Draft and

remits proceeds to SCB

Risk: The main risks here are:

Risk Without recourse

Customer Credit Risk No

Accepting Bank Risk and Country Risk Yes

Operational Risks (including fraud) Yes

Market Risk Movements in interest rates if not

match funded

The tenor of the Accepted Drafts should reflect the usual terms of trade for the

industry with a maximum tenor of 180 days.

Risk

Credit Risk Bank Risk & Country Risk Operational Risk Market Risk

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Credit Risk:

SCB’s obligor under this program is the accepting bank SCB normally has no

recourse to the corporate customer, except in the event of fraud alteration of bills etc.

Transactions should reflect the nature/size of the customers business and the terms of

trade. Local practice should be to introduce nominal credit ceilings for borrowing

customers but these should not be advised to customers. For non-borrowing corporate

customers, the value of “Accepted draft” per transaction must not to exceed

USD250, 000. Any exceptions must be approved by the SCO.

Bank and Country Risk:

This is the risk that SCB undertakes on the Accepted Bank (and associated country

risk where applicable) who has guaranteed the payment of the draft. In these

circumstances the primary recourse is to the Accepting Bank, and it is without

recourse to the corporate exporter. Discounting should only be undertaken where

appropriate bank and country risk approval has been obtained. In countries, where the

risk of late or non-payment depends on individual branches of the Accepting Bank,

the limit approval must be on a branch basis. This must be covered in the Country

product Template.

If the Accepting bank (or branch) fails to honor a valid presentation of an Accepted

Draft, the SCO and the FI Relationship Manager for this bank must be informed

immediately.

Operational Risk:

Normal operational risk in the handling of drafts apply (e.g. safekeeping, presentation,

checking for alteration, fraud etc.)

To mitigate the risk of fraud or accommodation paper, the Customer should provide

SCB with the original supporting commercial documents to support the Accepted

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Draft including but not limited to sales order, commercial/VAT invoice,

transport/shipping documents etc.

Market Risk:

There may also be a basis risk due to movements between the reference rate for

interest charges for the product and the bank’s actual cost of funds (eg Prime/Inter

bank spread etc.). The product should, wherever possible, be match funded to remove

this risk.

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OpportunitiesOn

Local Bill DiscountingFor

Non-Corporate Entities

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5. Local Bill Discounting for Non-Corporate Entities by Financial

Institution Department

5.1 Introduction:

Foreign Trade in Bangladesh is still dominated by imports resulting in adverse

balance of trade. Export has registered a significant volume growth over the past years

and the export import gap is reducing every year. In early seventies, the export of

Bangladesh was dominated by jute items only. In fact 90% of the export earning at

that time was from jute sector and the rest 10% from leather and tea sectors. The

situation, however, started changing with the introduction of non- traditional items

like shrimps, fish, readymade garments, finished leather, newsprint, handicrafts etc.

The over all export earnings also increased considerably over the years and reached a

level of 5.31 billion US dollars in 1998-99 and at the end of 2002, at was US$8.1

billion. The Total exports during 1997-2002 was:

Source: EPB

Year wise Export trend

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Considering the above information, it has been observed that Readymade Garments

and Knitwear are the two dominating sectors, which are contributing almost 70% of

the total export.

Source: EPB

Export composition for the year 2001-02

Local Bill Discounting (LBD) refers to discounting of BDT/US$

usance bills drawn under in-land Letters of Credit utilizing either the exposure on

corporate or the L/C issuing bank. The product is directly related to export of

readymade garments, as in Bangladesh, most of exporters require pre-export

financing, which is covered by discounting of export bills. Currently Corporate

Banking is offering this product to their regular client base using exposure on both

customer as well as L/C issuing banks.

Financial Institution Department is contemplating to offer standard “Local Bill

Discounting” product to a clientele base currently in the status of non-corporate or

non-borrowing corporate customer. FI intends to leverage on the strong relationship

with local banks and use a portion of trade limits currently extended to these banks for

this product.

5.1.1 The Environment

Banking Industry is passing through various phases of reforms. Overall, the Industry

has shown gradual improvement with significant reduction in NPL. Government and

Bangladesh Bank (Central Bank) have started the IMF financed Nationalized

Commercial Bank (NCB) reform initiative. Management of Agrani Bank has been

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awarded to Price Waterhouse Coopers (PWC), under this reform plan for a three year

term. As a pre-condition to this reform plan all the four state owned banks have

signed an MOU with Bangladesh Bank under which activities of the banks have been

severely restricted.

BB has adopted the risk weighted capital adequacy requirement a couple of years ago.

Current requirement, effective from June, 2003, is 9% while this was 8% earlier.

Minimum Capital requirement has been elevated to BDT1 billion (US$17.25 million).

Each bank must build up that capital base by March, 2005.

Cash Reserve Ratio (CRR) remains same as 4% while Statutory Liquidity

Ratio (SLR) requirement has recently been reduced to 12% from 16%. From the year

2002 it was decided by BB that FCY balance with Central Bank will not be

considered as part of CRR. Recently the bank rate has also been reduced to 5% from

earlier 6%. Government has also decided to align the interest rate of Saving

Certificates with that of interest of Treasury Bills. However, a separate move is on to

segregate the pensioners by offering them a higher yielding instrument. BB and

Government have expressed their intention to bring down the interest rate to single

digit.

The country’s banking sector is entering into a competitive era as newly

established private commercial banks have started operation. A total of 30 private

commercial banks are operating as of December31, 2002.

5.1.2 Product Description

SCB offers Corporate Customers with or without recourse discounting of bills of

exchange / drafts that have been accepted by the Issuing bank (the Accepting Bank)

under local L/Cs. In some countries these local L/Cs can also be issued in a form of

“Quasi Back to Back” L/Cs with Export L/Cs held as a security.

A typical transaction would be:

1. An exporter receives export L/Cs from its importer (the master L/C).

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2. Local usance L/Cs issued from the exporter’s bank in favor of its Domestic

Suppliers (SCB Customers) and advised through SCB. These L/Cs can be Quasi

Back to Back L/Cs if the master LC is held as security.

3. The Domestic Supplier (beneficiary of the local L/C) presents L/C documents to

SCB with a usance bill drawn on the Issuing Bank.

4. The Domestic Supplier’s Bank (SCB) will forward documents to Issuing Bank on

approval basis acceptance under UCP 500.

5. The issuing bank of the local LC (the importer’s bank) accepts the documents and

drafts and send the advice of acceptance mentioning the maturity date to the

Domestic Supplier’s bank (SCB) under the L/C.

6. The Domestic Supplier asks SCB to discount the Bill on the strength of the

Issuing Bank’s confirmation of acceptance and maturity date of the bill for

payment as per L/C terms.

5.1.3 Client Base:

The target customers will be the entities mostly involved with Ready-made Garment

Industries. Fabric Manufacturers (includes Spinning, Weaving, Dyeing & Finishing

Mills), Accessories Manufacturers (Zippers, buttons, thread, carton, interlining etc)

and other service providers such as Washing and Embroidery.

Another segment will be the leather manufacturers who supply finished leather to

Shoe; Bag and other leather based end product manufacturers. Any other entity

meeting their cash flow needs, through LBD, will also be amongst the target market.

Except for the Spinning Mills and big Tanneries these entities are small companies

and only a portion of their deals are done through local letters of credit while the rest

is on cash basis. These companies require

Very quick processing of their bills once accepted.

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Local banks often delays the process of discounting an L/C while establishing

authenticity of the L/C , completing other internal formalities within the bank. Within

the bank it should be able to improve turn around time by a close co-operation

between Trade Services and FI. A dedicated desk needs to be established at Trade

Services to provide this product for the target customer base.

Maximum percentage of Discounting.

Practice among local banks is to discount around 80% of bill value. Based on the level

of confidence and experience on the customer and on the L/C issuing bank, FI can

extend this upto 95%

Support in realizing payment in time from the L/C issuing banks

This is the area where FI is in a position to add significant value to this product.

Unfortunately, it has become a market practice, particularly in the NCB segment, to

delay the payment of these local bills from maturity date on various pretexts. With

deep-rooted branch level contacts FI should be able to expedite such payments within

reasonable time. For some selected banks / customers FI can even offer this product

as a non-recourse one. This will mitigate the risk of delayed payment for the customer

and bring in additional revenue for the bank.

5.1.4 Blanket Assumptions

L/C advising fee is set at flat USD 40. Although L/C advising fee varies from

US$100 in USA to US$20 in India the rationale for such assumption can be traced

back to the fact that majority L/Cs are routed through Far Eastern countries where

fee is around US$50.

5% of total number of L/Cs have been set aside from our calculation assuming

these get routed within country.

70-80% of confirmed L/Cs gets discounted.

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5.1.5 Bank Briefs

AGRANI BANK

DYNAMICS

Large ticket items including PDB, telecommunication and defense L/Cs

Fragmented business ( spread over a large number of branches)

Significant concentration of Ready-made Garments related b/b L/C business

Oil deals are in pipeline

ASSUMPTIONS

India bound L/Cs represents 8% of sight L/Cs

Confirmation is required for 60% of back to back L/Cs and 30% of sight L/Cs.

AL- ARAFAH ISLAMI BANK

DYNAMICS

Considerable amount of Ready-made Garments related b/b L/C business

Good payment record

Not much large ticket items

ASSUMPTIONS

India bound L/Cs are 20% of total sight import.

90% of sight L/Cs require confirmation.

Cent percent of back to back L/Cs require confirmation.

Total 6 RA s per 4 L/Cs.

Reimbursement Authorizations (RAs) used only for 10% of sight L/Cs and the

rest are effected through fund transfer.

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BASIC BANGLADESH

DYNAMICS

Booked some large ticket fertilizer L/Cs

Healthy financials and the only “B” graded SCB relationship

A blend of small, medium and large ticket items

ASSUMPTIONS

India bound L/Cs are 29% of total sight import.

50% of sight L/Cs require confirmation, while 80% of back to back L/Cs require

confirmation.

Total 6 RA s per 4 L/Cs.

DHAKA BANK LTD.

DYNAMICS

Healthy business growth over the years

Competent management team

ASSUMPTIONS

14% of sight import is from India, thus require no confirmation.

75% of sight L/Cs require confirmation while 95% of back to back L/Cs require

confirmation.

DUTCH BANGLA BANK LTD.

DYNAMICS

Increasing their focus on RMG

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Good payment record

Major business growth in 1999

ASSUMTIONS

18% India bound sight L/Cs.

Confirmation required for 80% of sight L/Cs and 90% of back to back L/Cs.

EASTERN BANK LIMITED

DYNAMICS

Considerable number of large ticket items

Good mixture of back to back and cash L/Cs

Overwhelming share of business enjoyed by SCB

Excellent payment track record

ASSUMPTIONS

Garments related import volume is about 70% of total garments export.

10% of sight import is from India.

50% of sight L/Cs will require confirmation, 80% of garment L/Cs will require

confirmation. No confirmation required for India bound L/Cs.

IFIC BANK

DYNAMICS

Mixture of back to back and cash L/Cs

No large ticket items

Good payment track record

ASSUMPTIONS

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50% India bound sight L/Cs.

10% of sight L/Cs require confirmation, 70% of back to back L/Cs require

confirmation.

ISLAMI BANK BANGLADESH LTD.

DYNAMICS

Very large concentration of Ready-made Garments related b/b L/C business

American Express Bank traditionally enjoys overwhelming share of Islami’s

business

ASSUMPTIONS

50% of sight L/Cs get confirmed.

80% of back to back L/Cs get confirmed.

Reimbursement Authorizations are used only for 10% of sight L/Cs.

50% of sight L/Cs payments are effected through fund transfer, the rest is effected

through direct debit.

JANATA BANK

DYNAMICS

Handles government food, oil, defense and project related deals

Large ticket but low volume of L/Cs

Large number of branch relationships though business in heavily concentrated

with their local office

ASSUMPTIONS

10% of sight L/Cs are India bound.

$ 150 million worth of oil L/Cs.

Average confirmation fee from the oil deals is around 0.25% per quarter.

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NATIONAL BANK LIMITED

DYNAMICS

Huge trade potential with considerable concentration in RMG related trade

Only 2 years old relationship

Large ticket items

The most profitable bank among the Private Commercial Banks

ASSUMPTIONS

India bound L/Cs represents 15% of total sight L/Cs.

Confirmation required for- 70% of back to back L/Cs, 35% of sight L/Cs.

NCC BANK

DYNAMICS

Business focus is on trade finance

Healthy trade growth over the last 4-5 years

Mixture of sight and back to back business’

ASSUMPTIONS

15% of sight L/Cs are India bound.

Confirmation required – sight 45%, back to back 80%.

PRIME BANK

DYNAMICS

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Large volume of back to back business

Huge volume of India bound business

Good management team

ASSUMPTIONS

20% India bound L/Cs.

SONALI BANK

DYNAMICS

Significant slump of business in last year

Combination of RMG, government oil, defense and large ticket items

ASSUMPTIONS

Out of USD 367 million sight L/Cs, USD 145 million represents defense L/Cs

where SCB has no role to play. Confirmation revenue from USD 170 million oil

L/Cs is calculated using 100 basis points par annum. Revenue potential from the

remaining USD 52 million L/Cs is calculated using standard pricing.

80% of garment L/Cs will require confirmation. No confirmation required for

India bound L/Cs.

No role is expected to play for Soanli’s India bound L/Cs since Sonali has its own

branch in India.

SOUTHEAST BANK LTD.

DYNAMICS

No back to back focus

Typically, large ticket low volume business

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Majority of business is India bound

ASSUMPTIONS

40% of sight L/Cs are India bound.

50% of sight L/Cs and 80% of back to back L/Cs get confirmed.

UTTARA BANK

DYANMICS

Remarkable trade growth in last few years

Good blend of back to back and cash L/Cs

SCB limit does not allow to accommodate large ticket items

Focus is on non-risk products

ASSUMPTIONS

10% India bound L/Cs

Confirmation is required for – 35% of sight L/Cs and 85% of back to back L/Cs.

5.1.6 Revenue & Volume Dynamics:

Assumptions

Transfer Pricing 7.5% pa (approximate rate taken)

Discount Interest rate 13.0% pa average

US$ Spot Rate 57.70

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Revenue streams from a typical 120 days usance, US$10,000 bill will be:

Interest Income BDT10, 578.00

Fee based Income BDT 1,500.00

To achieve yearly revenue target of BDT45m (NII and Fees combined) FI will need

about US$45m (BDT2,500m) worth of bills per annum with an average usance period

of 120 days. Peak outstanding target based on that volume is BDT800m. Volume will

gradually build up from the beginning of the year and remain fairly static once the

peak outstanding target is reached. A Chart of monthly volume target and average

peak outstanding is shown below.

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5.1.7 Risk & Mitigants:

Credit: This product carries credit risk on local banks. Bank will be exposed to risk

only if the L/C issuing bank defaults on payment due to bankruptcy. As most of the

deals will be on recourse basis, FI will be able to legally claim on the beneficiaries

even if bank defaults on its payment obligation.

Delay in payment: A more common risk to this product is the possibility of delay in

making payment by the L/C issuing banks. As already discussed above FI is in a

position to minimize this risk with its very good relationship with the local banks.

Documentary risk / fraud: All LBDs are on acceptance basis. Documents submitted

by the beneficiaries do not carry any risk, as these will be forwarded to issuing bank

for their acceptance. Issuance of the L/Cs and subsequent acceptances for each and

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every item will be carried out to avoid any chances of documentary / transactional

fraud. Precaution will also be taken while signing in customers for this product.

To mitigate the risks, the local LC must be freely negotiable in this type of transaction

so that SCB can be the Negotiation bank. To maximize the revenue SCB should be

the Advising bank wherever possible.

The main risks for this product are summarized as follows:

Risk With Recourse Without Recourse

Customer Credit Risk Secondary No

Accepting Bank and Country

Risk

Primary obligor Yes

Operational Risks (including

fraud)

Yes Yes

Market Risk Movement in interest rates and foreign exchange risks

Where the discounting is provided in local currency and the Bill drawn under the local

LC is in foreign currency, the foreign exchange risk must be hedged. Where no

forward FX deal is contracted, the maximum margin of financing permitted will be

limited to 90% of the draft value.

The transactions should reflect the nature / size of the customer’s business and the

terms of trade for the industry. The tenor of the Accepted Bills should reflect the

credit conversion cycle but should not in any case exceed 180 days.

Because the potential higher risk associated with local LCs, discounting without

recourse should only be undertaken when approval has been obtained from Country

Head of C&IB and SCO. The use of such bills for accommodation or related party

finance is specifically excluded from the program.

5.1.8 Product Risk Return

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The facilities must be priced such that risk-adjusted minimum hurdle rates are

achieved taking into account product mix, customer credit grades and security.

The product risk/return must provide a value-added contribution after costs on a

stand-alone basis. Value added means the product or customer relationship must be

profitable after including all business stream revenues and after deducting costs,

including risk costs and a charge for capital costs.

Minimum pricing should be set out in Country Product Template according to local

business plans and underwriting Standards.

5.1.9 Risk Management

This section should be read in conjunction with the standard ‘Product Risk

Management Framework’, which lists the definition, mitigation and control measures

of generic risks.

Where there is electronic transaction initiation or delivery of electronic information,

please refer to the specific risk mitigants and controls referred to in the framework.

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5.1.10 Customer Credit Risk

Customer selection criteria and maximum transaction limits must be set out in the

Country product templates.

For with recourse discounting, the primary obligor is the Issuing Bank and secondary

recourse is to the Corporate customer. A Cat1 facility limit should be established on

the Customer for the full amount of any with recourse discounting with an FSV based

on the prime obligor (the Issuing Bank).

For without recourse discounting, SCB’s obligor is the Issuing Bank. SCB normally

has no recourse to the corporate customer, except in the event of fraud, alteration of

the bills etc. However the customer should be known to SCB and the transactions

should reflect the nature/size of the customers business.

Discounting without recourse should only be undertaken when approval has been

obtained from Country Head of C&IB and SCO.

5.1.11 Bank and Country Risk

This is the risk that SCB undertakes on the Issuing Bank (and associated country

risk*) of the local LC who has accepted the bill.

The exposure is booked against Issuing Bank and Country risk for both with recourse

and without recourse discounting. Discounting should only be undertaken where

appropriate Bank and Country risk approval has been obtained.

In countries, where the risk of late or non-payment depends on individual branches of

the Accepting Bank, the limit approval must be on a branch basis. This must be

covered in the Country Product Template.

In the event that funding is in local currency with a local bank, with remittance at

maturity in local currency, this does not impact Country limit. This must be covered

in the Country Product Template.

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5.1.12 State Owned Banks

The nationalized banks combined earned a profit of BDT 2.46 billion in 1999, down

from BDT 3.69 billion in 2000. The deposit mobilization for the NCBs, however,

decreased by 14% from BDT 331 billion to BDT 283 billion during the same period.

The main state owned banks continue to dominate the domestic retail and corporate

market as well as undertaking most government business.

In 2002, the over all foreign exchange business is done by these three large

nationalized banks.

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5.1.13 Policy:

Credit Policy will continue to support exposure to this important sector. Pre-Settlement

limits and settlement limits for banks graded A to E in this sector will be allowed 150%

of the appropriate ceilings. Priority will be given to trade and the full support of both the

Country Head and Regional Head, FI will be required to breach 100% of ceilings.

Notwithstanding this ceiling, at the sole discretion of GRA, A to E graded banks can be

granted L/C limits which can be risk weighted at 50%, again at the sole discretion of

GRA. Applications will need to be supported by a strong business case and carry the

recommendation of both the Country Head and Regional Head, FI.

For business in excess of Credit Policy Ceilings and banks graded F-G all exposures

(except FX) must be covered by lien hard currency deposits as well as local currency.

Track record of placing of 110 pct local currency as cash cover against L/C limit was

found satisfactory since the funds are properly liened with us. In cases where liened

currency is used, proper documentation is required.

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5.1.14 Term limitations:

Interbank (Local currency) - 90 days.

Trade (Confirming/negotiation) validity upto – 360 days.

LER Forex Forward - 360 days.

Extended tenor of 360 days for trade limit is solicited due to the fact that with 30 to 60

days of shipment period and 21 to 30 days for negotiation, door to door tenor for 180

days usance L/Cs can go upto 270 days. Besides, occasionally capital machinery related

L/Cs are established with supplier’s credit of 180 to 360 days.

There are moderate exposures to Rupali Bank (graded G) which is not an FI priority

(treasury limits) and therefore continued or additional exposure will need to be

strongly supported by business plans.

.5.rivate Sector Banks

Operating profits earned by the private sector banks increased by more than 160% from

BDT 2.01 billion in 2000 to BDT 5.27 billion in 1999. Deposits increased by 17% from

BDT 127 billion to BDT 149 billion. Profits from foreign banks increased by 0.67%

from BDT 1.78 billion in 2000 to BDT 1.79 billion in 1999. Deposits in foreign banks

increased appreciably by 28% from BDT 29 billion to BDT 37 billion during the same

period.

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Deregulation is leading to an awakening of the private sector banks and new licenses are

being granted. The private banks are rapidly expanding through new branches. In

general, banks in this sector are more professionally managed than the State banks, but

some pose a greater danger (due to insider lending and reluctance of sponsors to inject

fresh funds) even though Bangladesh Bank has stated that support will be provided in

need. Recent BB circulars restricting lending to the sponsor directors will help the banks

to get rid of further insider-lending pressure. However, Bangladesh Bank is satisfied

with the improvements made by the banks in this sector during the recent years and it

has signed an MOU with weak banks for close monitoring. Bangladesh Bank is satisfied

with the improvements of some of the weak banks. The World Bank is also in favor of a

greater role by the private sector banks and they strongly advocate de-nationalization and

more private banks.

5.1.15 Policy

Settlement and Pre-settlement risks for A-E graded banks in this sector can go up to

120% ceilings. Priority will be given to trade and the full support of both the Country

and Regional Head, FI will be required to breach the 100% of ceilings.

Additionally L/C limits can be risk weighted at 50%, again at the sole discretion of

GRA.

Applications will need to be supported by a strong business case and carry the

recommendation of Head of FI.

For business in excess of these Credit Policy Ceilings and banks graded F and G, all

exposure (except FX) must be covered by liened hard/local currency deposits unless and

otherwise supported by Regional Head of FI MESA for exceptional cases.

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5.1.16 Term limitations:

Interbank (local currency) 90 days

Trade (confirmation/negotiation) validity upto 360 days

LER forward forex 180 days

Trade limit for private banks have been proposed to be 360 days from existing 180 days

for reasons which have been explained in previous section of State owned banks.

5.1.17 New Banks in the Private Sector

The Government has recently allowed nine new banks in the private sector. All of them

have already started their banking operation. Capital requirement for these new banks is

higher i.e., sponsored capital BDT 200 million as against BDT 100 million. These banks

have to go for IPO for BDT 200 million within 3 years of banking operation. In recent

past FI has experienced gradual shift of quality business from NCBs to old PCBs and off

late shift from old PCBs to new PCBs. Relationship with few new banks will be

established selectively to maintain steady growth. Ownership, Management, Business

focus and our revenue potential will be the prime criteria for deciding the extent of

relationship (pure agency arrangement based correspondent bank relationship, account

relationship or cash covered credit relationship) with new banks (refer the attached

matrix). Initially, FI will focus on non-credit products only and consider extending credit

limits on selective basis against full cash cover (either 100-pct hard currency or 110-pct

local currency) in the normal course of business. Collateralized facilities will be

supported by watertight documentation.

5.1.18 Cash Cover

For excess exposure over the existing limit or for new limits, local banks will be allowed

to place cash cover as collateral. Cash cover either in the form of 100 pct hard currency

(to be kept outside Bangladesh) or 110 pct local currency will be taken as collateral for

limits/one off transactions. For hard currency covered transactions neither bank limit nor

country limit will be earmarked. However, for local currency covered transactions

country limit will be earmarked. Our experiences with all cash covered transactions are

very satisfactory. Besides, local currency covered transactions also act as an additional,

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and generally cheaper, source of fund and help treasury in managing liquidity of the

bank.

5.1.19 Country Limit

Short-term country limit for Bangladesh is $215m, out of which FI are allocated a

total allocation of USD120m.

Currently USD 30 million line is in place to cover very low risk government imports

of essential commodities. Government trade in food grain, petrochemical, fertilizer

and essential items of energy and telecom sector. The limit will be confined to

confirming L/Cs issued by majority state-owned banks (Sonali, Agrani, Janata &

Rupali, BASIC) and for selected exceptional transactions, on IFIC (40% government

owned), Eastern Bank (20% government owned and 60% owned by the 3 NCBs).

BASIC is included since it is 100% owned by government. BASIC will qualify for

ECL as long as their majority share is owned by GOB. Exposure booked under this

limit will apply to L/Cs which are opened by I) Government agencies or ii) by private

importers for ultimate supply of goods to Government agencies- only on the basis can

evidence a written mandate from the government for handling the essential

commodities. This stipulation was changed at last review due to an increasing trend of

procurement of goods by Government agencies through competitive bidding whereby

many local trading houses are now awarded contracts. Government agencies establish

local L/Cs favouring the contractor who in turn establishes back to back L/C

favouring overseas manufacturer. FI has already handled such private-public

transactions and gained encouraging experience.

A cap should be placed on exposure to any one name under ECL. No more than $20m

for oil on one name or $10m for other essential commodities will be extended to one

name i.e. the facilities are mutually exclusive, you can have either one or the other.

This will ensure that a maximum of $20m of the ECL to any one name.

Confirmations under this limit will be booked under the "Essential Imports" limit, not

against the clean running limit of the individual bank concerned.

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5.1.20 Policy

With the Grindlays acquisition, SCB has become the market leader among foreign

banks. It is SCB’s objective to remain the premier correspondent bank in the

Bangladesh market.

To date, Financial Institutions (FI), Bangladesh has experienced few delays in

payments with a zero record of losses. Any delays, however minor, have been swiftly

resolved by the FI team in Bangladesh, either directly with the banks or through BB,

with whom they enjoy a strong relationship at the highest levels.

In February, 2002 FI, Bangladesh has signed an agreement with International Finance

Corporation (IFC) and Netherlands Development Finance Company (FMO) for

US$52m “Trade Enhancement Facility” for 6 Bangladeshi Banks.

The transactions booked under this facility would be booked on 50/50 basis with

SCB’s exposure being booked under existing facilities and IFC & FMO guaranteeing

the other 50%. IFC & FMO will guarantee upto US$25m bank risk and share 50% of

the confirming fee, whilst SCB will take full documentary risk and will also retain

rest of revenue streams.

The local banks are very small in international terms but to be competitive with other

international banks we need to be able to provide meaningful limits.

Whilst there are enhanced risks, as already described, there are also mitigants as

follow:

Most of the exposure is low risk trade exposure (true trade, not trade related

lending);

The banks are liquid, many having large retail bases, whilst all have access to

refinancing in need at the central bank.

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The state owned banks are all 100% state owned and there are no plans to

privatize them in the near future. Many of the private banks retain some level of

government ownership.

The Central Bank and Ministry of Finance have repeatedly stated that they will

support any of their banks in need.

There are sizeable balances held at SCB, New York

Efforts have succeeded in mitigating some of the risk to the IFC and FMO and the

attempt to obtain insurance cover is on.

The newly set up Asset Sell down unit in Dubai has already established a

secondary market for Bangladeshi Bank risk. Current appetite appears stronger

for the government owned banks; recently Rupali and Janata Bank risk was sold

in a market at a very attractive rate.

For all L/Cs confirmed by SCB the control over payment is absolute through a

direct customer’s nostro account debit authorization.

FI exposure will be constrained by the country limit. It is highly unlikely that the

Bangladeshi government would allow a government bank to fail because of political

and systemic reasons, unless there was no other option. The credit policy is on the

basis that we establish a number of risk triggers, as follows:

Import cover falls to less than four weeks. These figures are published monthly;

Sizeable aid flow reduction. An aid consortium meets on an annual basis to set aid

levels;

Default in crude oil payment;

Default in debt repayment

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In the event that any of these events materialize, facilities would immediately be

reviewed and action taken to reduce the business being undertaken, particularly longer

tenor items, and to sell down/ insure a proportion of the assets to mitigate risk.

Bank Risk Triggers: Current* Trigger Point

NPLs/ Total Loans 34% 37%

Provisions/ NPLs 21% 19%

Liquid Assets/ Total Deposits 44% 48%

Total Loans/ Customer Deposits 73% 80%

Capital Adequacy 9% 8%

* Bangladesh Bank Publications

5.1.21Operational Risk

As local Bills or LC are freely negotiable financial instruments, there are some

operational risk is involved also. Those are as follows:

Authentication / Verification of the signatures of the Issuing Bank appearing on

the advice of acceptance and maturity date of the bill.

In the event the signatures cannot be authenticated, the Accepting bank must

confirm by authenticated SWIFT / tested telex that they have accepted for

payment on maturity.

Discounting of the local LC can only be extended after the payment due date

advised by the Issuing bank.

Interest to maturity date plus transit interest, based on local practice, should be

deducted from the payment to the beneficiary

Where the local LC shows that interest for the usance period is payable by the

applicant at maturity in addition to the LC value, only the principal amount is eligible

for discounting.

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5.1.22 Fraud

There is a potentially higher risk of fraud with local L Cs. special care must be taken

to ensure that the transaction is bonafide, by calling for transportation proof such as

FIATA receipt or bills of lading whenever possible. Detailed risk mitigants should be

set out in Country Product Templates.

5.1.23 Market Risk

There may also be a basis risk due to movements between the reference rate for

interest charges for the product and the bank’s actual cost of funds (e.g. Prime /

Interbank spread etc.). The product should, wherever possible, be match funded to

remove this risk.

Where the discounting is provided in local currency and the Bill drawn under the local

LC is in foreign currency, foreign exchange risk will occur.

5.2 Financial and Management Accounting

5.2.1 Financial Accounting

All financial accounting entries for net interest income, non-interest income, on-

balance sheet assets and contingents must be booked in accordance with Group

Accounting Policies.

Particular attention must be paid to the treatment of fee and commission income and

the booking and risk weighting of the various assets and contingent assets.

5.2.2 Management Accounting

All management accounting entries shall be booked in accordance with Group

Management Accounting policies. Income, assets and contingents shall be reported in

Pipeline and related financial reporting systems.

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5.2.3 Accounting Approval

The local or regional Head of Finance must be consulted and must approve the

specific local accounting entries to ensure all accounting and risk weighting items are

covered.

5.2.4 Transaction Processing

All processing must be performed in accordance with the relevant operational

manuals, which include but are not limited to, documentation, limit management,

processing of transactions and exception reporting.

5.2.5 Legal, Regulatory and Compliance

Legal must approve all standard and additional documentation.

Country product template must confirm Bank has license / approval to provide these

services in the country.

5.2.6 Cross Functional Support:

In order to be successful with this product active support will be required from within

the bank. Additional funding in the tune of BDT800m will be required from Treasury.

With the change in FTP policy support will be needed from Treasury for the 90~120

days BDT TP rate for bill discounting.

Customer referrals will be required from across the bank while Trade Services will be

required to set up a dedicated desk for giving the operational support for the product.

5.2.7 Cross Selling Opportunities:

One hurdle while marketing LBD to local entities would be solicitation of other types

of credit lines/facilities. As they will try to politely tackle that situation, they will

certainly get opportunities to cross sell other types of bank products such as L/C

Advising, Consumer Loan, Credit Cards, Personal Account Services etc.

One small percentage of these bills might be drawn and discounted in US$. Those

bills have the potential of significant Exchange earning by Treasury in lieu of

discount interest spread.

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5.3 Findings and Recommendations

LBD is a much-hyped about and yet difficult product. While it has solid revenue

potential it involves close cooperation and coordination among several departments

within the bank and liaison with a large number of entities.

The following aspect should be taken under consideration while discounting a Local

letter of credit received from a local bank:

100% financing should only be given to customers with a forward foreign

exchange deal contract. As with a foreign exchange contract, the customer

captures the risk under LER limit with treasury through use of forward foreign

exchange rate contract, it is easy to assess the receivable amount in local

currency.

Where no forward foreign exchange deal is contracted, the maximum margin

of financing permitted will be limited to 90% of the draft value. The actual %

allowed in each country must be set out in the Country Product Template, with

appropriate market risk approval obtained if exceeding 90%.

It is important to keep close personal and extra friendly relationship with

management of NCB banks for obtaining first hand information, as early as

possible. As it is found that most NCBs have high tendency of delaying in

publishing statements and accounts. It usually requires about 18 months before

audited financials are published. The reason for this is a three-stage audit

process, which starts at the branch level.

Prevailing legal procedures is very lengthy and complicated. It takes longer

period to settle any kind of dispute. On the other hand, enforceability of

intangible security is a long drawn process, i.e. generally takes 5 – 6 years. So,

FI should be more careful in risk assessing, before confirming a discounting

process.

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A proper process must be in place to keep the Issuing Bank’s confirmation of

acceptance advice, and the maturity date must be closely tracked for follow

up.

Deterioration or change in fiscal policy is quite common phenomenon in our

country So, FI should hire a team of economists type people to compile

statistics to indicate general improvement, stabilization or detoriation in fiscal

policy.

5.4Conclusion

In retrospect of the marvelous growth of FI revenue over the last eight years and

contemplating the intensity of competition yet to come, it is crucial for SCB to rethink

its strategies and marketing plan to sustain the growth of FI revenue. Correspondent

banking service providers domiciled in Bangladesh are expected to be fighting for a

bigger pie, as the growth prospect of the country’s correspondent banking business is

limited. One of the ways to achieve that objective is to maximize FI revenue

generated from local clients and introduces more local products. Because, there are

huge potentials for inbound revenue.

However, export growth dropped below 6% while import soared by 8.5% in

2001/2002, putting pressure on trade deficit. Although special incentives were

extended to the garment, jute, and leather sectors in the national budget, export

income has been affected due to flood damage, which has disrupted transport and

communications and lowered industrial output and distribution. Increase in import

payments was due to drastic surge in imports of food grains and capital machinery.

Foreign exchange reserve position will remain stable. Import cover will average 2.2

months in 2001, compared with 2.8 months in 2000, and rise only marginally in 2002,

to 2.3 months.

The major part of the credit exposure on Bangladeshi banks will be in the trade finance

sector. The export of ready-made garments from Bangladesh is initiated by buyers

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resident in the USA, Canada and Europe. The buyer opens a sight letter of credit with a

long expiry favoring garment suppliers/manufacturers (export L/C) in Bangladesh who

in turn use the same as collateral to open usance(60 to 180 days) L/C's favoring

beneficiaries in local textile mills, spin mills, yearn suppliers, dyeing factories to supply

fabric and accessories. Under the present system, garment manufacturers are allowed to

import upto 75% of the value of the Export L/C. The fabric and accessories once

imported are cut, dyed, sewn and pressed into finished articles of wear as according to

specifications and exported to the buyer. Proceeds received under the export L/C are

used first to settle import liabilities (the usance L/C), bank liabilities (if any) and local

expenses. Bangladeshi Banks are permitted to retain requisite foreign currency for

settlement of the usance bills and release the remainder to the exporter.

The proportion of inland L/Cs, however, is increasing in the garments industry. This is

because of the tax benefits provided to firms going for backward linkages. The

Government is also encouraging this move since it wants to develop the country’s

industry. So, the L/Cs, which were traditionally used to import raw material, is now

being replaced by local L/Cs favoring indigenous manufacturers. As such local bill

discounting (LBD) against acceptance from banks is also becoming a profitable window

for increasing local revenue.

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