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INTERNSHIP REPORT ON
FOREIGN EXCHANGE DIVISION OF MERCANTILE BANK
LIMITED
Supervised By
Mostofa Mahmud Hasan
LecturerDepartment of Business Administration (Finance)
Stamford University Bangladesh
Submitted By
FATEMA- TUZ- ZOHRABBA 27th Batch
ID # BBA.02707961Section-D (Finance)
Department of Business Administration
Stamford University Bangladesh
Date of Submission: 12/10/2009
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page i of xviii
INTERNSHIP REPORT ON
FOREIGN EXCHANGE DIVISION OF MERCANTILE
BANK LIMITED
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page ii of xviii
October 11, 2009
Mostofa Mahmud Hasan
Lecturer
Department of Business Administration
Stamford University Bangladesh
Subject: Submission of internship report
Honorable Sir,
I am very glad to inform you that I have finally completed the internship study
successfully, which was a partial fulfillment of the requirement for the Bachelor of
Business Administration program.
The topic of my internship study is Foreign Exchange Division of Mercantile Bank
Ltd. I enjoyed very much by preparing this study as well as it was a worthwhile
experience for me to work in the challenging environment of a leading private
Commercial Bank. I am undeniably thankful to you & my Department for giving me the
opportunity to obtain practical skills as well as to learn how to cope with the practical
situations, which is very much valuable for my future career.
Finally I assure you that I have tried my best to make a systematic and informative
summary based on my practical work. If you need further clarification, I am always ready
to answer your questions.
Yours Sincerely,
Fatema-Tuz-Zohra
ID No-BBA.02707961
Department of Business Administration
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page iii of xviii
Stamford University Bangladesh.
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page iv of xviii
Internship Report
I here announce that the extensive study entitled
“GENERAL BANKING & FOREIGN EXCHANGE DIVISION OF
MERCANTILE BANK LIMITED”
Prepared in partial accomplishment of the Requirement for the award of the degree
Bachelor of Business AdministrationFrom
STAMFORD UNIVERSITY BANGLADESH
Is my original work and not put forward forThe award of any other degree / diploma / fellowship
Or other similar term or honor
Fatema-Tuz-ZohraID No-BBA.02707961
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page v of xviii
STAMFORD UNIVERSITY BANGLADESHSTAMFORD UNIVERSITY BANGLADESH
To Whom It May ConcernTo Whom It May Concern
This is to certify that the internee report on “General Banking & Foreign Exchange
Division of Mercantile Bank Ltd.” For the degree Bachelor of Business Administration
(BBA) major in Finance from Stamford University Bangladesh carried out by Fatema-
Tuz-Zohra, ID #BBA.02707961 under my supervision. No part of the internship report
has been submitted for any degree diploma, title, or recognition before.
---------------------------------------------
Mostofa Mahmud Hasan
Lecturer
Department of Business Administration
Stamford University Bangladesh.
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page vi of xviii
Hod’s Declaration
The Internship report, Entitled “General Banking & Foreign Exchange Division of
Mercantile Bank Ltd.”. Submitted by Fatema-tuz-Zohra, ID No-BBA.02707961,
Batch no- 27 (D), is a student of the Department of Finance, Stamford University
Bangladesh, has been accepted as satisfactory for the partial fulfillment of the
requirement for the degree of Bachelor of Business Administration and approved as its
style, method and contents.
_______________________________
Md. Ifte Kharul Alam
Assistant Professor & Head of Finance
Department of Business Administration
Stamford University Bangladesh
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page vii of xviii
ACKNOWLEDGEMENT
First of all I would like to thanks all mighty Allah for giving me the patience and proper
time to complete the internship study successfully. It is pleasure to take this occasion to
thank a few people who have, assisted, encouraged, directed and supported throughout
the internship program.
I heartily thank all the officials of the Mercantile Bank Limited, Engineers Institution
Branch for their supporting as well as co-operating me as an intern in their organization.
After that I especially thanks to Mr. Md. Sdruzzaman (Executive Vice President &
Manager) and my supervisor of that branch for guiding me throughout the internship
program. And I uniquely thanks to the Mr. Zia Uddin Ahmed (FAVP & Sub-Manager)
of Engineers Institution Branch to give the full co-operation and all sorts of support
during the program. Ms. Sharmin Shahid, Ms. Sadia Afroz, Ms. Taslima Akter, Mr.
Sadthzad Bin Haq, Mr. Anisur Rahman, Mr. Ferdos, Mr.Dewan al Amin Al mutakabbir,
Tahmim alamin, and each & everyone was very much sincere to give me the knowledge
of General Banking and Documentary Letter of Credit and briefing about Lodgment
process in Back to Back L/C Department regardless their shortage of time.
Finally, I want to give my special thanks to the Academic supervisor Mostofa Mahmud
Hasan (Lecturer, Stamford University Bangladesh) for his support and enormous help
throughout this Internship program, especially his guidelines throughout the period of
preparing the report. I would like to convey my best regards to all officials of the
Engineers Institution Branch, MBL.
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page viii of xviii
EXECUTIVE SUMMARYEXECUTIVE SUMMARY
Banking system of Bangladesh has gone through three phases of development
Nationalization, Privatization and lastly Financial Sector Reform. Mercantile Bank
Limited (MBL) started its journey in the financial sector of the country as an investment
company back in May 20, 1999. The company operated up to 1999 with 9 branches and
thereafter with the permission of the Central Bank converted in a full-fledged schedule
private commercial bank in June 2, 1993 with paid up capital of Tk. 39.00 crore to serve
the nation from a broader platform. The whole report has been prepared based on the
information taken from the division of Mercantile Bank Limited, i.e., foreign Exchange
Division.
General Banking comprises of account opening, bills, remittance, clearing, cash and
computer sections. Through these sections, it establishes Banker customer relationship,
collects bills for customers, remit funds of customers from one place to another, honor
cheque drawn on this branch. General Banking department provides these services in a
faster and better manner.
Foreign Exchange department plays a vital role in facilitating export and import of the
country. It comprises of Export, Import and Foreign Remittance sections. Through these
sections, it opens Letter of Credit, negotiates foreign bills, advises Letter of Credit, and
provides different types of loans like, Loan against Trust Receipt, Loan against Imported
Merchandise, Packing Credit etc. to its customers. The practical activities of different
desks what I have done is outlined in this Report. Various rules and regulations, policies
and procedures relating to different activities have also been enumerated here.
Though foreign remittance is one of the major parts of bank’s income but the loans and
advances and other loan schemes play a vital role in success of Mercantile Bank Limited.
Mercantile Bank Ltd. Has offered the clients deposit scheme, loan scheme, remittance
service and the like.
From 1999 to 2009, it has made strong initiative in banking sector.
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page ix of xviii
TABLE OF CONTENTSTABLE OF CONTENTS
CONTENTS Page
No.
AcknowledgementAcknowledgement
Executive SummaryExecutive Summary
CHAPTER-ONE: INTRODUCTION
1.1. Background of the study 2
1.2. Objective of the study 2
1.3. Scope of the study 3
1.4. Limitation of the study 3
1.5. Methodology Used 4
1.6. Time Schedule 5
CHAPTER-TWO: BANKING OVERVIEW
2.1. Beginning of Banking 7
2.2. Banking History of Bangladesh 7
2.3. Number and Types of Banks Operating in Bangladesh 9
2.4. Banking Laws and Practices in Bangladesh 10
CHAPTER-THREE: OVERVIEW OF MERCANTILE BANK LTD.
3.1. Historical Background of MBL 12
3.2. Vision, Mission & Objectives of MBL 13
3.3. Corporate Information of MBL at a Glance 14
3.4. Organization Structure of MBL 15
3.5. Corporate Structure of MBL 16
3.6. Management Hierarchy of MBL 17
3.7. Performance of MBL 18
3.7.1. Capital 18
3.7.2. BIS Capital Adequacy Ratios 18
3.7.3. Funding Structure 19
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page x of xviii
3.7.4. Statutory Reserve 19
3.7.5. Deposits 20
3.7.6. Loans and Advances 20
3.7.7. Import Trade 21
3.7.8. Export Trade 22
3.7.9. Foreign Remittance 22
3.7.10. Treasury Operation and Fund Management 22
3.7.11. Earning Base in Assets 22
3.7.12. Asset Portfolio 23
3.7.13. Information Technology 24
3.8. Financial Review 24
3.8.1. Operating Profit 24
3.8.2. Total Income 24
3.8.3. Interest Income 25
3.8.4. Interest Expenses 26
3.8.5. Net Interest Income 27
3.8.6. Net Interest Margin (NIM) 27
3.8.7. Non-Interest Income 27
3.8.8. Total Expenses 28
3.8.9. Non-Interest Expenses 29
3.8.10. Net Profit before Tax 30
3.8.11. Provision for Income Tax 30
3.8.12. Profit after Tax 31
3.9. MBL Time Line 32
3.10. Resources and Facilities of MBL 33
3.11. Financial Highlights of MBL 36
3.12. Head Office & Branch Network of MBL 37
3.13. MBL, Engineers Institution r Branch, Dhaka (At a Glance) 42
CHAPTER-FOUR: GENERAL BANKING DEPARTMENT
4. General Banking Department 45
4.1. Account Opening Section 45
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xi of xviii
4.1.1. Types of Account of MBL at a Glance 47
4.1.2. Other Term Deposit Accounts 48
4.1.2.1. Double Benefit Deposit Scheme (DBDS) 48
4.1.2.2. Family Maintenance Deposit (FMD) 49
4.1.2.3. Monthly Savings Scheme (MSS) 50
4.1.2.4. Quarterly Benefit Deposit Scheme 51
4.1.2.5. 1.5 Times Benefit Deposit Scheme 52
4.1.2.6. Advance Benefit Deposit Scheme (ABDS) 53
4.1.3. Requirements of Opening an Account 54
4.1.3.1. Documents Needed for Opening Each Account Separately 55
4.1.4. Documents that are Given to the Account Holders 56
4.2. Issuing Cheque Book to the Customers 56
4.3. Transfer of an Account 57
4.4. Closing of an Account 58
4.5. Remittance Section 58
4.5.1. Payment Order/Pay Order (PO) 59
4.5.2. Demand Draft (DD) 61
4.5.3. Telegraphic Transfer (TT) 65
4.6. Online Banking 67
4.7. Clearing and Bills Section 68
4.7.1. Type of Clearing 68
4.7.1.1. Outward Clearing Bills 68
4.7.1.2. Inward Clearing Bills 71
4.8. Dispatch Section 72
4.9. Cash Section 73
4.10. Data Entry Section 75
4.11. Accounts Section 75
CHAPTER-FIVE: FOREIGN EXCHANGE DEPARTMENT
5.1. Foreign Exchange Department 78
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xii of xviii
5.2. Documentary Credit / Letter of Credit (L/Cs) 79
5.3. Legal Framework 80
5.4. Forms of Documentary Credit 80
5.5. Documents Used in L/C Operation 81
5.6. Different Accounts Related to Foreign Exchange Transaction 84
5.7. Parties Involved in the Process of Letter of Credit 85
5.8. Bank as a Party of Documentary Credit 85
5.9. Authorized Dealer 87
5.10. MBL, Engineers Institution Branch as an Authorized Dealer 87
5.11. Import Section 89
5.11.1. Top Ten L/C Opener 89
5.11.2. List of the Major Countries of Foreign Exchange Business 90
5.11.3. L/C Position of MBL, Engineers Institution Branch at a Glance 91
5.11.4. Import Procedure in Flow Chart 94
5.11.4.1. Import Registration 95
5.11.4.2. Desire to Import 95
5.11.4.3. Purchase Contract 95
5.11.4.4. Settlement of the Means of Payment 96
5.11.4.5. Proposal for Opening of L/C 96
5.11.4.6. Application for L/C Limit 96
5.11.4.7. Application for Opening L/C 97
5.11.4.7.1. L/C Application Form 97
5.11.4.7.2. The Letter of Credit Authorization Form (LCAF) 99
5.11.4.7.3. The Import Permits (IMP) Form 99
5.11.4.8. Preparation of L/C by Banker 100
5.11.4.9. Accounting Treatment in Case of L/C Opening 101
5.11.4.10. Amendment of L/C 102
5.11.4.11. Adding Confirmation 103
5.11.4.12. Submission of Necessary Documents by Exporter 103
5.11.4.12.1. The Negotiation Process of Import L/C 104
5.11.4.12.2. The Documents Sent to the Issuing Bank 105
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xiii of xviii
5.11.4.13. Making the Payment of Foreign Bill through the 105
5.11.4.14. Scrutiny of the Documents 106
5.11.4.15. Lodgment 109
5.11.4.16. Retirement 110
5.11.4.17. Payment of Imports 111
5.11.4.18. Post-Import Financing 112
5.12. Export Section 113
5.12.1. Back-to-Back L/C 114
5.12.1.1. Payment for Back-to-Back L/C 115
5.12.1.2. Reporting to Bangladesh Bank 116
5.12.2. Export L/C 116
5.12.2.1. Export Procedure in Flow Chart 116
5.12.3. Test Key Arrangement 118
5.13. Foreign Remittance Section 118
5.13.1. Remittance Position of MBL, Engineers Institution Branch at a Glance 119
5.13.2. Foreign Inward Remittance 121
5.13.2.1. Telegraphic Transfer (TT) 123
5.13.2.2. Foreign Demand Draft (FDD) 123
5.13.2.2.1. Purchase 124
5.13.2.2.2. Sending for collection 125
5.13.2.3. Endorsement of US$ in Passport 125
CHAPTER-SIX: ANALYSIS
6.1. Qualitative Analysis 127
6.1.1. SWOT Analysis 127
6.1.1.1. Strength 127
6.1.1.2. Weaknesses 128
6.1.1.3. Opportunities 129
6.1.1.4. Threats 130
6.2. Quantitative Analysis 131
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xiv of xviii
CHAPTER-SEVEN: FINDINGS, RECOMMENDATION & CONCLUSION
Findings 137
Recommendation 138
Conclusion 139
BIBLIOGRAPHY 140
APPENDIX 141
LIST OF FIGURESLIST OF FIGURES PARTICULARS PAGE NO
Fig 1: Organization Structure of MBL 15
Fig 2: Management Hierarchy of MBL 17
Fig 3: Accounts of Mercantile Bank Ltd. 46
Fig 4: Account Opening Procedure 56
Fig 5: Remittance 59
Fig 6: Flow Chart of Pay Order 60
Fig 7: Payment procedure of Pay Order 61
Fig 8: Flow Chart of Demand Draft 63
Fig 9: Flow Chart of Telegraphic Transfer 66
Fig 10: The settlement process when cheques drawn on another branch 69
Fig 11: The settlement process when cheques drawn on another bank 69
Fig 12: The collection process if the bill is drawn on a branch of MBL 69
Fig 13: The collection process if the bill is drawn on another Bank and there is a
branch of MBL70
Fig 14: The collection process if the bill is drawn on another Bank but there is no
branch of MBL70
Fig 15: Settlement process of Inward Clearing Bills 72
Fig 16: Documentary Credit Agreement 80
Fig 17: Bank as a party of Documentary Credit 86
Fig 18: Foreign Exchange Department of Mercantile Bank Limited 88
Fig 19: Foreign Exchange Department of MBL, Engineers Institution Branch 88
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xv of xviii
Fig 20: Types of Importers 89
Fig 21: L/C confirming process 103
Fig 22: Negotiation process of Import L/C 104
Fig 23: Sending of documents 105
Fig 24: The Letter of Credit Cycle 106
Fig 25: Flow Chart for back-to-back L/C 115
Fig 26: Foreign Remittance Section of MBL 118
LIST OF TABLESLIST OF TABLES
PARTICULARS PAGE NO
Table 1: Capital Adequacy (BDT in million) 18
Table 2: Funding Structure (BDT in million) 19
Table 3: Deposit Mix (BDT in million) 20
Table 4: Sector-wise Loans & Advances Mix (BDT in million) 21
Table 5: Earning Base in Assets (BDT in million) 23
Table 6: Asset Portfolio (BDT in million) 23
Table 7: Operating Profit (BDT in million) 24
Table 8: Total Income (BDT in million) 25
Table 9: Interest Income (BDT in million) 25
Table 10: Interest Expenses (BDT in million) 26
Table 11: Non-Interest Income (BDT in million) 28
Table 12: Total Expenses (BDT in million) 29
Table 13: Non-Interest Expenses (BDT in million) 30
Table 14: Financial Highlights (BDT in million) 36
Table 15: The growth of MBL, Engineers Institution Branch (in Lakh Tk.) 42
Table 16: Account details of Mercantile Bank Ltd. 47
Table 17: Mode of Double Benefit Deposit Scheme 49
Table 18: Benefits of Family Maintenance Deposit 50
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xvi of xviii
Table 19: Benefits of Monthly Savings Scheme (Amount in TK.) 51
Table 20: Benefits of Quarterly Benefit Deposit Scheme 52
Table 21: Benefits of 1.5 Times Benefit Deposit Scheme 53
Table 22: Documents needed for each Account 55
Table 23: Commission and VAT on Pay Order 61
Table 24: Charges for Online Banking 68
Table 25: Top 10 Importer in MBL, Engineers Institution Branch 90
Table 26: Top Importing countries of MBL, Engineers Institution Branch 90
Table 27: L/C position from 2004 to 2008 91
Table 28: L/C position from 01.01.2009 to 31.03.2009 92
Table 29: Yearly Remittance Position 119
Table 30: Yearly Remittance position proportionately 120
Table 31: Return on Assets (ROA) 131
Table 32: Return on Equity (ROE) 132
Table 33: Net Interest Margin 132
Table 34: Net Non-interest Margin 134
Table 35: Net Operating Margin 134
LIST OF GRAPHSLIST OF GRAPHS
PARTICULARS PAGE NO
Graph 1: Funding Structure 19
Graph 2: Deposit Mix 20
Graph 3: Sector-wise Loans & Advances Mix 21
Graph 4: Asset Portfolio 23
Graph 5: Total Income 25
Graph 6: Interest Income 26
Graph 7: Interest Expenses 27
Graph 8: Non-Interest Income 28
Graph 9: Total Expenses 29
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xvii of xviii
Graph 10: Non-Interest Expenses 30
Graph 11: The growth of MBL, Engineers Institution Branch 43
Graph 12: L/C position from 2004 to 2008 91
Graph 13: L/C Amount (Tk.) from 2004 to 2008 92
Graph 14: Income (Tk.) from L/C from 2004 to 2008 92
Graph 15: L/C position of 2009 93
Graph 16: Yearly Remittance Position 119
Graph 17: Proportion of Remittance 120
Graph 18: Amount of Inward Remittance 121
Graph 19: Return on Assets (ROA) 131
Graph 20: Return on Equity (ROE) 132
Graph 21: Net Interest Margin 133
Graph 22: Net Non-interest Margin 134
Graph 23: Net Operating Margin 135
General Banking & Foreign Exchange Div. of Mercantile Bank Ltd. /Page xviii of xviii
