UNITED COMMERCIAL BANK LIMITED AT A

GLANCE:
United Commercial Bank Limited (UCBL) started its operation in the mid 1983 with an
Authorized Capital of Tk. 1000 Million and Paid up Capital of Tk. 100 Million (raised to
Tk. 299 Million in 2009); sponsored by some dynamic and reputed entrepreneurs from
various fields of economic activities such as shipping, oil, finance, garments, textiles and
insurance etc and eminent industrialist from the country and also participated by the
Government. It is a full licensed scheduled Commercial Bank set up in the private sector
in pursuance of the policy of the Government to liberalize Banking & Financial services
it has been able to establish one of the largest networks of 107 branches as on 31.12.2010
among the first generation banks in the private sector.
The Chairman of the Board of Director Mr. Jahangir Alam is a renowned businessman
besides being an eminent personality of the country.
The Bank has in its Management a combination of highly skilled and eminent bankers of
the country of varied experience and expertise successfully led by M. Shahjahan
Bhuiyan, a dynamic banker, as its Managing Director and well educated energetic and
dedicated officers working with missionary zeal for the growth and progress of the
institution.
With its firm commitment to the economic development of the country, the Bank has
already made a distinct mark in the realm of Private Sector Banking through personalized
service, innovative practices, dynamic approach and efficient Management. The Bank,
aiming to play a leading role in the economic activities of the country, is firmly engaged
in the development of trade, commerce and industry thorough a creative credit policy.

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Strategies, Goals and Objectives of UCBL:

Strategies:

Synchronized and steady growth of the bank.

Utilize all available resources to develop various plans, policies and procedures in
each of the objective and goal areas.

Implement plan policies and procedures

Utilize a team of professional employees

Search for a total customized solution of I.T for the purpose of full automation
step.

Goals:

Develop a realistic deposit mobilization plan.

Develop appropriate lending risk assessment system.

Develop capital plan

Develop a system to make a good advance

Develop a recruitment, compensation, training and orientation plan.

Developing a plan for offering better customer services.

Develop appropriate management structure, systems, procedures and approaches.

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Develop scientific Management Information System to monitor banks activities.

Objectives:
United Commercial Bank Limited aims at excellence and is committed to explore a new
horizon of banking and provide a wide range of quality product ad service.
It is a bank for common people including businessmen and professionals. It intends to
serve with quality at a price competitive to anyone in the financial market. It would
constantly keep on exploring the needs of the clients.
So the United Commercial Bank Limited shall also develop a youthful; and exuberant
management team-technologically sound and rich in experience. They would work hand
with zeal and enthusiasm to achieve the objectives of the bank in the new millennium.
Its business objectives are:

Build up a low cost fund base

Make sound loan and investment

Make capital adequacy recruitment at all the time

Ensure 100% recovery of all advances

Ensure a satisfied work force

Focus on fee based income

Adopt a appropriate management technology

Install a scientific MIS to monitor bank activities.

Current Position:

3|Page

Capital:
During the year 2009 authorized capital of the bank remained unchanged at TK. 1000
millions and the paid up capital stood at around TK. 299 million. On the other hand the
reserve fund of the bank increased by 16.33 percent to TK. 2,197 million in the year 2009
as against TK. 1,889 million in the previous year.
Number of Branches:
Presently the number of branches stands 107 covering almost all the important places of
the country. The numbers of authorized dealer branches are 24.
Investment:
At the close of 2009, total investment of the bank stood at TK. 9,346 million as against
TK. 7,201 million at the year 2008. However, dividend amounting to TK. 8 million has
been received from different companies/ institutions against investment in shares during
the year 2009.

Division of UCBL:
All policy formulation and subsequent execution are done in the Head office. It
comprises of nine major divisions namely Credit division, International Division, Central
Account Division, Human Resource Division, Information Technology Division, Training
Division, Research and Development Division, Audit and Compliance Division.

PRODUCTS & SERVICES

UCB Multi Millionaire
UCB Money Maximizer
UCB Earning Plus
UCB DPS Plus
Western Union Money Transfer
SMS Banking Service
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Online Service
Credit Card
One Stop Service
Time Deposit Scheme
Monthly Savings Scheme
Deposit Insurance Scheme
Inward & Outward Remittances
Travelers Cheques
Import Finance
Export Finance
Working Capital Finance
Loan Syndication
Underwriting and Bridge Financing
Trade Finance
Industrial Finance
Foreign Currency Deposit A/C
NFCD ( Non Resident Foreign Currency Deposit Account )
RFCD ( Resident Foreign Currency Deposit Account )
Consumer Credit Scheme
Locker Service

Financial Statement Analysis using ratios

Liquidity Ratios

1
Cash Position
Indicator

2004

2005

2006

2007

2008

2009

0.074

0.076

0.073

0.082

0.073

0.077

5|Page

Cash Position Indicator

0.085
0.080
0.075
0.070
0.065
2004 2005 2006 2007 2008 2009

Cash Position
Indicator

In 2004 the cash position

indicator ratio was 7.4%, which means for each BDT 100 of total asset the bank had
BDT 7.4 as a cash and deposit due form depositary institutions. The cash flow was almost
steady in all the years for UCBL, with a higher pick of cash flow in 2007.

2
Liquid Security
Indicator

2004

2005

2006

2007

2008

2009

0.116

0.096

0.156

0.098

0.095

0.087

Liquid Security Indicator

0.200
0.150

Liquid Security
Indicator

0.100
0.050
0.000
2004

2005

2006

2007

2008

2009

The trend shows

the fluctuating affect of the most marketable securities UCBL is holding, with the overall
size of the asset portfolio. In 2004 liquid security indicator ratio was 11.6 % which
means for each BDT 100 the bank is holding BDT 11.6 government securities. Between
up and down it ends up in steady downfall in 2009 by keeping 8.7% of government
securities.
3
Capacity Ratio

2004
0.583

2005
0.572

2006
0.550

2007
0.770

2008
0.686

2009
0.682

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Capacity Ratio
1.000
0.800
0.600
0.400
0.200
0.000
2004 2005 2006 2007 2008 2009

Capacity Ratio

Capacity ratio, which

is basically a negative liquidity indicator. The trend shows a fluctuating trend,
initially going down and a sharp rise and down again. In 2004 UCBLs
Capacity ratio was 58.3%, which means for each BDT 100 City Bank made BDT 58.3 as
a loan, which is very much illiquid. Moreover in 2007 the capacity ratio increased
drastically to 77% and lowering in later years but still was very high.

4
Cost Deposit
Ratio

2004

2005

2006

2007

2008

2009

0.430

0.440

0.516

0.527

0.580

0.610

Cost Deposit Ratio

0.800
0.600
0.400
0.200
0.000
2004 2005 2006 2007 2008 2009

Cost Deposit Ratio

The trend shows an

increasing core deposits for the bank, which is a good sign for the bank. In 2004 the
core deposit ratio was 43%, which means for each BDT 100 of asset UCB had
BDT 43 as core deposit. The higher this ratio is the better the liquidity position has. The
trend shows the high upward movement.
5
Deposit
Composition
Ratio

2004

2005

2006

2007

2008

2009

1.000

0.939

0.659

0.601

0.449

0.408

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Deposit Composition Ratio

1.200
1.000
0.800

Deposit
Composition Ratio

0.600
0.400
0.200
0.000
2004 2005 2006 2007 2008 2009

This ratio measures how

stable funding bases the bank posses. The demand deposits are subject to immediate
withdrawal while time deposits have fixed maturities with penalties for early
withdrawal. Therefore, a decline in this ratio suggests higher liquidity. The trend shows a
down ward slope of UCBL of deposit composition ratio, which is a very good sign for
the bank
as we know a decline suggests greater deposit stability and a lesser need for liquidity.

6
Hot Money Ratio

2004
1.963

2005
1.978

2006
2.295

2007
2.303

2008
2.763

2009
2.687

Hot Money Ratio

3.000
2.500
2.000
1.500
1.000
0.500
0.000
2004

Hot Money Ratio

2005

2006

2007

2008

2009

Hot money
ratio suggests the coverage of volatile liabilities by short-term assets. In 2004 the
hot money ratio was 1.963 times. The higher this ratio is the lower risk and higher the
Liquidity position has. In 2005, its hot money ratio slightly increased to 1.978
times and continues its trends to reach to 2.763 times in 2008, but slightly
decreased to 2.687 times in 2009. Overall, the hot money ratio of UCBL increased over
the years.
7

2004

2005

2006

2007

2008

2009

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Tangible Net Worth

Plus Term
Liabilities/ Net Fixed
Assets

41.67
3

51.88
9

76.32
0

70.00
5

42.00
9

46.64
1

ngible Net Worth Plus Term Liabilities/ Net Fixed Assets

100.000
Tangible Net Worth
Plus Term Liabilities/
Net Fixed Assets

80.000
60.000
40.000
20.000
0.000
2004 2005 2006 2007 2008 2009

This ratio shows the

extent to which the net fixed assets are financed by the owned funds and the term
liabilities. The trend shows a fluctuating trend, initially going up from 2004 to 2006
and then fall down until 2008. In 2004 UCBLs capacity ratio was 41.67%, which means
UCBL financed BDT 41.67 by the each BDT 100 of owned funds and term liabilities. In
2006 the ratio reached top to 76.32%.
8

2004
1.033

Liquid Assets to Total

Deposits

2005
0.980

2006
0.947

2007
0.901

2008
0.872

2009
0.808

Liquid Assets to Total Deposits

1.200
1.000
0.800
0.600
0.400
0.200
0.000
2004 2005 2006 2007 2008 2009

Liquid Assets to Total

Deposits

The ratio as
depicted in the above illustration has a declining trend. In the year 2004 the ratio reached
its peak mainly because a high proportion of deposits were loaned out and for
Preventive reasons the bank had to keep higher levels of liquidity. After year 2004, the
ratio went down because an amount loaned out in proportion to the deposits were went
down and needed less liquidity. Overall, from 2004 to 2009, this ratio is fall down.

2004

2005

2006

2007

2008

2009

9|Page

0.420

Loan commitment
ratio

0.395

0.396

0.482

0.279

0.244

Loan commitment ratio

0.600
0.500
0.400
0.300
0.200
0.100
0.000
2004

Loan commitment
ratio

2005

2006

2007

2008

2009

Loan
commitment ratio is another types of liquidity indicator which measures the
volume of promises a lender has made to its customers to provide credit up to a
prescribed amount over a given period. Higher this ratio implies that greater future
liquidity needs. So, for UCBL this is declined till 2006 but it grow up in 2007 and again
fell down till 2009. Overall, this ratio decreased which is better for the bank.

Leverage Ratios
1

Total Debt To Total

Asset

2004
0.950

2005
0.940

2006
0.940

2007
0.937

2008
0.932

2009
0.937

Total Debt To Total Asset

0.955
0.950
0.945
0.940
0.935
0.930
0.925
0.920
2004

Total Debt To Total

Asset

2005

2006

2007

2008

2009

The trend of
UCBL is slightly moving downward. In 2004 the debt to total assets ratio was 95 %
which means for BDT 100 of total asset the bank holding BDT 95 as debt.
2

Debt Equity

2004
19.16
2

2005
15.60
8

2006
15.60
0

2007
14.99
5

2008
13.77
9

2009
14.85
9

10 | P a g e

Ratio

Debt Equity Ratio

25.000
20.000
Debt Equity Ratio

15.000
10.000
5.000
0.000
2004 2005 2006 2007 2008 2009

The trend for

UCBL is decreasing steadily. In 2004 the debt to equity ratio was 19.16 % which means
UCBL held 19.16 times of total equity as a long term loan. In following years it
decreased and ends up in 2009 by 14.859 times.

2004
1.882

Interest Coverage
Ratio

2005
1.964

2006
1.755

2007
1.740

2008
1.655

2009
1.719

Interest Coverage Ratio

2.000
1.900

Interest Coverage
Ratio

1.800
1.700
1.600
1.500
2004

2005

2006

2007

2008

2009

The trend
shows a gradual down ward fall of interest coverage ratio of UCBL. In 2004 the
ratio was 1.882 times, which means UCBL could cover their interest expenses by
1.882 times with their current level of EBIT.

Activity (Efficiency) Ratio

1

2004

2005

2006

2007

2008

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2009

Operating Efficiency
Ratio

0.458

0.422

0.442

0.393

0.404

0.398

Operating Efficiency Ratio

0.480
0.460
0.440
0.420
0.400
0.380
0.360
2004 2005 2006 2007 2008 2009

Operating Efficiency
Ratio

The trend
shows slight fluctuating in the beginning but steady trend in last 3 years. In 2004 the
ratio was 45.8% which for each BDT100 the bank incur BDT 45.8 as an expense.
Moreover in the following years Bank did slightly strong expanse management,
therefore in 2009 it had operating efficiency 39.8%.

Employee
Productivity
Ratio

2004
841558.
667

2005
1022380.
235

2006
1167262.
327

2007
1596769.
834

2008
1792950.
279

2009
2070197.
215

Employee Productivity Ratio

2500000.000
2000000.000
1500000.000
1000000.000
500000.000
0.000
20
04
20
05
20
06
20
07
20
08
20
09

Employee Productivity
Ratio

The trend shows

an increasing line for employee productivity ratio for UCBL, which is a very
good sign for the bank. In 2004 each employee generated operating income of TK.
841558.667 on average. The ratio increased because the employee productivity
increased during the year operating income almost doubled whereas number of
employee didnt increase in such proportion.
3

Tax management
efficiency

2004
0.196

2005
0.362

2006
0.441

2007
0.422

2008
0.312

2009
0.299

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Tax management efficiency

0.500
0.400

Tax management
efficiency

0.300
0.200
0.100
0.000
2004

2005

2006

2007

2008

2009

The graph
shows a gradual increase and decreasing trend. In 2004, UCBL pre tax income is 0.196
times higher than after tax income. Till 2006 the bank had good trend and fall gradually
in later years.

Expense management
efficiency

2004
0.029

2005
0.029

2006
0.027

2007
0.026

2008
0.026

2009
0.023

Expense management efficiency

0.040
Expense
management
efficiency

0.030
0.020
0.010
0.000
2004

2005

2006

2007

2008

2009

The trend
shows a downward line, which is very good for management showing as managing the
expenses smartly. Bank has managed its expenses very nicely over times. Initially
in 2004 it had 2.9% of operating expenses over total assets. However at the end of 2009
they smartly declined that ratio into 2.3%.
5

Asset management
efficiency

2004
0.063

2005
0.069

2006
0.061

2007
0.066

2008
0.063

2009
0.057

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Asset management efficiency

0.080
0.070
0.060
0.050
0.040
0.030
0.020
0.010
0.000
2004 2005 2006 2007 2008 2009

Asset management
efficiency

In 2004 bank
managed 6.3% operating revenue over its total asset. Their performance had been almost
stable in following years. There for it had 5.7% asset management ratio in 2009.

Funds management
efficiency

2004
20.162

2005
16.608

2006
16.600

2007
15.995

2008
14.779

2009
15.859

Funds management efficiency

25.000
20.000

Funds management
efficiency

15.000
10.000
5.000
0.000
2004 2005 2006 2007 2008 2009

In 2004 bank
had total asset 20.162 times higher than total equity. That means, at that time bank had
huge debt. However in following year it decreased and came into 15.859 times in
2009.
7

Rate Paid on
Funds

2004
0.053

2005
0.052

2006
0.054

2007
0.063

2008
0.072

2009
0.061

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Rate Paid on Funds

0.080
0.060

Rate Paid on Funds

0.040
0.020
0.000
2004 2005 2006 2007 2008 2009

This ratio
increases from 2004 to 2008 and then it decreased in 2009. Thus it can be said that
though total interest expense in relation to earning assets has increased till 2008
but it decreased in 2009, thus it can be concluded that in 2009 UCBL was more efficient
than in other years.

2004
0.450

Efficiency
Ratio

2005
0.372

2006
0.402

2007
0.358

2008
0.372

2009
0.360

Efficiency Ratio
0.500
0.400
0.300
0.200
0.100
0.000
2004

Efficiency Ratio

2005

2006

2007

2008

2009

It has been
found that this ratio has decreased from 45% in 2004 to 36% in 2009. Thus it can be
concluded that when this ratio was lower, change in the total noninterest expense has
been proportionately higher when in compared to the net interest and non interest income,
thus it can be said that with the passage of time this bank became inefficient and thus was
able to raise their non interest expense.

Profitability Ratios
15 | P a g e

Return on Equity
(ROE)

2004

2005

2006

2007

2008

13.545

24.040

25.053

27.130

17.443

2009
16.35
1

Return on Equity (ROE)

30.000
25.000
20.000
15.000
10.000
5.000
0.000
2004

Return on Equity
(ROE)

2005

2006

2007

2008

2009

In 2004 the
share holders of UCBL has earned BDT 13.54 per BDT 100 worth of their investments.
In 2007 shareholder earning was the highest among these six years of analysis
which is 27.13. This ratio increased till year 2007 but after year 2007 it declined
drastically.

2004
0.672

Return on Assets
(ROA)

2005
1.448

2006
1.509

2007
1.696

2008
1.180

2009
1.031

Return on Assets (ROA)

2.000
Return on Assets
(ROA)

1.500
1.000
0.500
0.000
2004

2005

2006

2007

2008

2009

In 2004 UCBL
has made a net profit of BDT 0.672 by utilizing BDT 100 worth of Assets. In 2005 return
on asset was increased till year 2007 due to increases in net income after tax. After year
2007 return on asset was sharply decreased. But overall, this ratio increased.

2004

2005

2006

2007

2008

16 | P a g e

2009

Net Interest Margin

(NIM)

2.992

3.848

3.339

3.244

3.100

2.892

Net Interest Margin (NIM)

5.000
4.000

Net Interest Margin

(NIM)

3.000
2.000
1.000
0.000
2004 2005 2006 2007 2008 2009

It can be said
that in 2004 the bank made a net interest income of BDT 2.992 by utilizing BDT 100
worth of Assets. This ratio has shown a steady decrease except in 2005 and became
2.892% in 2009. Thus it can be said that with the passage of time the bank has earned a
higher net interest income which is actually bad for the bank.

2004
0.374

Net Non interest

Margin

2005
0.124

2006
0.071

2007
0.800

2008
0.681

2009
0.562

Net Non interest Margin

1.000
0.800
0.600
0.400
0.200
0.000
2004

Net Non interest

Margin

2005

2006

2007

2008

2009

Initially UCBL
had net interest margin of 0.374 times of its total asset. Afterward, this ratio decreased till
year 2006 and then increased which is highest in six years. But again it declined till year
2009.
5

Net Operating
Margin

2004
3.421

2005
4.000

2006
3.426

2007
4.021

2008
3.781

2009
3.454

17 | P a g e

Net Operating Margin

4.500

Net Operating
Margin

4.000
3.500
3.000
2004

2005

2006

2007

2008

2009

In 2004 UCBL
made a net operating profit of BDT 3.42 by utilizing BDT 100 worth of assets. Over the
year UCBL this ratio was fluctuating and it remained same to BDT 3.42 by
utilizing BDT 100 worth of assets in 2009.

2004

2005

2006

2007

2008

Earnings per Share

(EPS)

73.15

181.22

252.76

272.43

255.59

2009
311.7
9

Earnings per Share (EPS)

400.00
300.00
200.00
100.00
0.00
2004 2005 2006 2007 2008 2009

Earnings per Share

(EPS)

In 2004 the
common stockholder earning per share was BDT 73.15. In 2005 the common
stockholder earning per share was BDT 181.22. In 2006, 2007 and 2008 EPS was BDT
252.76, BDT 272.43 and BDT 255.59 respectively. The EPS has increased because net
income after tax increased and also the number of common stock outstanding
increased significantly. In 2009 earnings per share rose sharply due to increase in net
income after tax and EPS was BDT 311.79.
7

2004

2005

2006

2007

2008

2009

18 | P a g e

0.04

Earnings
Spread

0.04

0.02

0.01

0.01

0.02

Earnings Spread
0.05
0.04
0.03
0.02
0.01
0.00
2004

Earnings Spread

2005

2006

2007

2008

2009

It has been
found that with the passage of time this ratio has declined in trends where it was
found that this ratio has decreased till 2008 and it 2007 it became least and reached 1%
and then it increased and became 2% in 2009. So, it can be said that total interest
income in relation to total earning asset has decreased in a higher rate than total
interest expense in relation to total interest bearing liability, which is not a good
scenario for this bank.

2004
0.11

Net Profit
Margin

2005
0.21

2006
0.25

2007
0.26

2008
0.19

2009
0.18

Net Profit Margin

0.30
0.25
0.20
0.15
0.10
0.05
0.00
2004

Net Profit Margin

2005

2006

2007

2008

2009

UCBL has been

able to keep an increasing net-profit margin over the year. The profit margin reached
its peak on the year 2007 which is 26%. The lowest profit margin was on the year
2004, which is because of the increase in non-operating expenses as mentioned earlier.
But the banks successfully raised its margin in the following year and reaching as high as
18% on the year 2009. This suggests the bank management has been fruitfully controlled
the expenses of the bank.
19 | P a g e

Overhead
Margin

2004

2005

2006

2007

2008

2009

0.03

0.03

0.03

0.03

0.03

0.02

Overhead Margin
0.04
0.03

Overhead Margin

0.02
0.01
0.00
2004 2005 2006 2007 2008 2009

From here it can be

said that with the passage of time this ratio has remained almost same for this bank,
which was 3% in 2004 and it became 2% in 2009. Thus it can be said that total
noninterest expense in relation to the total asset has remained almost constant thus it can
be presumed that noninterest expense for this bank has not changed a lot with the passage
of time.

Market Position Ratios

1

Price earnings ratio ( P/E

ratios)

2004
18.230

2005
6.291

2006
5.862

2007
17.314

2008
12.481

15.223

15.817

5.372

13.369

10.222

Price earnings ratio ( P/E ratios)

20.000
15.000
10.000

Price earnings ratio (

P/E ratios)

5.000
0.000
200420052006200720082009

In 2004 the price of

the share was BDT 18.23 for every BDT 1 it generates. In 2005 the ratio was almost same
and was BDT 6.29 per share but in 2006 and 2007 the ratio declined rose respectively
because price per share first increased and then decrease at a higher proportion
compare to increase in EPS. But in 2008 the ratio declined because price per share
20 | P a g e

decrease at a higher proportion compare to decrease in EPS and 2009 the ratio also
declined because the increase in EPS at a higher proportion compare to the increase in
price per share.

Market book
ratios

2004
2.469

2005
1.512

2006
1.469

2007
4.697

2008
2.177

2009
0.563

3.138

2.906

0.966

2.661

1.233

1.006

Market book ratios

5.000
4.000
3.000
2.000
1.000
0.000
20
04
20
05
20
06
20
07
20
08
20
09

Market book
ratios

In 2004 the investors are willing

pay BDT 2.46 for BDT 1 book value of share. In 2005 and 2006 the ratio decrease as
market share price decreased compare to book value of the share decreases. In 2007 the
ratio increase as market share price increased at a higher proportion where as the book
value of the share decreased. The ratio was found inconsistent. In 2009 it was BDT
0.56 for BDT 1 book value of share.
3

Dividend per
Share

2004
30.002

2005
50.003

2006
39.999

2007
47.885

2008
20.000

30.001

16.665

38.821

32.001

35.003

Dividend per Share

60.000
50.000
40.000
30.000
20.000
10.000
0.000
2004 2005 2006 2007 2008 2009

Dividend per Share

In 2004 and 2005

the shareholders got BDT 30 as dividend against each share they hold. In 2005 the
ratio increased to BDT 50 against each share they hold. But in 2007 and 2008 the ratio
was BDT 48 & 2008 the ratio was BDT 20 against each share they hold. The ratio
21 | P a g e

decreased mainly because the dividend paid increased compare to the total equity
share outstanding. In 2009 it was BDT 30 as dividend against each share they hold.
4

Dividend
Yield

2004
2.250

2005
4.386

2006
2.699

2007
1.015

2008
0.627

2009
2.796

4.528

2.975

12.103

5.582

11.007

10.510

Dividend Yield
5.000
4.000
3.000
2.000
1.000
0.000
2004

Dividend Yield

2005

2006

2007

2008

2009

The dividend
yield ratio shows the return that the share holder gets against each taka of investment. Its
a comparison of dividend and market share price. We find that UCBL dividend
yield was not consistent during these six years of analysis. In 2005 dividend yield of
UCBL was higher than rest of the five years. Overall this banks dividend yield decreased
from year 2004 to year 2009. It is very important ratio for the investor. So this decrease
discourage share holder to invest and cause the share price down.

SWOT Analysis

Strength
1. Effective manpower
2. Established Customer Base
3. Extensive Branch Network
4. Business Growth
5. Overseas Network
6. Healthy Liquidity
7. Strong Capital Base
8. Cooperative Sr. Mgt.
9. Strength & Support of the Board
10. Proactive Branches
11. Continued Stability
12. Loyal Client Relationship Developed by Br. Mgr.
22 | P a g e

13. Strong SME Client Base

14. Dedicated Workforce
15. Steady growth
16. High share value
17. Acceptability of change
18. Competitive compensation package
19. Employee Satisfaction
Weakness
1. Non-holding of AGMs
2. Lack of Own Establishment
3. Lack of Trained Manpower
4. Lack of back office support for Marketing
5. Lack of effective MIS
6. Lack of New Technology implementation
7. Lack of diversified products
8. Lack of specialized expertise
9. Lack of IT knowledge
10. Lack of positive publicity
11. Absence of ATM Network
12. Lack of Marketing & Research
13. Lack of FEX expertise
14. Inadequate Branch Decoration
15. Lack of Back-office support for Treasury
16. Lack of market & financial database
17. Lack of Job rotation
18. Lack of succession plan
19. Lack of performance mgt.
20. Lack of proper process to improve turn-around time
21. Absence of overseas Branches
23 | P a g e

22. Aging Manpower

Opportunities
1. Enter into geographic market to increase market share.
2. Expanding the Banks product line to meet a broader range of customers
needs.
3. Developing existing personnel skills to provide faster service.
4. Developing technological know-how to provide faster service.
5. Using the Internet & E-commerce technologies to provide most modern
Banking service.
6. Expanding the Banking service in abroad.
7. Acquisition of rival financial institution with attractive technological
expert.
8. Extend the Banks Brand Image to new geographic area.

Threats
1. Unhealthy competition in banking sector
2. Negative tendency of the borrowers regarding repayment of loans &
advances
3. Existing amount of classified loans & advances
4. Slow recovery rate of classified loans & advances
5. Adverse shift in foreign exchange rates and trade policies of foreign
government
6. Political unrest & instability in the country
7. Sudden changes in government policies related to trade & commerce
8. Some existing loosing branches

24 | P a g e

Background of the study

This report was done as a part of the requirement for successful completion of the
internship program. Exposure to the business world and acquiring practical knowledge
was the primary objective of this assignment. I was attached with United Commercial
Bank ltd. for my internship. The topic of this report is titled Foreign Exchange
Operation and Risk management by United Commercial Bank Ltd.

OBJECTIVES

Find out the Foreign Exchange scenario of Bangladesh.

Find out the Foreign Exchange business mechanisms (export, import and

remittance).
Go through the performance of Foreign Exchange business of UCBL, i.e. income,
export import trend etc.
25 | P a g e

Find out what UCBL do for the measurement of Foreign Exchange risk

To observe and analyze the foreign exchange risk management from front office
dealing room to back office.

RESEARCH METHODOLOGY
This study will be mainly based on descriptive issues. For the description part Face to
face interviews with the key personnel of United Commercial Bank will serve the
primary data for the study. The secondary data for the analysis part will be collected from
the annual reports of United Commercial Bank Ltd. available at the Dhaka Stock
Exchange Library. Bangladesh Bank Library will also be used for collecting necessary
monthly and annual reviews, statistical bulletin, economic trends, journals, circulars,
guidelines on Foreign Exchange activities of banks.
The secondary data will also collected from

Related literatures and books

Publications of Bangladesh

Internet publications.

Data Analysis Procedure:

On the descriptive part of the report data was mainly analyzed on the basis of the
Bangladesh Bank published standard on that regard to observe the trend of import, export
and remittance, time series analysis has been done. On performance analysis section of
this report, data were analyzed using the software Statistical Package for Social Science
(SPSS) version 12.0.

Limitation of the Study:

Banking is, in fact, a huge operation and it is quite impossible to cope up all the
activities during internship period. And for that reason, limitations prevail while
conducting the study. The basic limitations faced in preparing the report were:
26 | P a g e

Financial statement only depicts the figures/numbers and their break down but
do not clarifies the rationale in most of the time. Interviewing the officials on
specific disclosure items sometimes was not fruitful because of generalized
answers.
Number of year taken as a sample is limited to come to any specific conclusion
out of this study.
Time constraint led to get narrower outcomes.

Foreign Exchange
Foreign Exchange means exchange foreign currency between two countries. Foreign
trade can be easily defined as a business activity, which transcends national boundaries.
This trade among various countries causes for close linkage between the parties dealing
in trade. The bank which provides such transactions is referred to as rendering
international banking operations. International trade demands a flow of goods from seller
to buyer and of payment from buyer to seller. And this flow of goods and payment are
done through letter of credit (L/C).Currency is the most important term in Foreign
Exchange business in todays modern world economy.
The term Foreign Exchange has three principal meanings. Firstly, it is term used
referring to the currencies if other countries in terms of any single one currency. To a
Bangladeshi, Dollar, Pound sterling etc. are foreign currencies and as such foreign
27 | P a g e

exchange. Secondly, the term also commonly refer to some instruments used in
international trade, such as bill of exchange, Drafts, Travel Cheque and other means of
international remittance. Thirdly, the terms Foreign Exchange is also quite often referred
to the balance in foreign currencies held by a country.
Foreign exchange business comprises three areas: export, import and remittance. H.E.
Evitt defined Foreign Exchange as the means and methods by which rights to wealth
expressed in terms of the currency of one country are converted into rights to wealth in
terms of the currency of another country. Foreign Exchange Department is international
department of the bank. It deals with globally and facilitates international trade through
its various modes of services. It bridges between importers and exporters. Bangladesh
Bank issues license to scheduled banks to deal with foreign exchange. These banks are
known as Authorized Dealers. If the branch is authorized dealer in foreign exchange
market, it can remit foreign exchange from local country to foreign country. This
department mainly deals with foreign currency. This is why this department is called
foreign exchange department.

Operations of Foreign Exchange Department:

Exports :-

Import :-

Pre-shipment advance,

Opening of Letter of Credit(L/C )

Purchase of foreign bills.

Advance Bill

Negotiating of foreign bills.

Export guarantees.

Advising/Confirming letters-letter of

Bill for collection

Import loan & Guarantees

credit.

Advance for deferred payment exports.

Advance against bills for collection

28 | P a g e

Remittances:

The most commonly used documents

Issue of DD, MT, TT etc.

in foreign Exchange:

Payment of DD, MT, TT etc.

Documentary Letter of credit.

Issue and enhancement of travelers

Bill of exchange.

cheque.

Bill of Lading.

Sale and enhancement of foreign

Commercial Invoice.

currency notes.

Certificate of origin of goods.

Non-resident accounts.

Inspection certificate.

Packing List.

Insurance Policy.

Pro-forma Invoice/Indent.

Master receipt.

GSP Certificate

Local Regulations for foreign exchange:

Foreign exchange transactions are being controlled by the following rules & regulations:
Foreign Exchange regulation act 1947.
Bangladesh Bank issues foreign exchange circular from time to time to control the
export, import & remittance business.
Ministries of commerce issues export & import policy giving basic formalities for
import & export business.
Sometime CCI&E issues public notice for any kind of change in

foreign exchange

transaction. Bangladesh bank published two volumes in 1996. This is compilation of

the instructions to be followed by the authorized dealers in transitions related to
foreign exchange.
29 | P a g e

Foreign Exchange Market:

Foreign Exchange Market allows currencies to be exchanged to facilitate international
trade and financial transactions. Evolution of the market in Bangladesh is closely linked
with the exchange rate regime of the country. It had virtually no foreign exchange market
up to 1993 Bangladesh Bank, as agent of the government, was the sole purveyor of
foreign currency among users. It tried to equilibrate the demand for and supply of foreign
exchange at an officially determined exchange rate, which, however, ceased to exist with
introduction of current account convertibility. Immediately after liberation, the
Bangladesh currency taka was pegged with pound sterling but was brought at par with the
Indian rupee. Within a short time, the value of taka experienced a rapid decline against
foreign currencies and in May 1975, it was substantially devalued. In 1976, Bangladesh
adopted a regime of managed float, which continued up to August 1979, when a
currency-weighted basket method of exchange rate was introduced. The exchange rate
management policy was again replaced in 1983 by the trade-weighted basket method and
US the dollar was chosen as intervention currency. By this time a secondary exchange
market (SEM) was allowed to grow parallel to the official exchange rate. This gave rise
to a kerb market.
Up to 1990, multiple exchange rates were allowed under different names of export
benefit schemes such as, Export Bonus Scheme, XPL, XPB, EFAS, IECS, and Home
Remittances Scheme. This led to a wide divergence between the official rate and the
SEM rate. The situation also gradually gave rise to a number of conflicting regulations,
poor risk management, and various types of implicit or explicit government guarantees to
the users of foreign exchange. This resulted in a number of macro-economic imbalances
prompting the government to adjust the official rate in phases and to liquidate its
difference with the rate at SEM. The two rates were finally unified in January 1992. The
first step towards currency convertibility was taken on 17 July 1993 and this marked the
beginning of a relatively open foreign exchange market in the country. From May 31,
2003, the Bangladesh Taka exchange rate was declared floating and the band of the
30 | P a g e

central banks US Dollar buying selling rate were withdrawn. There are 32 scheduled
banks operating as authorized dealers in the inter-bank foreign exchange market are not
permitted to run a position beyond certain limits. In the event of speculation on an
appreciation of the value, an authorized dealer may buy more foreign currencies than it
needs, but at the end of the day it must maintain its limit by selling excess currencies
either in the inter-bank market or to customers. Authorized dealers maintain clearing
accounts with the Bangladesh Bank in dollar, pound sterling, mark and yen to settle their
mutual claims. If there any excess foreign exchange holdings exist after these
transactions, it is obligatory for them to sell it to the Bangladesh Bank. In case of shortfall
of the limit, authorized dealers have to cover it either through purchase from the market
or from the Bangladesh Bank.
The average monthly transactions of foreign exchange in the inter-bank market accounted
for $23.46 million in 1991-92 and crossed the $1 billion mark in 1998-99. The average
monthly turnover for the six months between July and December 2000 was $1.5 billion.
The phenomenal growth of inter-bank transactions was due mainly to relaxation of
exchange control regulations and expansion of the activities of the Bangladesh Foreign
Exchange Dealers Association (BAFEDA) formed on 12 August 1993.

Administration of Foreign Exchange Operation by

United Commercial Bank:
After the relaxation of economic barrier at 90s, firms become interested to do business
globally and banks play a key role in this aspect. For doing foreign exchange business in
favor of firm, bank follows some administrative framework and this chapter describes the
administration of foreign exchange business of United Commercial Bank Ltd. and the
role of Bangladesh Bank in foreign exchange business. United Commercial Bank has 84
Branches of which 19 are authorized by Bangladesh Bank through which bank can do
Foreign Trade business.

Foreign Exchange Business of UCBL

31 | P a g e

Export

Import

Remittanc e

RE: Annual report, 2009 to 2010

In the Table it is observed that the foreign exchange business of UCBL has been
increasing with the passage of time and import is the dominant sector of foreign exchange
business.

Foreign Correspondents of UCBL:

United Commercial Bank Ltd. has a wide range or link whole over the world for the
purpose of doing their foreign Exchange Business. The Bank at present, total number of
correspondents is 398.
UCBL has some tremendous Agreement with some world most important country like
1

U.S.A.

Canada

India

Japan

Brazil

Australia

United Kingdom

U.A.E.
32 | P a g e

China

10 Malaysia
Some world recognized Bank also support UCBL for doing their daily operational
activities with some world reputed bank1

HSBC

Citi bank

Standerd Charterd Bank Limited

Hanvit Bank Ltd

American Express Bank

National Bank of Pakistan

Bank of India

Islami Bank Of Bahrain

Muslim Commercial Bank Ltd.

The foreign correspondents of the bank play an important role for the maintaining the
currency collection of the bank & they also give a huge contribution on the remittance for
our country also.

FOREIGN EXCHANGE BUSINESS MECHANISM

Foreign exchange business comprises three areas: export, import and remittance. In order
to start a business with the bank involving foreign exchange, a prospective client has to
fulfill the following requirements:
Primary requirement
When a company wants to go for any export or import through a bank, he has to fulfill
some common criteria. Let us first consider the issue of import. For importing goods
through a bank, the importer has to meet the following criteria:

He has to be a customer of the bank; that means, he has to have a CD Account

with the bank.

In case of import, he must have an IRC (Import Registration Certificates).

33 | P a g e

He has to have experience of importing the same goods through the bank. If he
has no such experience, the goods that he wants to import have to be approved by
the Import policy.

The item of import has to have marketability.

He has to fix a right price for the goods to be imported.

If these requirements are fulfilled by the customer, the banker may proceed to prepare the
proposal for the customer. If the board approves the proposal, the authorized banker can
open L/C in favor of the customer by taking Pro-forma Invoice or Indent. In cases of
export, the customer has to fulfill the following requirements:

The exporter has to be a customer of the bank; that means, he has to have a CD
Account with the bank.

The exporter has to give an Export LC or Contact against which he can open L/C.

The goods to be exported must be approved by the Export Policy.

If the customer fulfills these criteria, the authorized banker can go for business with him.

Import Section
The Import Section helps business and other people to import goods. In international
environment, buyers and sellers are, in most of the cases, unknown to each other. So a
seller always seeks guarantee for the payment for his exported goods. It is the bank that
guarantees the seller the payment for the goods on behalf of the buyer. This guarantee is
called Letter of Credit. Thus the contract between the importer and the exporter is given a
legal shape by the banker by its Letter of Credit.

Legislations for Import:

Imports are foreign goods and services purchased by consumers, firms & Government
agencies in Bangladesh. To import, a person should be competent to be an importer.
34 | P a g e

According to Import and Export Control Act, 1950, the office of the Chief Controller of
Imports and Exports (CCI & E) provides the registration (IRC) to the importer. Import of
goods in Bangladesh is regulated by the

Ministry of Commerce in terms of the Import and Export Control Act, 1950;

Import Policy Order and the Public Notice issued by the Office of the Chief
Controller of Imports and Exports (CCI&E)

At present it is regulated by the Import Policy Order (1997-2002), which came

into effect on June14, 1998. The duration of the Import Policy Order was
extended up to June 2003 by an amendment. This policy directs certain import
procedures and administers the whole activity.

Facilities provided by import section

Opening of Letter of Credit

Facilitating payments to the exporter on behalf of the importer

Providing funded and non-funded credit facility

Issuing bank guarantee in foreign currency on behalf of foreign companies.

Import Mechanism
Letter of Credits can be opened with any of the Branch authorized to deal in foreign
exchange. Bank issuing L/Cs has to perform the following functions that are to be done in
Applicants approach to the bank

the different stages:

Figure -1

YES

Import mechanism
Application for letter of credit limit

If primary requirements
fulfilled

Taking necessary documents from the applicant

NO

Rejection

35 | P a g e

Lodgment

i. Applicants approach to the bank

The applicant of Letter of Credit must be a known customer to the bank. He has to
approach the bank to open a Letter of Credit for import of goods through an application
in the letterhead pad.
ii. Application for letter of credit limit
Before opening Letter of Credit, importer applies for Letter of Credit limit. To have an
import Letter of Credit limit, an importer submits an application to the import division of
United Commercial Bank furnishing the following information

Particulars of account maintained with the bank

Nature of business

Required amount of limit

Payment terms and conditions

Goods to be imported

Security offered

Repayment schedule

A credit officer scrutinizes this application and accordingly prepares a credit limit
proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The
committee, if satisfied, sanctions the limit and returns it to the branch. Thus the importer
36 | P a g e

is entitled to an approved credit limit. Once a party succeeds in opening an L/C through
United Commercial Bank Ltd, generally it requires no fresh credit limit on subsequent
occasions; however, further approval of the Head Office is required only if it proposes to
increase its credit limit.
iii. Taking necessary documents from the applicant
A bank takes the following documents with the application from the applicant while
opening a Letter of Credit:

Application for Letter of Credit duly signed by the importer

Letter of Credit Authorization Form (L/CAF)

Import Permit Form (IMP)

Valid Import Registration Certificate (IRC)

Indent or Pro-forma Invoice

Valid Membership Certificate

Documents evidencing payment of fee for current year for Import Registration

Certificate (IRC)

Declaration by the importer that he has paid income tax and submitted returns to the

Income tax authority for the last three years

Insurance Cover Note and Stamped Tax Insurance Policy

Note: For import of capital machinery and initial spares to set up a new industry, a Letter
of Credit can be opened without Import Registration Certificate (IRC). No waiver form
the Chief Controller of Imports and Exports is necessary for this purpose.

iv. Lodgment
After the scrutiny, the following steps are taken to process for lodgment of import
documents received form the negotiating bank. Lodgment means retirement of funds.
Usually payment is made within seven days after the documents have been received. If
the payment is deferred, the negotiating bank may claim interest for making delay.

37 | P a g e

However, after receiving the documents, the Motijheel Branch authority collects the
documents by contacting the importer.
Lodgment Constitutes the Followings:

Conversion of foreign currency amount of the bill and the charges of the foreign

bank

into Taka is done separately by applying Bills Collection (B.C.) selling rate

ruling on the date of lodgment. If the forward exchange was booked, the booked rate is
applied. Payment against Documents (PAD) is made by debiting PAD account and
crediting Head Office account. Full particulars of the documents are entered in the
prescribed PAD register allotting a consecutive serial number.
Documents are endorsed under seal and signature.
Inter-Brach credit advice (IBCA) is sent to the Head Office along with a prescribed
statement to provide them credit for the payment from their overseas account through
Prime Bank Limited General Account.

Head Office (International Division) in receipt of the IBCA and the statement will

respond the entry by debit to branch account (through United Commercial Bank
Limited General Account) and contra credit to NOSTRO Account of the negotiating
bank abroad. To arrange necessary fund for payment, a requisition is sent to the
International Department.
As the T.T & O.D rates are paid to the ID, the differences between these two rates
remain as exchange gain for the Branch.
As soon as the above formalities are completed the importers are served with PAD
bill intimations for retirement of concerned import document. A letter of intimation
(P.A.D. intimation) regarding receipt of the documents should be sent to the applicant
with a request to take delivery of the documents on settlement of all dues against it and
mentioning the maturity date of P.A.D.
The Import mechanism is completed with the lodgment because most of the import
operates by the United Commercial Bank Ltd. is cash letter of credit.

38 | P a g e

Export Section
Bangladesh exports a large quantity of goods and services to foreign households.
Creation of wealth in any country depends on the expansion of production in the export
sector in international trade. Most of the exporters who export through United
Commercial Bank are readymade garment exporters. They open export Letters of Credit
here to export their goods, which they open against the import Letters of Credit opened
by their foreign importers.

Export Policy
Export policies formulated by the Ministry of Commerce, GOB provide the overall
guideline and incentives for promotion of exports in Bangladesh. Export policies also set
out commodity-wise annual target. It has been decided to formulate these policies to
cover a five-year period to make them contemporaneous with the five-year plans and to
provide the policy regime. The export-oriented private sectors, through their
representative bodies and chambers, are consulted in the formulation of export policies
and are also represented in the various export promotion bodies set up by the
government. However, Exports forms Bangladesh are regulated by the following Acts,
Guidelines and authorities:

Bangladesh Bank by issuing guidelines and circulars in compliance with Foreign

Exchange Regulation Act-1974 under the authority given to it by the aforesaid
Act. It controls physical and payment aspects of exports.

Ministry of Commerce by issuing Export Policy Order under the authority given
to it by Export Import Act, 1950; It outlines the Governments export
development strategies and lays down the package of incentives to promote
exports. It also provides the list of items, which are either banned for export or
whose export is subject to fulfillment of certain conditions.

39 | P a g e

o Controller of Export and Import

o Export Promotion Bureau
o National Board of Revenue (Regarding duties and customs issues)
o Ministry of Finance by providing Financial Assistance (like cash
incentives, fixation of lower interest rate of export credit etc.)
Obtaining export registration certificate (ERC)

Securing the order

Export Mechanism

Obtaining EXP

The mechanism of letter of credit under export has been shown in Figure in the next
page. The description of the
mechanism is stated after the figure.
Signing of the contract

Receiving the letter of credit

Advising of L/C to the exporter

Exporter can import raw materials to complete the export order by L/C agains
Verification about the genuineness of the letter of credit

Realization of advising/conformation charges

Application for Opening Back to Back L/C

BTB
L/C

Export Mechanism

MECHANI
SM

Figure -2
Procuring the materials

Shipment of goods

Presentation of export documents for negotiation

BTB L/C Issue

Bill for acceptance

Payment made by the importer (Client of bank)

40 | P a g e
Examination of document

OK

i. Obtaining export registration certificate (ERC)

No exporter is allowed to export any commodity from Bangladesh unless he is registered
with the Chief Controller of Imports and Exports (CCI & E) and holds a valid Export
Registration Certificate (ERC). After applying to the CCI&E in the prescribed from along
with the necessary papers, concerned offices of the Chief Controller of Imports and
Exports issues ERC. Once registered, exporters are to get the ERC renewed every year.
For registration the following documents are required:
41 | P a g e

Nationality and Assets Certificate;

Memorandum and Article of Association and Certificate of Incorporation in case

of Limited Company;

Bank Certificate;

Income Tax Certificate;

Trade License etc.

ii. Securing the order

After getting ERC, the exporter may proceed to secure the export order. He can do this by
contracting the buyers directly through correspondence. In this purpose, exporters can get
help form Liaison Officer of foreign companies, buyers local agent, buying house, RPB,
Bangladesh Mission Abroad, Chamber of Commerce and other Trade Associations like
BGMEA, Chamber of Commerce of the Foreign Courtiers, Trade fair, searching
internet/websites. After communicating with buyer, exporter has to get contracted for
exportable item(s) form Bangladesh dealing commodity, quantity, price, shipment,
insurance and marks, inspections & arbitration.
iii. Obtaining EXP
After having the registration, the exporter applies to the Bank with the trade license, ERC
and the Certificate from the concerned Government Organization to get EXP. If the bank
is satisfied, an EXP is issued to the exporter.

iv. Signing of the contract

After communicating with buyer, the exporter has to get contract for exporting exportable
items from Bangladesh detailing commodity, quantity, price, shipment, insurance and
mark, inspection, arbitration etc.
v. Receiving the letter of credit

42 | P a g e

After getting contract for sale, exporter should ask the buyer for Letter of Credit clearly
stating terms and conditions of export and payment. The export is normally, executed
against letter of credit opened by buyers. Sometimes, exports are made on CAD, DP, and
DA on Consignment Sale basis without cover of letter of credit. On receipt of Letter of
Credit, it is checked thoroughly by advising bank.

vi. Verification about the genuineness of the letter of credit

In case of receipt of L/C other than form the issuing bank, the advising bank must
confirm the genuineness of the L/C .In all the cases, the bank must ascertain the
authenticity of the Letter of Credit received before acting upon that.
vii. Advising of L/C to the exporter
Having ascertained the genuineness of the Letter of Credit, the Advising bank takes the
following steps:

The concerned branch of the bank communicates with the beneficiary and advices
him about the Letter of Credit received.

The Branch enters full particulars of the Letter of Credit in the Letter Credit
Advising Register (Performance Register) allotting separate serial number for
each Letter of Credit

Particulars of all amendments (if any) are also to be recorded in the same Register
before advising the same to the beneficiary.

If the L/C contains any request by the opening bank, it has to be complied with
under intimation to the beneficiary; the approval of Head Office required for this.

Any amendment to a Letter of Credit received form Issuing Bank should be

advised to the beneficiary promptly. Only request of the Issuing bank for any
amendment should be accepted.

A suitable clause should be incorporated at the bottom of the L/C stating that the
L/C is subject to the provision of UCPDC- ICC Publication No. 5000.

43 | P a g e

viii. Realization of advising/conformation charges

For advising Letter of Credit to the beneficiary, the branch records Letter of Credit
advising commission at the prescribed rate from the beneficiary. If the beneficiary is the
banks client the charge is debited to his count under advice to him. If the beneficiary is
not the banks client; the Letter of Credit is delivered to him against cash payment. Letter
of Credit conforming charges should be recovered either form the beneficiary or the
opening bank depending on the terms of the Letter of Credit
ix. Procuring the materials
Before the export forms are lodged by the exporters with the customs/postal authorities,
they should get all the copies endorsed by United Commercial Bank. Before shipment,
exporter submits export form (EXP) with commercial invoice. Then Bank officer checks
it properly, if satisfied, certifies the export form. Without it exporter cannot make
shipment. The customer must declare all exports goods on the EXP issued by the
authorized dealers.
x. Shipment of goods
After certification of EXP forms issued by the AD, the next steps for the exporter to make
necessary arrangements for shipment of goods.
xi. Presentation of export documents for negotiation
After shipment, exporter submits the following documents to UCBL for Negotiation.

Beneficiarys declaration about the shipment of goods as per Letter of

Credit /Contract Terms

Bill of Exchange or Draft

Bill of Lading

Certificate of origin

Consular Invoice

Freight Certificates in case of FOB contract

G.S.P. certificate (if required)

44 | P a g e

Inspection Certificate

Insurance Policy/Certificate arranged to cover transit risk

Invoice

Packing List

Photo Sanitary Certificate.

Quality (Control) Certificate

Shipping Advice

xii. Examination of document

Banks deal with documents only, not with commodity. As the negotiating bank is giving
the value before repatriation of the export proceeds it is advisable to scrutinize and
examine each and every document with great care whether any discrepancy (ies) is
observed in the documents. The bankers are to ascertain that the documents are strictly as
per the terms of Letter of Credit.. Bank officers assigned for examining the export
documents may use a checklist for their convenience. After examining the document; the
bank sends them to the importers bank through DHL. Here the export procedure is
completed.

Back-to-back Letter of Credit

There is another area of export. In readymade garments sector the exporter has to import
the raw materials for completing the order. In that case the exporter may seek financing
facility from the bank. In this situation the bank finance the exporter by opening back to
back L/C against the Export L/C. There are four types of Back-to-Back L/Cs. These are

Back to Back Local (Within Bangladesh)

Back to Back EPZ

Back to Back EDF

Back to Back Foreign

45 | P a g e

Back-to-back L/C mechanism

i. Application for Opening Back to Back L/C
At first the exporter applies for opening BTB L/C against the Export L/C. He has to write
an application to the Branch Manager stating the amount of the L/C along with a L/C
form and Pro-forma Invoice.
ii. BTB L/C Issue
The authorized officer issues the L/C if the document is OK and sends the L/C to the
bank of the beneficiary.
iii. Bill sent by the beneficiarys bank for acceptance
When the exporter gets an L/C he sends his goods to the importer and the bill for the
export sends to the importer bank. If there is no discrepancy in the document then the
opening bank give acceptance and fix the due date of payment according to the tenor.
iv. Payment made by the Importer
When the bill is due, the bank pays it with the money that the importer receives from the
export. The proceeds are given to the exporter (importer for BTB L/C). This is his profit.
The Back-to-Back L/C Mechanism is completed here.

Remittance section
Our economy depends highly on foreign remittance. The people who are working abroad
send currency through the help of bank. United Commercial Bank Ltd. follows three
ways to collect foreign remittance. The mechanism is presented in Figure46 | P a g e

Mechanism of remittance collection

Figure-3

Foreign Remittance

By Exchange House having agreement with UCBL

Directly by Telephonic Transfer
By Exchange House having no agreement with UCBL

For A/C holder

Non A/C holder

Only for A/C holder

Only for A/C holder

Directly deposited inSender

A/C will give a pin code to receiver Directly deposited in A/C

Remittance come in another bank with whom they have agreement

Receiver will tell the pin code to the authorized officer

That bank issue to UCBL

Officer will check

Disburse the cash

UCBL receive cash by the clearing house and deposits it to receivers A/C

47 | P a g e

Mechanism of remittance collection

United Commercial Bank Ltd. follows three ways for collecting remittance. These are:
exchange houses with which bank has agreement, direct telephonic transfer and the
exchange house with which bank has no agreement.

i. Exchange House with which UCBL has agreement

In this way the remittance can come for anyone. He can be an A/C holder can be not. If
the receiver is an A/C holder the remittance directly deposited to his account. If he is not
an A/C holder then the procedure is different. The senders bank will give a pin code that
the sender has to inform the receiver. The receiver than tell the pin code, his name and
other information to the authorized officer. The officer will check and if everything is
alright, the officer will give the cash to the receiver. The following are the name of some
of the Exchange Houses that UCBL has agreement with:

LARI Exchange Co.

CITY INTL Exchange Co.

Mustafa-Sultan Exchange Co.

Western Union

ii. Telephonic Transfer

The bank provides this service only to its A/C holders. When the remittances come it is
directly deposited to receivers account.
iii. Exchange house having no agreement with UCBL
This is another way that the bank follows. This service is also limited to its A/C holders.
If a remittance is sent through an exchange house having no agreement with UCBL, it
comes to the bank that has an agreement with the exchange house. After getting the
remittance, the bank issues a pay order in favor of UCBL. Then UCBL collects the cash
through clearing house and deposits it to receivers account.

48 | P a g e

This is the administration of foreign exchange business. In this process the foreign
exchange department accomplishes its responsibilities.

Submission of Return to Bangladesh Bank:

The Authorized Dealer (AD) must maintain adequate and proper records of all Foreign
Exchange transactions including transaction on non-resident taka A/C. in their books and
furnish such particulars in the prescribed form of Return to Bangladesh Bank. The
purpose of submission of return to the Bangladesh Bank is to keep systematic and proper
records of all dealing in foreign exchange transaction.
Date of submission of statements to Bangladesh Bank:
1) Operations on private non Quarterly with 12th day of following
resident Taka accounts of non- month.
bank clients.
2) Monthly statement of outstanding By 15th of the following month
payment commitments abroad
3) Commodity wise statement of 10th of the following month
import L/C s outstanding as on
each month end.
4) Monthly statement of outstanding 15th of the following month.
Exports bills as of each month
end
Currency wise daily position statements should be kept ready for immediate submission
to Bangladesh Bank as and when called for.

Foreign Exchange Scenario of Bangladesh:

49 | P a g e

The need for foreign exchange is high in Bangladesh. Cause we had to import a lot more
than we export. Other than export, the remittance by non-resident Bangladeshis and
foreign aid is another source of foreign currency. In previous years we have seen frequent
bouts of devaluation of our currency i.e. taka. This is mainly done to keep our exporters
in business, although there are other reasons also.
Table-1: Annual Review of Import Payments:
(Taka in Crore)

2009-2010
Mode of financing

Cash
Loans/Credits
Grants
IDB loan (short-term)
Other unclassified imports
A. Sub-total
B. Imports of EPZ
Total Import: (A+B)

Changes
(1)-(3)

2008-2009

Amount

Percentage
of total

Amount

Percentage
of total

147762.8

90.0

139995.3

90.4

7767.5
(+5.5)

320.3

0.2

574.0

0.4

-253.7

56.1

0.0

4.0

0.0

52.1

5764.9

3.5

4782.2

3.1

982.7

564.4

0.3

509.7

0.3

54.7

154468.5

94.0

145865.2

94.2

8603.3

9774.9

6.0

8956.0

5.8

818.9

164243.4

100.0

154821.2

100.0

9422.2
(+6.1)

Note: Figures in parentheses indicate percentage of change.

Source: Statistics Department, Bangladesh Bank.

Total Import (Taka in Crore )

200000
180000
160000
140000
120000
100000
80000
20
09
20
08
-

20
09
-

20
10

Total Import
(Taka in Crore )

Figure-6: Import of Bangladesh in 2008-2010

50 | P a g e

Table-2: Annual Review of Export Receipts:

2009-2010
Amount
1
87269.1
14879.1
102148.2

Mode of financing
Cash
Exports of EPZ
Total
(Changes in %)

2008-2009
Amount
2
84423.8
13074.3
97498.1

Source: Statistics Department, Bangladesh Bank.

Total Export (Taka in Crores)

110000
105000
100000

Total Export (Taka

in Crores)

95000
90000
85000
80000
2009-2010

2008-2009

Figure-7: Export of Bangladesh in 2008-2010

51 | P a g e

Foreign Exchange Business of UCBL:

The performance of foreign exchange business of UCBL can be visualized from the
following data in Table. Here, five years data of foreign exchange business are presented.
These are off-balance sheet items and showed as contingent liability.
Table-3: Foreign exchange business
(In millions taka)
Year
2005
2006
2007
2008
2009

Export L/C

Import L/C

Remittance

Total Business

28,882
41,801
27,230
36,500
38,519

40,303
52,639
60,329
60,009
58,857

1,252
3,063
2,140
3,688
15,050

70,437
97,503
89,699
100,197
112,426

REF: Based on Annual Report of 2005-09

Import Section Analysis:

Import is the most dominating sector of UCBL foreign exchange. Import is another
influential tool in foreign exchange business. Variation in import business may cause a
large change in the total foreign exchange business as well as the banks business as a
whole.

52 | P a g e

Import (2005-2009, figure in millions)

70,000
60,000

60,329

60,009

58,857

2007

2008

2009

50,000
1

40,000
30,000
20,000

52,639
40,303

10,000
0
2005

2006

Time series Analysis of Import Trade:

The model of Time series analysis is

Y = a + bt

Here,
a = Constant
b= Slope
Y= Dependent variable
t = Time

b = Yt / t2
a = Y/ n

Calculation for import trend

Year (n)
2005
2006
2007
2008
2009
n=5

Import (Y)(mill)
40,303
52,639
60,329
60,009
58,857
Y = 272,137

Time (t)
-2
-1
0
1
2
t = 0

Yt
-80,606
-52,639
0
60,009
117,714
Yt = 44,478

t2
4
1
0
1
4
t2 = 10

So the equation for import business is

53 | P a g e

Y = 54,427.40 + 4,447.8 t
Here, Y = Import business of UCBL
This equation indicates that the import business of this bank will be increased by
Tk.4, 447.8 million per year and the trend is presented in the Figure:-

Import trend

70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005

2006

2007

2008

2009

Year

Export Section Analysis:

54 | P a g e

Export is an influential tool for foreign exchange business. Any decrease in export can
cause a huge decrease in foreign exchange income as well as profit. The trend of export
business for last five years is presented here

Export (2005-2009, figure in millions)

45,000

40,000
30,000

25,000
41,801

20,000
15,000

35,000

28,882

36,500

38,519

2008

2009

27,230

10,000
5,000
0
2005

2006

2007

Time series Analysis of Export Trade:

Year (n)
2005
2006
2007
2008
2009
n=5

Export (Y)(mill)
28,882
41,801
27,230
36,500
38,519
Y = 172,932

Time (t)
-2
-1
0
1
2
t = 0

Yt
-57764
-41801
0
36500
77038
Yt = 13,973

t2
4
1
0
1
4
t2 = 10

By using the model of time series method we can find the export trend of UCBL. So the
equation for Export Business is

Here, Y = Export business of UCBL.

Y = 34,586.4 +
1,397.30 t

This equation indicates the export business of UCBL will be increased by Tk.1, 397.30
million per year and the trend is presented in Figure below

Export Trend of UCBL

55 | P a g e

UCBLs export business is dominated by garments sector. As the garments industry is

enjoying a positive growth, this has also a consequence in the export business of UCBL.

Remittance Trend Analysis:

Like export and import, remittance has also a strong influence on foreign exchange
business as well as banks total business. Here is the time series analysis of remittance.
Remittance (2005-2009, figure in millions)
16,000

14,000
12,000
10,000
8,000

15,050

6,000
4,000
2,000
0

1
1,252
2005

2
3,063

3
2,140

3,688

2006

2007

2008

2009

Here, this is a clear observation that there is a very fast movement in the remittance
collection of the UCBL in especially in FY2009.

Time series Analysis of Remittance Trade:

56 | P a g e

Year (n)
2005
2006
2007
2008
2009
n=5

Remittance(Y)
1,252
3,063
2,140
3,688
15,050
Y = 25,193

Yt
-2,504
-3,063
0
3,688
30,100
Yt = 28,221

Time (t)
-2
-1
0
1
2
t = 0

t2
4
1
0
1
4
t2 = 10

So the equation for remittance business is

Y = 5,038.60 +
Here, Y = Remittance business of UCBL
2,822 t
This equation indicates the remittance business of the bank will be increased by Tk.2, 822
million per year and the trend is shown in the Figure:-

Remittance Trend
16,000
14,000
12,000
10,000

Remittance

8,000
6,000
4,000
2,000
0
2005

2006

2007

2008

2009

Year

57 | P a g e

The reason behind the increasing trend of remittance is the satisfactory performance of
the bank is that UCBL has agreement with many money exchange situated in different
countries. So, it is convenient for the people to send currency in time. For this the bank is
enjoying a growth in remittance business.

Foreign Exchange Income of UCBL:

Foreign exchange income is a great source of revenue for the bank. This revenue comes
in two forms: commission and exchange gain. Here, five years data of foreign exchange
income is presented in Table.
Table 4: Foreign exchange income
Tk. in millions

Commission
Year L/C

Expor

Bill

Accepte

OBC

PO,DD

Exchang

Total

t Bill

Purchase

d Bill

, IBC

FX

TT, TC

Gain

Incom

d
2005 109.3

2.02

0.83

4.66

1.34

9.65

176.12

e
304.01

9
2006 132.2

4.49

0.96

9.35

2.09

9.35

272.92

431.43

7
2007 175.5

6.17

1.28

10.10

2.34

8.78

316.02

520.20

1
2008 201.6

7.43

1.82

19.20

3.26

10.61

404.84

648.85

9
2009 263.5

10.17

2.64

17.03

3.68

11.35

563.74

872.11

0
Source: Bank database

58 | P a g e

FX Income

Ex
b

ill

L/C

Bill Purchase
A cc. Bill
OBC, IBC
, DD, TT, TC
Ex gain

Figure: Foreign exchange income

In the Table the different sources of income for foreign exchange business are revealed
and the income is showing a continuous increasing trend.
The most dominant variable in foreign exchange income is exchange gain. This is
achieved from both export and remittance business.

Foreign Exchange Income, Operating Income and

Profit:

59 | P a g e

The foreign exchange income, operating income and profit after tax for five years is
presented in Table. The foreign exchange income has a contribution to operating income
as well as to banks profit.
Foreign exchange income, operating income, profit
( Tk. In million)

Year

2005
2006
2007
2008
2009

Total FX

Operating

Income

Income

Income

1196.20
1592.21
1970.37
2406.43
3235.24

Profit
25.41%
27.10%
26.40%
26.96%
26.96%

304.01
431.43
520.20
648.85
872.11

Profit

418
375
612
568
1052

Ratio of FX
to

Amount

Figure: Operating Income & Foreign exchange income

Operating income & Fx income

4000
FX Income

3000
2000

Operating
Income

1000
0
2005 2006 2007 2008 2009
Year

In the above Table, it is shown that along with the increasing trend in foreign exchange
income the operating income is also increasing. So, foreign exchange income has a
positive effect on operating income as well as profit.
Tables above focus on the important information of foreign exchange business of United
Commercial Bank Ltd. Now, these data will be analyzed to measure the performance of
the bank. For performance analysis different tools of statistics and ratio have been used
here.

Time series Analysis for the Income of UCBL:

60 | P a g e

The income from the foreign exchange business includes two type of income. One is
commission and the other is exchange gain. Here is the Time series analysis of foreign
exchange income.

Calculation for foreign exchange income trend

Year (n)
2005
2006
2007
2008
2009
n=5

FX Income (Y)(mill)
304.01
431.43
520.20
648.85
872.11
Y = 2,777

Time (t)
-2
-1
0
1
2
t = 0

Yt
-608.02
-431.43
0
648.85
1,744.22
Yt = 1,353.62

t2
4
1
0
1
4
t2 = 10

So, the equation for foreign exchange income is

Y = 555.32 +
135.362 t
Here, Y = Foreign exchange income of UCBL
This equation indicates the foreign exchange income of the bank increased by Tk.135.362
million per year. As the foreign exchange business is increasing year by year, foreign
exchange income is also enjoying a positive trend that is focused in Figure
Foreign exchange income trend

61 | P a g e

FX Income Trend

FX Income

1000
900
800
700
600
500
400
300
200
100
0
2005

2006

2007

2008

2009

Year

From the Time series analysis it is found that UCBL is enjoying a positive growth in
foreign exchange business. Definitely this is a positive sign for the bank and this growth
will help the bank in achieving its target.

Foreign Exchange Risk Management By United Commercial Bank:

Foreign exchange risk is defined as the potential change in earnings arising due to
unfavorable change in exchange rates. Exchange rate fluctuation may reduce the
profitability of United Commercial Bank Limited because it funds foreign trade
commitments from various sources of foreign exchange like export proceeds and
incoming remittances.
United Commercial Bank started its operation of Foreign Exchange at the very beginning
of its establishment. That time their transaction volume was low but gradually they
established their strong position in the field of Foreign Exchange and now it is considered
as a very important source of UCBLs Operating Income. In every aspect UCBL follow
the guidelines given by Bangladesh Bank and BASEL-I and also preparing for BASELII. UCBL has developed its own policy manual for administering the activities of Dealing
Room. Separate reports are prepared by front office dealing room and back office dealing
room as per the guideline of Bangladesh Bank and segregated later. These two
62 | P a g e

departments prepare their reports independently to ensure better control of risk exposure.
Head of the department continuously review this manual to make it more effective.
Responsibilities of all the members of the treasury department, front as well as back
office is clearly defined.
For the measurement of foreign exchange risk and manage it effectively UCBL Does the
following analysis:

Maturity Profile: On this regard an analysis of future foreign currency as well as

local currency Demand and Supply is made. An example is shown in the
Annexure.

GAP analysis: For the sake of GAP analysis Inflow and Outflow from Foreign
Exchange is reviewed on a monthly basis. An example is attached in the
Annexure.

Net Position Analysis: Exchange rate risk arises from exchange rate movements,
which may affect the earning of the bank from its foreign exchange open position
taken from time to time. This risk is mainly managed by setting
o Determined limits on open foreign exchange position
o

Monitoring of open position against these limits &

Setting and monitoring of stop loss mechanism.

o UCBLs foreign exchange risk remains at minimum level as all of its

foreign trade & remittance transactions are carried out on behalf of the
customers.
o All NOSTRO accounts are reconciled on monthly basis and outstanding
entries are escalated to concerned departments and reported to higher
management for immediate settlement.
This analysis is done on a daily as well as monthly basis. It is considered as the most
important part for Risk analysis.

63 | P a g e

Due to the relaxation of Red Quote and allowing floating rate all the banks risk
exposure have decreased substantially as Bangladesh Bank strongly monitors whether its
guidelines are followed or not.
The open position limit of different bank is decided by the Bangladesh Bank according to
the banks total capital. UCBL has a limit of 5 million USD, positive or negative. If the
bank is beyond that limit Bangladesh Bank will impose restrictions on that specific bank.
UCBL did not conduct any forward foreign exchange dealing during the year. Incase of
Spot dealing they always keep in mind their open position and there is no specified limit
exercised for that.
UCBL does not regularly do any VAR analysis on a paper basis or as a report, but the
Treasury department authority always keeps it in mind and takes decision accordingly.
On the Annual Report the bank shows a fund named Exchange Equalization Fund,
which was prepared in accordance with the guideline of Bangladesh Bank. This Fund was
required for dealing in FX prior to 2003. After the imposition of floating rate Banks does
not need to carry any Fund the balance of the fund created on 2003 is brought forward
and if there is any foreign exchange loss the bank can adjust that loss with this fund.
UCBL takes USD and TAKA as the base currency in determining the Risk exposure.
When asked to the officer with which currency they face more risk, the answer was YEN.
So they are more reluctant to deal with this currency. On the other hand USD has a strong
position as for the last couple of years it has been within a acceptable limit.
For the foreign exchange risk management the Bank follows the following points
cautiously:

All the transactions are carried out on behalf of the customers against L/C
commitments and other remittance requirements. No speculative dealing on
Bank's account was conducted during the year.

As per Bangladesh Bank's guidelines, the Treasury Department was operationally

and physically divided into front office and back office to mitigate the risk.
Treasury front office conducts deal for commercial purpose and back office of
64 | P a g e

treasury keeps record and pass entries in books of account. The main risks in
treasury and foreign exchange business are exchange rates risk, fund management
and liquidity risk.

Treasury department is vested with the responsibility to measure and minimize

the risk associated with banks assets and liabilities, which includes foreign
exchange risk. Treasury continuously monitors price movements of foreign
exchange and uses various hedging techniques to manage its open position in such
a way that minimizes risk and maximizes return.

As per the Bangladesh Bank, Dealing room are placed in the treasury
department .Separate telephone and fax lines were installed at the dealing room to
meet Bangladesh Bank's guidelines.

The bank has formed a management committee (MANCOM) to review the proper
implementation and regular monitoring of the core areas.

Foreign currency transactions are converted into equivalent Taka currency at the
ruling exchange rates on the respective dates of such transactions.

Interest Risk and Liquidity Risk are also properly managed. Bank invests its
idle currency and keeps it in other bank account when the Interest rate is greater
than its cost of capital. In managing Liquidity Risk the bank has its own Nostro
account limit.

Differences arising through buying and selling transactions of foreign currencies

on different dates of the year have been adjusted by debiting /crediting exchange
gain or loss account.

Table-14: UCBL Foreign Exchange gain:

Exchange
Earning (general)
Exchange

2007
338,771,44
2

Earning (dealing room)

Less:

2006

2005

2004

239341368

232,534,624

208190237

936,113

232,534,624

209,126,350
65 | P a g e

Exchange

Loss

(1,555,844)

Loss(dealing

room)
Exchange Income

338,771,44

239341368

232,534,624

207,270,506

(general)
Exchange

Source: International Division, Treasury Department, UCBL

Figure-15: UCBL foreign exchange income trend for last 10 years:

UCBL maintains an Exchange Equilization fund for better risk management.

During the year the amount was Tk. 8,043,177.

Measuring and Limiting Exchange Rate Risk

A common approach to measuring and monitoring exchange rate risk is to limit the size
of the open positions (whether positive or negative) in each currency as of the close of
business each day. Net open positions then may be expressed as a percent of the financial
institution's total capital. Limits are then established on the size of the percentage.
Management's principal goal shall be to ensure that foreign exchange losses that could
66 | P a g e

arise from the open positions will not substantially diminish total earnings and that the
capital cushion of the institution will not be undermined. Annexure-B provides a
numerical illustration of a financial institution's exposure to foreign currency risk arising
from its positions in a variety of currencies: the Indian rupee, the US dollar, the Japanese
yen, the Euro, the Canadian dollar, the Australian dollar, the Swiss franc and the British
pound. If reporting were done by the financial institution every day, the net short term
position for the day (shown in column 3) would cover foreign currency assets and
liabilities available in cash or maturing during the day. The net long term position (shown
in column 7) would reflect foreign currency assets and liabilities that mature in time
periods beyond one day. The illustration has translated all currencies into Taka. The exact
same analysis would apply if all currencies were converted to US dollars (at the close-ofday exchange rate) or any other convertible currency. In the example, the sum of the net
short term positions in the different currencies results in a negative net liability position
of Tk. 112,666,176, or 35% of total capital (shown in column 4). This SHORT-TERM
exposure exceeds the 12.5% limit and could create a loss for the institution if the Taka
were to devalue (i.e., more Taka needed per unit of foreign currency). Such a short term
exposure would be dangerous for the financial institution as adverse exchange rate
movement(s) could occur immediately and result in substantial losses. The net LONG
TERM positions sum to a positive net long term position (Tk. 173,553,849). The net
LONG TERM position offsets the negative net SHORT TERM position. The OVERALL
net positions for each currency are estimated in column 8 and sum to Tk. 60,887,673.
Their absolute values relative to total capital appear in column 9. The OVERALL
percentage comes to 18.72%, a relative amount above the 12.5% limit. Thus, estimations
that take account of all currencies, both very short-term and longer-term, indicate that the
institution is in imminent danger of loss in the short run, as well as the longer run. The
banking company should note that an extreme exposure occurs in the short term as there
is an excessively large (negative) net open position in US dollars (Annexure C).
UCBLs VAR analysis:

67 | P a g e

Correlation is calculated for the VAR analysis. Correlations range from +1 to -1. A +1
correlation indicates that two currencies move identically to each other against the US
dollar. A -1 correlation indicates that two currencies move in diametrically opposite
directions to each other against the US dollar. A zero correlation means there is no
relationship between the ways the currencies move. For example, studies reveal that there
is positive correlation between Euro and Swiss Franc, which indicates that a long Euro
position is hedged by the short CHF position. The Gross VAR calculated on each position
can therefore be reduced proportionately. Just as the loss is limited, so is the profit
potential in EUR/CHF position is limited.
The following table shows how positive and negative correlations between currencies
affect Net VAR calculation:

Correlation

Position A

Position B

(Any currency)

(Any currency)

Correlation

Short (+)
Long (-)
Short (+)
Long (-)
Short (+)

Short (+)
Long (-)
Long (-)
Short (+)
Short (+)

Negative (-)
Negative (-)
Positive (+)
Positive (+)
Positive (+)

term

sign
(Effect on Net VAR)
Negative (-)
Negative (-)
Positive (+)
Positive (+)
Positive (+)

The correlation term sign indicates whether the portfolio effect will be added or
subtracted in the net variation calculations. Even random movements between currency
rates may to some extent reduce risk.

68 | P a g e

A Summary of UCBLs Dealing Room manual to reduce foreign exchange risk

exposure:

Dealing Room operation in United Commercial Bank Ltd. and its support activities
follow the market principles and conventions for smooth operation. Apart from that
General guidelines for Dealing Room operations/ activities are stated hereinafter.
All financial activities involve a certain degree of risk; the scope of this guideline is to
put proper attention to every details of the Foreign Exchange transaction evolving around
Dealing Room. All transaction should in line with the Guidelines for Foreign Exchange
Transactions-1996 by Bangladesh Bank and relevant BRPD, FE, DBOD and other
regulatory authoritys Circular(s) instructions. Dealers must follow the code of conduct
prescribed by BAFEDA and other regulatory authority.
The purpose of this guideline is to minimize operational, market, and settlement risk
arising out of Foreign Exchange transaction.
Policy Statement for Dealing Room Operation (Ex)

Currency pair for position taking:

Currency positions may only be held in USD/BDT currency pair to facilitate handling
of normal commercial and financial transactions, which includes minimum working
balances in Nostro Accounts in foreign currencies.

Limit and sub-limit in USD:

All foreign Exchange exposure limits and also currency-wise sub-limits are to be
expressed in terms of US$.
69 | P a g e

Restriction on forward positioning:

Only spot positions may be held, no mis-matched and/or un-matched forward

positions are allowed to be held. It follows, therefore, that while forward deals may
be undertaken for customers such deals, are immediately covered by matching deals
in the market, with no gaps in amounts and periods.

Restriction on proprietary position taking:

Dealing room is not authorized to enter into foreign exchange open position on their
own account.

Separation of dealing room and back office:

Foreign Exchange operation should be so organized that there will be clear and
distinct separation of the Dealing Room and Back office.

Restriction on un-matched forward exchange:

Un-matched/ mis-matched forward exchange deals which would cause open position
are not permitted. The only forward exchange deals permitted are those for
customers.

Daily revaluation of FCY asset & liability:

Revaluation of Foreign Currency Assets and liabilities will be on daily basis. Forward
positions will be revalued only at the time of liquidation.

Forward And Swap As Per Guideline Of Central Bank:

All forward deals and swaps must follow the guidelines and restrictions given by the
central bank.

Counter party limit books:

Dealing Room will maintain counter party limit books which will include records of
all day to day customer transactions and inter-bank transactions.

Dealing room staffing:

There should be adequate number of officers with technical skills and knowledge.

Liaison with foreign exchange and money market:

Effective FCY transactions involving BDT should be instantly and effectively

communicated to money Market segment of dealing room.
70 | P a g e

Guideline for Foreign Exchange Dealing Room

Guideline for Dealings Room operation covers Sale-purchase/Merchant transaction of
United Commercial Bank Ltd. i.e. for any Dealing Room operation an underlying
customer transaction has to be there. In case of proprietary trading only USD/BDT
currency pair is allowed. Apart from that no Foreign Currency trading should be in
speculative nature. All dealing transactions must be supported by approval of the
competent authority.

Foreign Currency sale against BDT-Retail

Foreign Currency sale to retail customer for FTT, FDD and TC should be guided by
TT & OD rate of rate sheet. Point of sales may be allowed to take BC rate and the
difference between BC and TT OD rate may be refurnished from treasury a/c to
particular branchs account.

Foreign Currency sale against Foreign Currency-Retail:

FOREIGN currency sale to retail customer for FTT, FDD and TC should be guided
by mid rate of the respective currency. In case of conversion of foreign currency to
another foreign currency the prevailing rate in international market is to be applied.

Foreign Currency sale against BDT-Import:

Foreign Currency sale to importer should be guided by BC rate of Rate sheet. In

addition to that rate can be negotiable for corporate customers. Any higher rate of
selling applied to customers other than the dealt rate by the corporate units: the
difference may be credited to the respective corporate units from treasury. In case of
application of lower-rate to customers the difference should be credited to treasurys
account from the respective corporate/branch unit.

Foreign currency sale against Foreign Currency-Import

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Import payment made out of FC margin a/c / retention quota a/c and special payment
facility (import payment out of export proceeds within 1 month) can be made in
respective currencys mid rate. In case of conversion of foreign currency to another
foreign the prevailing rate in international market is to be applied.

Foreign Currency purchase against BDT-Retail.

Foreign Currency purchase from retail customer for inward FTT should be guided by
TT Clean rate of rate sheet. Foreign Currency purchase from retail customer for FDD
should be guided by TT Doc rate of rate sheet. In case of corporate customers
customize rate can be applied.

Foreign Currency purchase against Foreign Currency-Retail

Foreign Currency purchase from retail customer for FTT, FDD should be guided by
mid rate of the respective currency. In case of conversion of foreign currency to
another foreign currency the prevailing rate in international market is to be applied.

Foreign currency Purchase against BDT-Export:

Foreign Currency purchase from exporters should be guided by TT clean rate of Rate
sheet for payment against clean bills for collection.

Foreign currency purchase against Foreign currency-Export:

For crediting export proceeds into FC margin a/c/ retention Quota a/c ; respective
currencys mid rate is to be applied. In case of conversion of foreign currency to
another foreign currency the prevailing rate in international market is to be applied.

Forward Foreign Currency purchase against BDT:

Forward Foreign Currency can be purchased from exporters. In that case the quoted
currency should be against BDT and the rates incorporated in the rate sheet for the
structured time frame (11Month, 3Month & 6Month) can be applied. Forward
transaction must follow the guidelines issued by the Central Bank.

Forward Foreign Currency Purchase against Foreign Currency

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Forward foreign Currency can be purchased from any exporter for conversion out of
their FC margin and Retention Quota a/c for the desired Currency pair other than
BDT.

Encashment/Purchase of Foreign Currency:

Any encashment of Foreign Currency into BDT can be done from customers FC A/c
by applying TT Clean/TT doc rate by examining the nature of transaction.

Dealing In Inter Bank Market

Dealing in inter bank Sport market for USD/BDT currency pair is allowed subject to
Overbought/ Oversold limit of Exchange Position approved by Bangladesh Bank. The
applicable rate for inter bank transaction should be on market. Off market rate
transaction is not allowed. In this connection arbitrage function for other currency
pair is allowed. In case of any position taking/ speculation in any currency pair is no
allowed. For any Forward and Swap transaction rates should within the market
dynamics (Interest rate/ exchange rate/ annualization of tenor). Inter bank Sport,
Forward and Swap transaction must follow the Central Banks guidelines issued from
time to time.

Rate sheet production

Every day UCBL Dealing Room has to produce rate sheet with the following features:
a. Rate for Import bill payment.
b. Rate for export bill negotiation for sight /usance.
c. Rate for inward and outward remittance.
d. Rate for TC and Cash note.
e. Indicative rate for internal transaction
This rate sheet is produced in those currencies for which UCBL maintains Nostro a/c. i.e.
USD, EURO. GBP, JPY, USD/BDT rate is to calculate on the basis of prevailing free
floating rate in the inter- bank. On the other hand cross rate of other 4(four) currencies is
to obtained from Reuters Money 2000 and published in the rate sheet after maintaining
73 | P a g e

sufficient margin. Through this rate sheet treasury maintains daily profitability with our
branches and subsequent customers there on. For Corporate Customers treasury may
customize this rate but keeping in view the profitability of the bank. Apart from exchange
rates the following foreign currency interest rate is to be incorporated.

a. LIABOR for US Dollar in different tenor.

b. FCD/RFCD rates for USD deposit.

Fund management and liquidity management

For liquidity of the foreign currency, our Exchange Position has permitted up to
USD1.5 million in both short/long position. In this connection the following method
is applied for liquidity measurement .

Supply of Foreign Currency

Closing Balance of all Nostro a/c.

Plus

Export bills realization

Plus

Inward Remittance

Plus

Encashment of FC

Total Supply of FC

Demand of Foreign Currency

Import bills payment

Plus

Outward remittance

Total Demand of FC

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(Total Supply of FC-Total Demand of FC)=

Net liquid position of Foreign Currency
After deciding banks liquidity either in short/long position the Dealers may square up by
participating in inter-bank dealing market.
UCBL follows the following guide in the process for the independent verification of Prices:
(Following Bangladesh Bank guideline)
Instrument

Source

Frequency of Update

Spot FX

Reuters /
National
Newspapers

Once Daily Pages:

AFX=, FXXZ,
BD(F9)

Forward
FX/ Swaps

Reuters

Once Daily
Pages: AFX=, FXXZ,
BD(F9), LIBOR01,
GBPF=,
EURF=,
JPYF=,
CHFF= etc.

Note

In absence of an
inter-bank
USD/BDT forward
market, banks
should use
spreadsheets to
determine tenorwise
forward
premiums that
should be used for
the verification of

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Findings
Banks have a key role to develop the foreign exchange business in our country.
Commercial banks provide foreign exchange services to their customers. Though
foreign exchange business is challenging, it offers an excellent opportunity to
accelerate the growth of the banks own business United Commercial bank ltd. is one
of the major player in the foreign exchange business. It has been enjoying an
escalating growth in foreign exchange business. Income from the foreign exchange
business has a large contribution to UCBLs overall profit. The key Findings are

Foreign exchange business has become one of the major sources of

revenue for the bank.

From the description of the Foreign exchange activities of UCBL we see

that it complies with most of the guidelines given by Bangladesh bank.
The time series analysis gives a positive trend in foreign exchange
business covering export, import and remittance. Foreign exchange income
also enjoys an increasing trend and this is a positive sign for UCBL. The
foreign exchange services provided by the bank are really good. The
officials of the foreign exchange department are efficient, cordial and
highly dedicated to their work. The customers of the bank are satisfied.
The rate of shifting by the customer is low.
Import is the most profitable part for the UCBL foreign exchange.
The income of Foreign Exchange is come from two way- Commission
&Exchange gain.
In the Foreign exchange risk management part we found that UCBL is
very cautious about its risk exposure related with foreign exchange and on
this regard its treasury department has designed its own manual for proper
risk management. In its manual it has defined specific responsibilities of
all the members authorized for this work. It continuously do paper work
and different types of analysis so that it can reduce its risk significantly.

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This continuous monitoring allowed it to have a rising trend on its Foreign

exchange earnings.

The major limitation of UCBL is lack of modern communication

equipment.

Applications of modern technology such as computerization are not

sufficient.

Poor condition of balance of payment of UCBL.

Lack of enthusiastic scheme for exporter and importer.
Less attractive remuneration package and motivation for the employees.
As more and more banks are coming in the business, the market is
becoming substantially competitive. UCBL is facing threat with the new
technologies, new services, young energetic manpower used by emerging
banks, as customers now want fast transactions and innovations to make
banking easier.

UCBL does not have any branch abroad which is creating problem in
remittance transfer.

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Recommendations:
Through conducting this study I have acquired some practical knowledge about export
import business in Bangladesh and other relevant matters. Here I am trying to give some
recommendation which I think might be helpful to promote the export import business of
United Commercial Bank Ltd. As per earnest observation the suggestions are given
below:

For attracting more clients it should take some new marketing strategy which will
increase its total volume of export import transaction.

Attractive incentive package for the exporter will help to increase the export and
accordingly it will diminish the balance of payment gap of UCBL.

For the foreign exchange officials long term training is very essential and may help to
gain more efficiency at work.

UCBL should get out of its old, traditional track banking system and introduce its clients
with new services, technology which will attract more customers.

Bank can provide foreign market reports which will enable the exporter to evaluate the
demand for their products in foreign countries

Effective and efficient initiative is necessary to recover the default loans.

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Conclusion:
After the relaxation of economic barrier at 90s, the area of business has expanded
globally for firms. At this situation firms interest of doing foreign exchange business was
rationalized with the support of different theoretical backgrounds. In Bangladesh the most
popular way of doing foreign exchange business is international trade that means direct
export and import. By involving in foreign exchange business, many firms of Bangladesh
are enjoying a large profit and size than previous. Firms are now improving themselves in
this lubricant area of business. This improvement is reflected in the current positive
growth of Bangladesh in the foreign exchange business. In recent years United
Commercial Bank has shown a better performance comparing with other first generation
commercial banks.
We expect this bank to review its problems toward foreign exchange business and
contribute a vital role in socio-economic perspective. Foreign exchange is always a
prominent site of business for all commercial banks. Countrys economic growth largely
depends on this sector. Bangladesh is also economically dependent on foreign exchange
business. There are some rules and regulation and other factors (political, economical,
demographic) that influences this sector. Government should identify the lacking and take
preventive steps to smooth this lucrative path of business

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Ten cases at UCB

1. The account opening confirmation was sent in the wrong residential address and
was accepted by an unknown person. When the employee realized his mistake, he
tried to get the letter back but couldnt find the person. The matter got worse when
the account holder stated receiving threat calls from the stranger and ultimately for
the security of account holder the bank manager decided to close that account.

2. In UCB, after submitting the cheque requisition slip, after three working days the
cheque book is given to the customer by just asking the name and account
number. That day a person came and claimed a cheque book and was given away.
A day later another person came and asked for the same cheque book. At that
moment the employee found out that the cheque book was given to the wrong
person. Therefore all the transaction from that cheque book was immediately
stopped.

3. It was the second week of my internship when a theft occurred. Things were going
fine and smooth, about an hour before the closing a man came running to the branch
head and said that Tk. 2 lac got stolen from this bag when he came to deposit
money. When CC camera was played we all were shocked to see that, when the
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victim was writing his deposit slip, three man came and surrounded his bag where
he kept money and one of them took out a blade and made a hole in the bag and
took the money and got away.
4. About a month ago UCB recruited few cashier. Every thing was going fine and
smooth. That day a customer came to deposit some Tk. 50,000, finding the cashier
new he asked him to put the received seal before handing over the cash and so the
employee did and the customer took the money and the slip and got away, as he was
a very old customer, he knew all the employees face so he took the advantage. At
the end of the banking hours when the slips were tallied it was figured out that the
customer didnt deposited the money and because of the employees carelessness
bank made a loss of Tk. 50,000

5. In UCB, the new account openers have to make some initial deposit, most of the
customers ask the bank employees to fill the deposit slip and the account opening
form. In trying to make the work faster the account opening officer by mistakenly
added an extra zero to the initial deposit which made the figure in lac, and also
entered the wrong figure in the computer too. The aware customer immediately
took out the extra money and never returned.

6. UCB had a very old client, who had a very good relation ship with the credit
department as he use to pay all his installments on time. This client use to bring his
accountant with him as a result almost all the bank employee use to know him. One
afternoon the client asked his accountant to get cheque from our bank. The

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accountant took the cheque and deposited the cheque in another bank where he, in
the past opened a fraud account with same name as his companys where he worked
and through online he withdrew all the money from different branches and left the
country.

7. That day a client came and opened an LC to import shoes, as all this papers, past
performance and export company(i.e. from the company the product is being
imported) was up to the mark, the bank didnt hesitate to open the LC. When his
product came to the dock he refused to take the product as there was only one shoe
instead of a pair in each box, thus the customer didnt pay the money for the LC and
the shoe was later on auctioned. Therefore the bank made a huge loss.

8. As UCB provides home loan, a client came and asked for home loan, he was asked
to submit the house mortgage. The client submitted all the legal papers and the loan
was given away. After a month the time came to repay the loan the client never
showed up. When the last date of the repayment got over the bank decided to file a
case and it was found that the mortgage was stolen and didnt belong to the loan
defaulter.

9. Few days ago a client asked for a big amount of foreign currency for which he paid
a day before but he asked the bank to deliver the money to his office by one of the
banks employee and asked to come from a route which is more secured. When the
banks employees were going through that route, few men came in bike and robbed

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them. When the bank informed the client about this incident, the client did not only
asked for a refund but also filed a case on the employees who were carrying the
money. As a result the employees lost their jobs.

10. When I was in Foreign Exchange department I witnessed an incident. A man came
to open an LC, he wanted to import medicine, for some reasons he was in a great
hurry. As he was a very reputed person, the employee at once agreed to open the LC
for him, as he was dealing with the proceedings, he felt something wrong and made
an excuse to the client to come after a day or two. At first the client murmured but
later agreed. After he left, the employee decided to make a search on the import
policy of that medicine and he was shocked to find out that, the medicine was
illegal to import. As a result the LC proceeding was immediately stopped.

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Bibliography
1. Annual report of United Commercial Bank Ltd. (2005-2009)
2. Bangladesh Bank guidelines for foreign exchange business.
3. Core Risk Management Manual, www.bangladeshbank.org.bd
4. Draft Guidance on Foreign Exchange Risk Management Policies for Banks,
www.gov.im/lib/docs/fsc/consultative/banksing/s4foreignexchange.pdf
5. Foreign Exchange Mechanism-Import
-By Md. Golam Ali
6. Foreign Exchange Mechanism Export
-By Md. Masud Hossain
7. Foreign Exchange Mechanism Remittance
-By Md. Shofiqul Islam
8. A Text Book on Foreign Exchange
-By Chowdhury L.R.
9. Jeff Madura, International Financial Management, 8th Edition.
10. Manual of Foreign manage Exchange Risk Management of United Commercial
Bank Ltd
11. Monthly Review published by Bangladesh Bank (2005-2009)
12. Schedule Bank Statistics published by Bangladesh Bank (2005-2009)
13. How to measure and manage Liquidity risk, interest rate risk and foreign
exchange
risk
using
Gap
analysis,
www.bangladeshbank.org/pub/pubarchive.html

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Annexure-A

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Annexure-B
Measuring Banking Company Exposure to Foreign Exchange Risk

Day/

(In Bangladesh Tk.)

Year
Liquid Foreign Currency Holding
1
2
3=1-2
Asset in Liability
Net Short

4
Net

Long-term Foreign Currency Holding

5
6
7=5-6
Asset
in Liability
Net Long

8
Overall

9
Overal

foreign

in foreign

term

Short

foreign

in foreign

term

Net

Currency

currency

position

term

Currency

currency

position

Position

Positio

Curren

positi

cy

on

Net

n/ Core
/

capital

Core
Capita
l
666,426,2
Total

96

779,092,4

112,666,1

72

76

34.64

1,080,503,8

88

906,950,0
39

173,553,8

60,887,6

18.72

49

73

* absolute value Core Capital = Tk. 325,250,491

Annexure-C
Questionnaire
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Questionnaire asked to Head of International Division and Head of Treasury

Department:
Dear Sir,
As student of BBA program in University of Dhaka, an internship is being conducted
on Foreign Exchange activities and Foreign Exchange Risk Management by
studying United Commercial Bank Ltd.. In the process of observing it is liked to ask
you some questions, answer of which will help preparing the foundation of the
mentioned report. A set of probable questions is forwarded here for your prior
acknowledgement. These questions will be supplemented by few complementary
questions. The information will be used only for the purpose of study.
1) When UCBL started Foreign Exchange Operation?
2) Does UCBL follow any Policy/Guideline for Foreign Exchange Risk
Management?
3) If UCBL have developed any policy /guideline manual considering the risk
raised from Foreign Exchange?
4) Instruments UCBL use for foreign Exchange Risk Management?
5) Whether UCBLs Risk exposure in FX has increased or decreased after
Bangladesh Banks relaxation on foreign exchange rate, allowing floating rate?
6) If UCBL calculate any Risk limit commensurate with Bank activities?
7) What is UCBLs open position limit? What percentage of its total capital is to
be kept as limit? How they calculate their open position?
8) Spot and Forward position of UCBL?
9) Does UCBL do any GAP analysis for its Foreign exchange risk management
purpose?
10) Does UCBL do any VAR analysis for Risk management?
11) If UCBL keep any fund for FX operation?
12) What base currency UCBL use to calculate FX risk?
13) If any report published on these regard?
14) FX gain or loss of UCBL?
15) Which of the currency has more risk exposure, more volatile and needs
special attention of the Treasury Officer continuously?
16) Problems faced by Treasury Department for Risk management purpose?

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