FOREIGN EXCHANGE PERFORMANCE AND BANK’S PROFITABILITY AN EVALUATION OF JAMUNA BANK LIMITED, MOTIJHEEL BRANCH

FOREIGN EXCHANGE PERFORMANCE AND BANK’S PROFITABILITY AN EVALUATION OF JAMUNA BANK LIMITED, MOTIJHEEL BRANCH

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Executive Summary

Banking is topic, practice, business or profession almost as old as the very existence of man, but literarily it can be rooted deep back the days of the Renaissance (by the Florentine Bankers). It has sprouted from the very primitive Stone-age banking, through the Victorian-age to the technology-driven Google-age banking, encompassing automatic teller machines (ATMs), credit and debit cards, correspondent and internet banking. But the foreign exchange services have been a vicinity of concern not only to bankers but to all in the business.

The axle of this study is to have a clearer picture of how Jamuna Bank LTD, (JBL) manages its Foreign Exchange performance. An Introduction of JBL is given in the first part, its objectives, scope, methodology, limitations, and the literature review of foreign exchange performance and bank’s profitability. In this light, the study in its second part gives an Organization Overview. Third, fourth, fifth and sixth part includes the theoretical review on foreign exchange, Export, Import, Remittance and how bank profitable through foreign exchange services. In the last section that includes some Recommendation, Findings and Conclusion. 

Finally  I  have  gone  through  my  own  assessment  regarding  their  operation.  I hope that Jamuna Bank Ltd may improve the operation in Bangladesh in future.


Chapter-1

Introduction of the Report/Study

1.1 Introduction

Bank can be termed as iron cell of blood in a financial system of a country. Without bank a financial system can’t survive. Form the very beginning of financial activity in human civilization bank has a remarkable contribution as a whole.

Banking-A pillar of economy- is guided by laws, rules, regulations and practices. The prime objective of the banking industry as a whole is to collect deposits from the public and to invest the same in the form of loans and advances to businesses. The service necessary for financing of import, export, guarantees etc is also the function of banks. In our country, like others, Banking companies act 1991 remain operative to control and monitor the function of banks in coordination with the other laws. Since the banking functions are commercial in nature, many laws from the negotiable instrument act to civil procedure code are essential in the day-to-day operations of the banks.

Generally a bank comprises of three departments- General Banking, Credit Department, and Foreign Exchange Department. The department that is most important to a bank and to the interest of the country is Foreign Exchange Department.

This report is an outcome of three months career at Jamuna Bank Ltd. prepared as the partial requirement of BBA program of BRAC Business School, BRAC UNIVERSITY. The organization attachment started on 20th October, 2013 and finished on 15th January, 2014. The topic of the report is Foreign Exchange Performance and Bank’s Profitability: an

Evaluation of Jamuna Bank Limited, Motizhil Branch

During three months intensive internship program, an approach has been taken to get an inside out scenario of Foreign Exchange Activities of Jamuna Bank Limited. At the beginning of paper an overview of the Jamuna bank Ltd. has been given. This chapter contains history of the dawn of the Jamuna Bank Ltd, its financial strength and some other important details.

Next to that overview, the detailed procedure of Foreign Exchange Operation-Export, Import, and Remittance that related with bank’s profitability are described in third chapters. 

After closely observing the Foreign Exchange Operation of Jamuna bank Ltd. the problems and shortfall in the Foreign Exchange Activities has been tried to find out. Regarding that problems and short fall some recommendation has been specified.    

1.2 Origin of the Report

Bachelor of Business Administration (BBA) Course requires a three months attachment with an organization followed by a report assigned by the faculty supervisor. I took the opportunity to do my internship in Jamuna Bank Limited, Motizhil Branch. The organization attachment started on 20th October 2013 and finished on 15th January 2014. Actually this is a feedback which department accepts from the students who join in an organization after the completion of theoretical part of the BBA program. 

1.3 Rational of the study

Foreign exchange is an important department of Jamuna Bank Limited, which deals with import, export and foreign remittances. It bridges between importers and exporters. This department is playing an important role in enhancing export earnings, which aids economic growth and in turn it helps for the economic development. On the other hand, it also helps to meet those goods and service, which are most demandable and not adequate in our country. Foreign exchange operation is one of the significant functions of the bank. It plays a vital role in overall economy of the country. Bank collects information from numerous sources relating to cost and revenue from foreign exchange operation. Through export, import, and foreign remittances Foreign Exchange department of the banks earns their profit. Banks is the intermediary of all export, import, and remittance activities. Foreign Exchange Market allows currencies to be exchanged to facilitate international trade and financial transactions. After passing a lot of phases, present foreign exchange market has established and performing to benefit all the parties incorporated here. There are basically three players in the foreign exchange market of Bangladesh. Those are the Bangladesh Bank, authorized dealers, and customers. This paper discussed regarding the related issues of foreign exchange performances and bank profitability of Jamuna Bank Ltd.

1.4 Statement of the problem

Globalization of national economies has given a boost to international trade. Through foreign services bank make their profits so this study discuss how Jamuna bank foreign exchange department performed and bank would be profitability. The study seeks answers to the following questions:

1.      How Foreign exchange department help to utilize more profit? 

2.      Does foreign exchange department performed effectively?

1.5 Objective of the study General objective: 

The general objective of this report is to know about the principle and how to perform of foreign exchange department of Jamuna Bank Ltd. Motizhil Branch.

 Specific objective

•      Analyze the organizational activities

•      To know about the Foreign Exchange Mechanism of the Branch.

•      To know about the regulations regarding Foreign Exchange Business in Bangladesh.

•      Analyze the performance of Branch regarding Foreign Exchange related with bank profitability

•      To find out the problems in the Foreign Exchange department and to provide the possible solutions for those.

1.6 Limitation

During groundwork of this report some obstacles have come across, which can be termed as the limitation of the project, these reasons did not allow this repot to go in depth of issues hence several parts of the report is not concentrated. Therefore the limitations that were faced: 

Ø  The website of the bank is not provided enough information.

Ø  The branch office is not providing the strategic and financial information

Ø  Unfortunately due to the bank’s limitations (business secrecy and confidentiality), I was unable to acquire sufficient information.

Ø  As this is my first report about Bank so I had to face some difficulties to preparing the report.

Ø  Shortness of time

Ø  Improper combination among various departments 

Ø  Foreign Exchange Department process and procedures are quiet complicated and huge formalities are maintained

1.7 Literature review

For this literature review, I conducted a database search of reviewed academic journal articles by searching for terms like “foreign exchange services” “foreign exchange performance” and “Bank profitability” and many more. This search resulted in a large selection of articles and publications, which I studied to determine which to be included in the review for this paper. In addition to the reviewed journal articles, I also used references from popular media sources and visited several relevant online websites to provide what may be viewed as the popular mainstream perspective. 

According to The Economist,(Published by the International Business Times AU. Retrieved: February 11, 2011) foreign exchange market is arguably the world's largest market place. It has an average daily turnover of US$1.9 trillion, with some other sources such as GO Market’s Introduction to Foreign Exchange estimating the market to have an average daily turnover in excess of US$4 trillion. The Bank for International Settlements says that average daily turnover in global foreign exchange markets is estimated at $3.98 trillion as of April 2010, which is a growth of more or less 20% over the $3.21 trillion daily volume in the same month back in 2007. Bottom line is foreign exchange has a huge turnover.

Marrewijk, Charles Van, (October 2004) said that, the foreign exchange market is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between wide ranges of different types of buyers sellers around the clock, with the exception of weekends. The foreign exchange market assists international trade and investment by enabling currency conversation. For example, it permits a business in the United States to import goods from the Europien Union member states especially Euro zone members and pay Euros, even though its income is in USD. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.

Chowdhury and Kashfia Ahmed (April, 2009) discussed that Banking system plays a very important role in the economic life of the nation. The health of the economy is closely related to the soundness of its banking system. In a developing country like Bangladesh the banking system as a whole play a vital role in the progress of economic development. A bank as a matter of fact is just like a heart in the economic structure and the Capital provided by it is like blood in it. As long as blood is in circulation the organs will remain sound and healthy. If the blood is not supplied to any organ then that part would become useless. Export and Import facility provided by the banks works as an incentive to the producer to increase the production. Most of the banks carried on foreign exchange trade. Whether they export or import, it is through banks that money is transferred from one country to another. For example, bills of exchange and letters of credit are the regular ways banks use to transfer money. 

Siddique and Islam (2001) pointed out that the Commercial Banks, as a whole, are performing well and contributing to the economic development of the country. The average profitability of all Bangladeshi banks collectively was 0.09% during 1980 to 1995 but it will be increased year by year which means that a profit of TK 0.09 was earned by utilizing assets of TK 100. In every aspect of profit, banking sector contributes the national economy as well as to the individual organization. 

Jahangir, Shill and Haque (2007) stated that the traditional measure of profitability through stockholder’s equity is quite different in banking industry from any other sector of business, where loan-to-deposit ratio works as a very good indicator of banks' profitability as it depicts the status of asset-liability management of banks. But banks' risk is not only associated with this asset liability management but also related to growth opportunity. Smooth growth ensures higher future returns to holders and there lies the profitability which means not only current profits but future returns as well. So, market size and market concentration index along with return to equity and loan-to-deposit ratio grab the attention of analyzing the banks’ profitability. The banking industry of Bangladesh is a mixed one comprising nationalized, private and foreign commercial banks. Many efforts have been made to explain the performance of these banks. Understanding the performance of banks requires knowledge about the profitability and the relationships between variables like market size, bank's risk and bank's market size with profitability. Indeed, the performance evaluation of commercial banks is especially important today because of the fierce competition. The banking industry is experiencing major transition for the last two decades. It is becoming imperative for banks to endure the pressure arising from both internal and external factors and prove to be profitable. Until early 1985, Bangladesh had a highly repressed financial sector (Chowhdury, 2002). Banks and other financial institutions were fully owned by the government. In the early part of 1980, Bangladesh entered into the IMF and World Bank adjustment programs and the process of privatization and liberalization gained momentum under the influence of the World Bank and the IMF. Since then the banking industry of Bangladesh has become an attractive ground for both domestic and foreign investors to take part in the game. It is of utmost importance that these players prove themselves profitable.

1.8 Methodology of Data collection

For achieving the specific objective of the study, data will be gathered most of from primary sources and little from secondary sources.

Primary sources

Ø  Direct conversation with the employees of the Foreign exchange Departments of JBL Ø By using organizational information.

Secondary Sources

Ø  Website of Jamuna BankLimited.

Ø  Annual Reports, Brochures, Manuals and Publication of  Jamuna Bank Ltd


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