Foreign Exchange Operations of Southeast Bank Limited

View With Charts And Images..

“Foreign Exchange Operations of SouthEast Bank Limited”

Chapter 01

1. Executive Summary

SouthEast Bank Limited, a second generation private bank, emerged in 1995 amid liberalization of global economies. Currently, its authorized capital is Tk.10, 000.00 million and its capital and reserve reached 17,095.90 million as of December 31, 2010. Its vision is to stand out as a premier banking institution in Bangladesh and contribute significantly to the national economy.

The Bank, in the meantime, successfully completed 16th year of banking operations recording significant growth in all the performance indicators. In 2010, the bank earned an after tax profit of Tk. 2,763.13 million. The deposit of the bank grew by 11 percent to Tk 107,0729.59 million and advanced by 19 percent to Tk. 92,452.62 million compared to those of 2009.During the last five years (2006-2010), the bank achieved an average annual growth of 23 percent in deposit, 23 percent in advances,37 percent in export, 30 percent in import and 76 percent in remittance. During the last six years, the export volume increased by three times to Tk 58,158.06 million and foreign remittance increased by eight times to Tk. 28,082.25 million.

Operational excellence coupled with qualitative improvements continued to be of paramount importance to the bank. At present, the bank has 76 branches and 2 Off-Shore units across the country. Plans have been drawn to raise another 10 branches and at least 10 more SME / Krishi branches in 2011.Our journey towards greater operational success continues with increased energy and enthusiasm.

As we face the stiff challenges ahead on the way to further improving the profitability of the bank, we rely on our skilled and experienced workforce. Our strengths are our close and cordial partnership with customers, our firmly anchored presence in the country’s strategic places of commercial and business importance and global reach through our correspondent banks for expansion of foreign trade, foreign exchange and remittance business. Our product-basket encompasses Real time online branch banking, Islamic banking, Merchant banking, Dual currency visa credit card, Visa travel card, ATMs, Education loan scheme, Double benefit scheme, Consumer loan, Millionaire deposit scheme, SME banking, Corporate banking, Syndicate loan, Monthly savings scheme, Monthly income scheme, Pension saving scheme, Wage earner pension scheme, SMS banking etc. in addition to our traditional credit and foreign trade related products and services.

High quality customer service through the integration of the latest and state of the art banking technology and products is our tool to achieve success. Customers are our first priority. We are trying hard to provide a system of one-stop shopping for customers by providing a spectrum of services. Our employees have mastered new technology, enhanced their product knowledge and honed their skill to help customers meet their financial goals. We want to be the best at helping customers become financially better off by providing free advices, innovative leading-edge financial solutions, choices and convenience. Whether our customers are individuals, small businessmen, or commercial clients, we aim to deliver the best customer service by meeting their unique and different needs in a professional, ethical, friendly and knowledgeable manner.

We are pledge-bound to turn Southeast Bank Limited into a modern banking institution, dynamic in actions, progressive in programs, honest in dealing, just in judgment, futuristic in attitude, fair in approaches and devoted to high quality service to customers. Our charted plans are aimed at boosting modern management, advance technology, good profitability, sound financial strength and fair image of the bank. We are firmly committed to transparent, responsible and accountable corporate governance with the participation of our strong and most capable team of professionals and under the prized policy directives and guidance of the board of directors of the bank.

Southeast Bank Limited carries out business activities with due respect to its values and norms and with an understanding of the importance a large financial institution has for the society and the environment. It is moving fast to green banking. The bank wants to ensure its shareholders a competitive return in line with the best among peer institutions.

1.2 Rationality of the study:

Internship program is the practical aspect of our theoretical learning. It makes a bridge between the gap of classroom learning and practical learning. In this view, Internship plays a pivotal role for each professional degree like BBA. The study will help formulate suitable policies taking into consideration different ideas, suggestions and feelings of the customers and bankers. Further more, it may note that Southeast Bank executives who are really executing the policies undertaken by the top management will have a chance to communicate their interaction and provide necessary feedback.

1.3 Objectives of the Study:

1.3.1 Primary objective:

The primary objective of this report is to be familiar with the working environment of present institutions and also fulfill the requirements of BBA theoretical knowledge gained from the coursework of the BBA program in a specific field.

1.3.2 Secondary Objective:

  • To understand and analyze the over all activities of Southeast Bank Limited.
  • To evaluate the foreign exchange activities and techniques of Southeast Bank Limited.
  • To relate the theoretical learning with the real life situation in practical.
  • To know the procedures, systems of the foreign exchange operations of Southeast Bank.
  • To know the banking system and banking job.

1.4 Scope of the study:

The Report mainly focuses on the following areas:

  • The kinds of foreign exchange facilities extended by Southeast Bank Limited.
  • General procedures for getting those foreign exchange facilities.
  • What kinds of standard documents are required for getting those international trade facilities.
  • How different kinds of projects are appraised and financed at Southeast Bank Limited.
  • Present scenario of recovery rate and classified transactions of Southeast Bank Limited.

1.5 Limitationsof the Study:

  • All the time of preparing that report have tried to gather every details of process but the major limitation is the lack of adequate information.
  • Lack of opportunity to visit more than one branch.
  • Sufficient records, publications were not available as per my requirement.
  • Time constraint.
  • Non-cooperative behavior of some officials of the bank.
  • 3 months are very short time to prepare this.

1.6 Methodology of the study:

To make the Report more meaningful and presentable, two sources of data and information have been used widely. Both primary and secondary data sources were used to generate the report.

1.6.1 Primary Data sources:

  • Practical banking work.
  • Personal discussion with the officers and executives of Southeast Bank Limited.
  • Personal interview with the customers.

1.6.2 Secondary Data sources:

  • Annual Report, Publications, Training materials of Southeast Bank Limited.
  • Periodical statements of the Beak, Brochures, Booklets etc.
  • Office circular.

 1.7 Historical Background:

Southeast Bank Limited is a scheduled Bank under private sector established under the ambit of bank Company Act, 1991 and Incorporated as a Public Limited Company under Companies Act, 1994 on March 12, 1995. The Bank started commercial banking operations effective from May 25, 1995 during this short span of time the Bank had been successful to position itself as a progressive and dynamic financial institution in the country. The Bank had been widely acclaimed by the business community, from small entrepreneur or large traders and industrial conglomerates, including the top rated corporate borrowers for forward-looking business outlook and innovative financing solutions Thus within  very short period of time it has been able to create an image for itself and has earned significant reputation in the country’s banking sector as a Bank with vision. Presently it has sixty three branches in operation.

The emergence of Southeast Bank Limited at the function of liberation of global economic activities, after “Uruguay Round” has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of “Asian Vision” has been preciously the essence of the legend of bank’s success. Southeast Bank Limited has been awarded license by the Government of Bangladesh as a Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh.

Commercial Banks are one of the key contributors to the economy of Bangladesh. They allocate the capital resources to the proper development agencies. People and the government itself are very much dependent on the services provided by these banks in the financial market for the process of economic development to function properly. Commercial banks act as financial intermediaries by performing the function of mobilization the funds from one group and lending the same to another while making a reasonable amount of profit after meeting the cost of funding. Lending is said to be the clients. There are various types of loans and advances through which the bank exercises the function of Lending.

It is well recognized that there is an urgent need for better-qualified management and better-trained staff in the dynamic global financial market Bangladesh is no excepting of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. Money and Banking is the center around which all-economic science clusters. So this report is carried out to find the problems faced  by Southeast Bank Limited and recommend some measures to overcome these problems for economic development of Bangladesh. 

To conduct the study disguised queries, trend and growth rate analysis, ratio analysis, graphical presentation such as pie chart, bar, graphs have been used. Raw data collected from various sources required to be processed, edited and carefully developed for the purpose of the study.

For this study mainly secondary sources of data had been relied on, because secondary data can be an immediate and cost effective means to gaining valuable insight into research issues, provided that the information comes from reliable and timely sources. Its sample was small and no representative. The research has been started with secondary data and preceded to primary data only when the secondary data sources have been exhausted or yield marginal returns. An analytical approach has been followed to conclude the decisions.

1.8 Southeast Bank’s Future Outlook in 2010:

  • Increase our market share both in the corporate and retail banking sector.
  • Strengthen our technology platform to install highly efficient and cost effective products solutions for the customers.
  • Enhance our corporate brand image through promotional campaigns and marketing activities.
  • Expand our remittance mobilizing activities, design special scheme for wage earners to give them highest level of benefit and convenience.
  • Maintain high standard for asset quality through disciplined credit risk management and risk monitoring.
  • Participate in the viable projects under PPP (Public Private Participation) in power and energy sector.
  • Strengthen our syndication and club financing operations.

1.9 SEBL’s Vision:

The vision is to be a premier banking institution in Bangladesh and contribute significantly to the national economy.

1.10 SEBL’s mission:

  • High quality financial services with state of the art technology.
  • Fast & accurate customer service.
  • Sustainable growth strategy.
  • Follow ethical standards in business.
  • Steady return on shareholders’ equity.
  • Innovative banking at a competitive price.
  • Attract and retain quality human resource.
  • Commitment to corporate social responsibility.

1.11 SEBL’s Core Values:

  • Integrity
  • Respect
  • Fairness
  • Harmony
  • Team spirit
  • Courtesy
  • Commitment
  • Service Excellence
  • Insight and Spirit
  • Enthusiasm for Work
  • Business Ethics

1.12 SEBL’s Core Strengths:

  • Transparent and quick decision making;
  • Efficient team of performers
  • Satisfied customers
  • Internal control
  • Skilled risk management
  • Diversification

1.13 SEBL’s Client Commitments:

Our customer is focused modem banking institution in Bangladesh. Our business motives center on the emerging needs of the market. Our commitments to the clients are the following:

  • Provide service with high degree of professionalism and use of modern technology.
  • Create life-long relationship based on mutual trust and respect.
  • Response to customer needs with quickness and accuracy.
  • Sharing their values and beliefs..
  • Grow as our customers grow.
  • Provide products and services at competitive pricing
  • Ensure safety and security of customers’ valuables trusted with us.

1.14 SEBL’s corporate culture:

Southeast Bank Limited is one of the most disciplined banks with a distinctive corporate culture. The people of the Bank can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, characters individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to them. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture they belong has not been imposed; it has rather been achieved through their corporate culture.

1.15 Business Objectives of Southeast Bank Limited:

  • Make sound investments.
  • Meet capital adequacy requirement at all the time.
  • Ensure a satisfied work force.
  • Ensure 100% recovery of all advances.
  • Focus on fee-based income.
  • Adopt an appropriate management technology.

1.16 Corporate Slogan:

A bank with a vision.

1.17 Performance Analysis and Findings:

The capital and reserve of the bank as on 31st December,2010 are append below:

1.17.1 Capital and Reserves:

(a) Core Capital ( Taka in million ):

(ii) Paid up capital 6930.84

(iii) Statutory reserve 3265.60

(iv) General reserve 337.65

(v) Retained earnings 2078.87

Total capital 12612.96

(Supplementary capital was 17095.90)

Financial Stability (Taka in million)
Authorized Capital December, 2010 10,000.00
Paid – up Capital December, 2010 6930.84
Total Capital (Tier I + Tier II) December, 2010 17,095.90
Deposit December, 2010 107,729.58
Advances December, 2010 92,452.62
Investments December, 2010 18,327.65
Operating Profit December, 2010 6,754.94

 Initial public offering of shares of Tk. 150.00 million was completed in 19992

1.17.2 Resources and Capabilities

Southeast Bank Limited is well prepared and capable of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services.

1.17.3 Physical and Technological Resources:

A great deal of investment for developing the physical resource base of the Bank has been made. The Bank has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are sixty-three conveniently located branches throughout Bangladesh. Most of the branches are in the capital city of Dhaka, each and every division there is one more branch and almost every district  have at least one branch.

Major features of these branches are:

  • Fully computerized accounts maintenance.
  • Well decorated air conditioned facilities.
  • A fully operational computer network which is currently being implemented. The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate any Branch Banking and ATM Services.
  • Money counting machine for making cash transactions easy and prompt.
  • Forty six out of sixty three branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade.

Like any other financial intermediaries, Southeast Bank Limited is no exception in performing its core functions via mobilization of fund and utilizing such mobilized fund for profitable purposes.

1.17.4. Mobilization of fund:

The main sources of fund for the Bank are:

(i) Deposit and

(ii) Borrowing

1.17.4.1 Deposit:

Deposit is the mainstay of the Bank’s sources of funds. Following usual practices, it collects deposit through:

a. Current Deposit

b. Savings Deposit

c. Term Deposit

1.17.4.2 Borrowing:

Apart from deposit, Southeast Bank Limited receives funds from:

  • Bangladesh Bank
  • Asian Development Bank (ADB)
  • A German Development Bank.

All of these funding sources are for relatively longer period. Receiving the credit lines from ADB has been a recognization of the Bank’s highly satisfactory performance.

Five years performance at a glance: (2005-2010) (million in taka)

Particulars 2009 2008 2007 2006 2010
Authorized Capital 10,000.00 3,500.00 3,500.00 3,500.00 10,000.00
Paid up Capital 3,422.64 2,852.20 2,281.76 2,112.74 6930.84
Reserve Fund / Others 6,504.62 4,804.81 4,186.60 2,828.18 10,165.06
Deposit 96,669.05 68,714.67 55,474.05 46,056.18 107,729.58
Advance 77,497.57 60,281.26 48,164.60 41,147.28 32,551.09
Investment 21,350.23 12,299.61 8,462.86 6,265.55 18,327.65
Import Business 69,582.92 58,019.77 38,470.34 35,125.12 103,726.70
Export Business 46,724.47 42,178.60 28,771.36 25,874.61 58,158.06
Guarantee Business 11,916.74 15,078.99 9,008.32 8,656.80 22,781.19
Remittance Business 23,800.00 15,221.87 11,040.17 13,479.83 28,082.25
Total Income 13,702.25 10,250.13 8,670.47 6,766.11 16,071.33
Total Expenditure 9,087.79 7,237.55 5,754.27 4,703.45 9,316.39
Operating Profit 4,614.66 3,012.58 2,916.20 2,062.66 6,754.94
Net Profit after Tax and Provision 1,870.19 887.24 1,222.97 909.88 2,763.13
Fixed Assets 4,338.35 2,685.56 1,708.11 1,300.39 4463.08
Total Assets 112,676.98 81,181.53 64,370.69 53,706.12 131,943.48
Year 2002 2003 2004 2005 2006
Income 1936.52 2772.52 3043.49 4689.55 6766.11

Source: Annual Report 2006

Total Expenditure:

Figure 2: Total Expenditure

Amount Million in Taka

Year 2002 2003 2004 2005 2006
Expenditure 1.443.98 2,107.36 2,234.83 3,216.11 4.70345

Source: Annual Report 2006

Reserve and Funds:

Figure 3: Reserve fund /other

Amount Million in Taka

Year 2002 2003 2004 2005 2006
Reserve 571 .68 522.98 769.13 1880.47 2828.18

Source: Annual Report 2006

Deposit:

Figure 4: Deposit

Amount Million in Taka

Year 2002 2003 2004 2005 2006
Deposit 1534345 19618.82 27930.84 38258.15 46056.18

Source: Annual Repot 2006

 Total Capital:

Figure 5: Total Capital

Amount Million in Taka

Year 2002 2003 2004 2005 2006
Capital 970.96 1300.14 1649.44 2236.B4 4940.92

Source: Annual Report

Opening Profit:

Figure 6: Opening Profit

Amount Million in Taka

Year 2002 2003 2004 2005 2006
Capital 492.56 665.16 808.66 1473.44 2062.66

1.17.5 SWOT Analysis For SEBL:

SWOT is a short form that is used to describe the particular strengths, weaknesses, opportunities and threats that are strategic factors for a specific company. For the Southeast Bank Limited I found it as follows:

Strengths:

  • Efficient management.
  • Leading retail loan providers.
  • Better employee relations.
  • Better location of the branch.
  • Better financial standing.
  • Interesting consumer schemes.
  • Quick delivery of foreign exchange.
  • Online Banking
  • ATM facility
  • Simultaneously Islamic Banking
Opportunities:

  • Market leadership.
  • Growth of the banking sector.
  • Different consumer service schemes of the SEBL.
  • Make the goodwill.
  • Perform services more quickly.
  • Go beyond the national boundaries.
  • SMS banking.
Weaknesses:

  • Inadequate work force.
  • Conservative loan facility.
  • Profit rate is less than others.
  • Lack of sufficient own ATM booths.
Threats:

  • Political instability.
  • Intense competition.
  • Government rules and regulations.
  • Economical variation.
  • Policy of competitive banks.

Chapter 02

2. Terms used in Foreign Exchange Operations

2.1 Activities of Foreign Exchange:

There are three kinds of foreign exchange transactions:

  • Import
  • Export and
  • Remittance

Under the import policy of Bangladesh the Importer has to get the valid Import Registration Certificate (IRC) from the Chief Controller of Import & Export (CCI&E).

2.2 Letter of credit (L/C):

Letter of credit means any arrangement whereby a Bank (the issuing Bank) is committed (on behalf of the buyer/applicant) to pay certain amount at the seller’s disposal under some agreed conditions.

2.3 Types of documentary credit

Documentary credit may be of three types

  • Recoverable credit
  • Irrecoverable credit
  • Add confirmed credit

(i) Recoverable credit:

This type of credit can be cancelled or amended at any time by the issuing Bank without prior notice to the seller. It is not in use.

(ii) Irrecoverable credit:

This type of credit can’t be cancelled or amended by the issuing Bank without agreement of parties concerned therefor. All the credits issued in our country are of recoverable nature.

(iii) Add confirmed credit:

When a third Bank provides guarantee to the beneficiary to make payment, if issuing Bank fail to make payment, the L/C is called confirmed L/C. In case of a conformed L/C a third Bank adds their confirmation to the beneficiary, to make payment, in addition to that of issuing Bank. Confirmed L/C gives the beneficiary a double assurance of payment.

2.4 Special documentary letters of credit:

The following five major steps are involved in the operation of a documentary letter of credit:

  • Opening
  • Advising
  • Amendment
  • Presentation
  • Settlement

2.5 Import Financing:

The post import finance extends the import credit in the following forms:

  • PAD (Payment against documents)
  • LTR (Loan against trust receipt)
  • LIM (Loan against imported merchandise)

Under the export policy of Bangladesh, the exporter has to get the valid Export Registration Certificate (ERC) from the Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to be incorporated on export form & other paper connected with exports.

2.6 Receiving the letter of credit:

After getting contract for sale, exporter should ask the buyer for L/C clearly starting terms & conditions of export & payment.

2.7 Procuring the materials:

After knowing that the L/C has opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. If the exporter has to procure the raw materials from another supplier (local or abroad) he has to open Back-to-Back L/C.

2.8 Back-to-Back L/C:

Back-to-Back L/C is one type of L/C, which is opened against lien on a valid export L/C. It is opened for inland & abroad as well. Bank will supply the following papers/documents for opening a Back-to-Back L/C.

  • L/C application form
  • LCA form
  • IMP form
  • Charge document papers

The above papers must be completed, filled & signed by the party therefore. The party will submit the entire filled document along with application in printed form to the designated Bank which is also an agreement between applicant & the Bank.

2.9 Export Financing:

An exporter is who exports the goods to another customer whether in domestic country or in abroad. In exporting the stipulated goods he may require financing. So export financing may be required at two stages.

  • Pre-shipment Credit and
  • Post-shipment Credit.

(i) Pre-shipment Credit:

Pre-shipment credit is the credit, which is given to finance the export activities of an exporter for the actual shipment of goods. The purpose of each credit is to meet the working capital needs from the procuring of raw materials to the transportation of goods for the export. Before sanctioning that credit, the Bank takes into consideration the credit worthiness, export performance of the exporter’s together worthiness and all other information required for sanctioning the credit in accordance with the existing rules & regulations.

(ii) Post-shipment Credit:

There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Bank may finance against export documents ensuring the following:

  • Export documents comply with the credit terms.
  • Party’s past performance is satisfactory.
  • Any other security in case of exporting under contract.

2.10 Foreign Remittance:

Foreign remittance means remittance of foreign currencies from one place/person to another place/person. In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of import, export, travel and other purposes. However, especially foreign remittance means sale & purchase of foreign currencies for the purposes other than export and import. Southeast Bank Limited performs the remittance function with different countries. It maintains the foreign remittance in the following form:

  • Foreign Demand Draft
  • Inward Remittance
  • Outward Remittance

(a) Foreign Demand Draft (FDD):

A foreign demand draft is a negotiable instrument issued by a bank drawn on other bank of another country with the instruction to pay a certain amount to the beneficiary on demand. Remittance through demand draft may be inward or outward.

(i) Inward Remittance:

Inward remittance refers to the extent where the bank makes payment to the client against foreign demand draft. Bank will make payment to the client by verifying the test number and signature of the authorized officer.

(ii) Outward Remittance:

It refers to the extent where the bank issues foreign demand draft. The bank charges TK.300 per demand draft.

Two forms are used for Outward Remittance of foreign currency such as:

IMP Form:

All outward remittance on account of Imports is done by IMP form.

TM Form:

For all other outward remittance  TM form is used.

2.10 Western Union Money Transfer Services:

Western Union, a global leader in money transfer service, helps to send money to loved ones quickly and reliably with convenience and control through more than 245,000 Western Union Agent locations in over 200 countries and territories. Western Union money transfer service is ideal for transferring money virtually at any time, anywhere, providing a high level of security, flexibility and reach with the fastest, easiest money transfer solutions. With the signing of the Representation Agreement between Western Union Financial Services, Inc., U.S.A. and Southeast Bank Ltd., Bangladeshi Wage Earners living abroad can now send their hard earned money through Western Union and their families and friends can receive the money in minutes by visiting any of the 53 branches and 10 SME locations of Southeast Bank Ltd. all over Bangladesh. The Beneficiary does not have to pay any fee to receive the money transfer.

With Western Union and Southeast Bank Ltd., money transfer has never been so easy. It is a 3 step process:

  • The sender will receive money receipt with Money Transfer Control Number (MTCN) from any of the Western Union agent location outside Bangladesh after depositing money.
  • The sender will inform the money transfer detail (amount of money sent, sender’s name, receiver’s name, destination country, and MTCN) to the receiver.
  • The receiver will receive the money from any of the 53 Branches of Southeast Bank Ltd. by showing a valid Identification and filling a form.

Money transfers can be received from 10:00 A.M. to 4:00 PM on Sunday through Thursday and from 10:00 A.M. to 12:00 PM on Saturday in 17 Authorized Dealer branches.

From the above discussion we can detail the term foreign exchange operations.

2.11 Foreign Trade Finance:

So far the bank has established correspondence relationships with as many as 22 foreign banks in order to facilitate foreign trade. The Bank handled total export business of Taka 46,724.47 million and import business of Taka 69582.92 million in 2009.

The Bank’s export and import business grew by 8.61 percent and 19.45 percent respectively. Major items of exports were ready made knit & woven garments, sweater, jute products, leather and leather goods, handicrafts etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, raw cotton, electronic consumer goods, chemicals, tires and tubes, reconditioned vehicles, bicycle spare parts, food items such as rice, wheat, garlic, onion, sugar, chilly and other essential commodities.

In case of export business finance is perceived as one of the important elements. It is linked to nearly all the stages of conversion cycle- procurement of raw materials, processing of goods, packing storage, transportation to the port, shipment to the buyer, assembling of shipping documents and finally collection of payments. The term Export Finance should therefore mean moneys needed by an exporting farm at each stage of the conversion cycles.

2.12 Export Financing Sectors of Southeast Bank Limited:

Export financing can play a vital role in the development process of Bangladesh. With earning on export we can meet our import bills. The export trade is always encouraged because the major portion of foreign exchange earning is derived from export. Because of shortage of adequate capital exporters have to come in contact with commercial banks and financial institutions to get finance from them. Southeast Bank Limited as a state-owned scheduled bank provides certain facilities to the exporters to boost up export earnings.

The traditional & non-traditional sectors in which Southeast Bank Limited provides export-financing facilities are as follows:

  • Readymade Garments of all sorts.
  • Jute manufactures
  • Raw Jute
  • Fish & Prawns.
  • Hides, Skins & Leather.
  • Tea
  • Fertilizer etc.

2.13 Export Financing System of Southeast Bank Limited:

Bangladesh as a developing country depends mainly on foreign exchange earnings for its development activities. The major portion of foreign exchange earnings is derived from export obviously, to boost export, government provides certain incentives to the exporters namely:

  • Export Financing
  • Development Financing
  • Export Credit Guarantee Scheme
  • Export Performance Benefits
  • Duty Draw Back
  • Rebate on Duty & Tax
  • Income Tax Rebate
  • Insurance Premium Rebate
  • Conditional Cash Subsidy to Garments Industry , Vegetables, Handicrafts etc

2.13.1 Pre-Shipment & Pos-Shipment:

In Southeast Bank Limited export finance is required by the exports at two stages namely

Pre-shipment & Post-shipment stages:

(i) Pre-shipment: It is required to purchase of raw materials, to meet cost of production, procurement of exportable goods, packing, transport, payment of insurance premium, inspection fee, freight charges, ware housing etc.

(ii) Post-shipment: It is required by the exporters after actual shipment of goods in order to bridge the period between shipment of the goods and receipts of sales proceeds from abroad.

An exporter own resource may not be adequate to meet all such expenses. So he / she have to come in contact with commercial banks and financial institutions to get finance from them. As a state owned scheduled bank Southeast Bank Limited provides credits to exporters at a consideration rate of interest as an export promotion measure as per government directives.

2.14 Export Form:

The customer, now issued by the authorized dealers, must declare all export of which the requirement of declaration of exchange control manual of Bangladesh Bank applies on the Export Forms.

Disposal of Export Forms:

(i) Original:

From custom authority to Bangladesh Bank (ECD) after shipment goods.

(ii) Duplicate:

From negotiating bank to Bangladesh Bank after negotiation.

(iii) Triplicate:

From negotiating bank to Bangladesh Bank after realization of the proceeds of the export bill.

(iv) Quadruplicate:

Retained by the negotiating bank as office copy.

2.15 Export Development Fund:

The main objective of creating an export development fund at the Bangladesh Bank is to assure a continued availability of foreign exchange to meet the import requirement of non-traditional manufactured items. This facility is available to the non-traditional exporters particularly newer exporters, exporters diversify into higher value export and exporters diversify into new markets. An exporter identified above is eligible on the basis of the conditions stated below: –

  • One must be an exporter of non-traditional manufacturing items.
  • The loan should be utilized in the case of importing raw materials for manufacturing the exportable products.
  • The exporter must have an export letter of credit.
  • One must create a back-to-back L/C  for importing raw materials.
  • The period of loan is 180 days.

2.16 Scrutiny of Export Document:

After the shipment of goods the exporters submit export documents to authorized dealer for negotiation of the same. As bankers deal with documents only not with commodity, they are required to be very much careful about the genuineness and correctness of the documents evidencing shipment of the respective commodities. The bankers are to ascertain that the documents are strictly as per the terms of Letter of Credit. Before negotiation of the export bill, the bankers are to scrutinize and examine each & every document with great care. Negligence in the part of the bankers may result in non-repatriation or delay in realization of proceeds as incorrect documents may put the importers abroad into unnecessary troubles. The scrutiny procedures are as follows:

(i)  Scrutiny of Draft or Draft of Exchange:

  • The draft should be drawn by the party indicated as the beneficiary of the credit to the exporter; drawer must be in accordance with the terms of the credit.
  • The tenor and amount of the draft be in conformity with the credit terms.
  • The bill of exchange should be properly stamped if necessary with the requisite value and the cost must be recovered from the drawers unless it is provided otherwise in the L/C.
  • The draft or bill must bear the correct date and must be drawn or endorsed to the order of the bank.
  • The drawer’s signature must be verified.

(ii) Scrutiny of invoice:

The physical description of the goods such as price, quantity, quality, markings etc. in the invoice must correspond with the specifications in the credit.

  • If the credit stipulates a consular invoice, the requisite invoice should be furnished.
  • All copies must be signed and certified as correct shipper.
  • If the credit stipulate for any other particulars to be stated in the invoice these must complied with. It should not include charges such as postage, cable etc. unless specifically authorized under the credit.

(iii) Scrutiny of Shipping Bill:

  • The bill of lading should be a full set clean on board, unless the credit stipulates otherwise. ‘Received for Shipment’ bills of lading must not be accepted unless permitted by the credit.
  • It must agree with the invoice as regards quantity and description of goods as well as in respect of ports of shipment and destination.
  • The bill of lading must also indicate where it is ‘Freight Paid’ (C & F, GIF) or ‘Freight Payable’ at destination (FOB transaction).
  • Transshipment and port of shipment clauses in the shipping bill should be in accordance with credit terms and the provisions of the uniform custom and practice.
  • Credit frequently stipulates for shipment not later than a specified date. Bill of lading must be examined to ensure that these are dated not later than the date mentioned.
  • Must be properly signed by or behalf of the carries, must be properly stamped
  • and must be endorsed, expect when the relative credit stipulate for bill of lading to order of a named firm.
  • Dock shipment not permitted unless specifically authorized and covers by insurance.
  • Bill of lading must not be a stale one.

(iv) Scrutiny of Insurance:

Where insurance is to be effected by the beneficiary for GIF consignment, the policy accompanying the documents should be examined to ensure:

  • That the insurance covers the merchandise for the value stipulated in the credit.
  • That the document is of the class stipulated in the credit.
  • That the insurance documents describe the merchandise covered and mention the name of the carrying steamer. In case where ‘on board’ bill of lading is not presented by the following clauses or words, similar indent must follow the name of the steamer or ‘following steamer’.
  • That all risks stipulate in the credit are properly covered in the insurance documents. When the credit stipulates that ‘all risk’ are be covered, it is not sufficient that various risks are mentioned but a clause to the credit that ‘all risk’ are covered, is required.
  • That the policy is in the name of the bank and the importer.
  • That the party designed in the documents to perform such act properly countersigns the insurance document.
  • That the insurance document complies with the conditions of the Letter of Credit is in negotiable form that it is endorsed by the party to when the loss payable, unless the credit stipulates that, the insurance must be issued as ‘loss payable to a specified party in the country of destination’.
  • That the date appearing on the insurance document is not later than the date appearing on the bill of lading.
  • That the insurance document covers transshipment when the bill of lading indicates that transshipment would take place.
  • That the insurance claims are payable at the port of destination, that insurance certificate / policy acknowledges the payment of the premium.

(v) Scrutiny of other documents:

  • The other documents such as certificate of origin, packing list, weight / measurement certificate, inspection certificate, survey report, quality control certificate etc. should be issued or signed by the proper authorized and description of ‘export – order’ given in these documents not be in contradiction to the credit terms.

2.17 Risk of Export Financing:

In the trade – there are so many risk factors involved. In banking sector  the bank faces risks basically from loans & advances and foreign exchange. In this section I discuss the risk of Export Financing while there are many advantages to exporting it is not without risk. Indeed there are often factors present in international market, which make foreign exchange substantially more risky than domestic ones, including the credit risk of non-payment or non-acceptance of the merchandise by the buyer. For international sales, these risks are far more pronounced than they are domestically. For these reasons Southeast Bank Limited also accompanies with elements of uncertainty some which are as follows:

(i) Commercial risk:

(ii) Political risk:

(iii) Informational risk:

(iv) Pre-shipment export credit risk:

All over the world there is no country, which can meet its requirements from its own sources. Some imports raw materials, some finished goods & some food products or other commodities. As it is export & import are invariably conducted through commercial banks. Southeast Bank Limited is engaged to extend the facilities to the importers.

After getting completed the registration, application for opening L/C is made through a bank where applicant has a current account. An importer is required to fill up import application form & Letter of Credit authorization form (LCAF) & importer has to deposit margin money to the bank from 5% to 40% of the import value, depending on the credibility of the importer. After the Letter of Credit is established, the exporter after executing the export, submits the negotiable documents through its bankers and in terms of exporter’s bank submits the documents to the corresponding bank  in the country. If the documents are found correctly fulfilling all the terms & conditions stipulated in the letter of credit, the corresponding bank of import’s bank will realize that payment will be debited to the importer’s account. In banking terms this is known as PAD and the importer has to pay the PAD amount in 30 days with the bank interest rate. After 30 days when importer is unable to pay the PAD amount, he can take documents but the PAD turns into Loan against Trust Receipts (LTR)

2.18 Import Financing Sectors of Southeast Bank Limited:

Southeast Bank Limited is one of the financers of import businesses in our country. In extend of credit grant and other facilities, Southeast Bank Limited gives finances to the following sectors:

  • Machinery & transport equipment.
  • Petroleum & petroleum products.
  • Textile, yarn, fabrics, article & related products.
  • Chemicals.
  • Bicycle parts.
  • Iron & steels.
  • Cereal & cereal preparations.
  • Dairy products & eggs.
  • Other including loans & grants.

2.19 Import Financing System of Southeast Bank Limited:

  • Registration of import.
  • Income tax registration certificate.
  • Partnership deed in the cases of partnership concern.
  • Certificate of registration with the register of Joint Stock Companies.
  • Articles & Memorandum of association in the cases of limited companies.
  • Nationality certificate & Bank certificate.
  • Ownership documents in place of business.
  • Trade license from the relevant authority.
  • Survey clearance from the relevant authority.
  • Other documents prescribed in the import policy.

2.20 Import Registration Certificate (IRC):

In case of import, IRC is the first necessity for the importer. The IRC is not required for import goods by government departments, local authorities, statutory bodies, recognized educational institutes, hospitals. In addition, registration is not required for import goods, which do not involved remittance of foreign exchange like -medicine, reading materials etc. can be imported without IRC by the users within monetary limit.

2.21 Import Procedure:

Imports & Exports (control) Act 1950 regulates the import & export trade of the country. There are a number of formalities, which an importer has to fulfill before import goods. The importer follows the following steps:

  • The buyer & the seller conclude a sales contract provided for payment by documentary credit.
  • The buyer instructs his / her bank, the issuing bank to issue a credit in favor of the seller beneficiary.
  • The issuing bank asks another bank usually in the country of the seller, the advice or confirms the credit.
  • The advising or confirming bank informs the seller that the credit has been issued.
  • As soon as the seller receives the credit and is satisfied that he / she can meet its terms & conditions, are in a position to load the goods & dispatch them.
  • The seller then sends the documents evidencing the shipment to the bank where the credit is available is the nominated bank. This may be the issuing bank or the confirming bank named in the credit as the paying, accepting or negotiating bank.
  • The bank if other than the issuing bank, sends the documents to the issuing bank,
  • The issuing bank checks the documents if they meet the credit requirement.
  • After payment in accordance with the terms of the credit either to the seller if she/he has sent the documents directly to the issuing bank or to the bank that has made funds available to him/her in anticipation.
  • Reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit.
  • The bank checks the documents against the credit. If the documents meet the requirements of the credit, the bank then pay, accept or negotiate accordingly to terms of credit. In case of a credit available by negotiation, issuing bank or the confirming bank will negotiate with recourse; another bank including the advising bank has not confirmed the credit, with which it will negotiate with recourse.
  • When the documents have been checked by the issuing bank and found to meet the credit requirements, they are released to the buyer upon payment of the amount due or upon other terms agreed between importer & the issuing bank.
  • The buyer sends transport documents to the carrier who will then proceed to deliver the goods.

2.22 Import Scrutiny:

The import bills consist of the following documents & the order of their scrutiny should be as below:

  • Forwarding schedule of negotiating bank.
  • Bill of exchange.
  • Commercial Invoice (Before shipment).
  • Bill of lading.
  • Insurance cover note.
  • Certificate of origin.
  • Packing List.
  • PSI Report (CRF- Clean Report of findings).
  • Pro-forma Invoice (After shipment).