A Case Study Of Factors Influencing The Money Market Agrani Bank Limited

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In today’s fast growing world, business is more competitive. Banking is an essential industry. We often seek different credit lines such as Health line, Education line, Professionals line, Marriage line, Travel line, festival line, and some other retail loans. It also provides different types of incoming and outgoing deposits, checking account, ATM cards etc. Bank also provides financial advice on how and where to invest our savings. It also helps us in foreign trade. Banking industry is composed of thousand of firms worldwide.

The role of Business Administration is increasing day by day. Every organization is concerned about the competency of their executive. To execute the duty and responsibility in efficient way and to cope with the technological advances in industrial and commercial development in this fast growing global environment, the ability and capability of the executive must be enhanced. The purpose of this program is to prepare students in such a manner so as to enable them to meet any challenging situation and to work with competence in the competitive business environment. Bank is the core of the modern economy. Banking industry is moving faster and changing rapidly by offering new services continuously and consolidating into much large and complex business adopting new technologies that seem to change faster than most of us can comprehend and facing a new and changing set of rules to regulate and supervise the banks that serve their citizen.

Currently there are four state owned commercial banks are operating in Bangladesh. Agrani Bank Ltd. is one of the most successful nationalized commercial banks among them.

Profile of Agrani Bank:

Agrani Bank Limited, a leading commercial bank with 867 outlets strategically located in almost all the commercial areas throughout Bangladesh, overseas Exchange Houses and hundreds of overseas Correspondents, came into being as a Public Limited Company on May 17, 2007 with a view to take over the business, assets, liabilities, rights and obligations of the Agrani Bank which emerged as a nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. Agrani Bank Limited started functioning as a going concern basis through a Vendors Agreement signed between the ministry of finance, Government of the People’s Republic of Bangladesh on behalf of the former Agrani Bank and the Board of Directors of Agrani Bank Limited on November 15, 2007 with retrospective effect from 01 July, 2007.

Agrani Bank Limited is governed by a Board of Directors consisting of 13(thirteen) members headed by a chairman. The Bank is headed by the Managing Director & Chief Executive Officer; Managing Director is assisted by Deputy Managing Directors and General Managers. The bank has 7 Circle offices, 30 Divisions in head office, 52 zonal offices and 867 branches including 10 corporate and 40 AD( authorized dealer) branches. The corporate and AD branches are authorized to deal in Foreign exchange business. The authorized capital of the Bank is Tk. 800 crore.

Objectives of the Study:

The study has some objectives. They are­

  • The report is aimed at studying and understanding the various products offered by the Bank’s each Department to its clients as well as the several activities carried out to achieve the departmental objectives.
  • To know about the influencing of money market in Agrani Bank.
  • To know about L/C document handling i.e. settlement procedure of L/C
  • To know about the import L/C opening procedure.
  • To know about the remit of funds.
  • The report also studies how AGRANI BANK LIMITED maintaining growth in overall banking activities.
  • This internship report also aims to analyze the performance of the branch as well as AGRANI BANK LIMITED as a whole.


Certain methods and techniques were utilized to collect data for this report. Both primary and secondary sources were chosen as effective means of collecting data relevant for this report.

Interview was the basic technique that was employed to collect primary data from people within the organization. For the procedure of different banking operations, I had observed the operations and worked with the officers at the same time.

On the other hand, secondary sources were used to collect data regarding the company’s performance. Publications and database within the organization helped me to gather data not only about the organization. In addition, further more the secondary sources of information are the different annual report kept in the banks.

Scope of the Study:

This is a competitive world no doubt about that. The days to come would be more competitive. The present study which is assigned for in Agrani Bangla-Bank Limited is both if theoretical and practical one. It covers different aspects of Foreign Exchange activities and of a commercial bank’s like AGRANI BANK LIMITED, Panthapath branch. In addition to above areas the study covers the overall banking in AGRANI BANK LIMITED. Without concept of general banking, other activities i.e. foreign trade is difficult to understand.


2.1 Agrani Bank at a Glance:

Agrani Bank Limited

Type: 100% State Owned commercial Bank

Founded: Dhaka, Bangladesh as a nationalized commercial bank (1972)

Headquarters: Dilkusha Commercial Area,Dhaka, Bangladesh

Circle Offices: 7

Division: 30

Zonal Offices: 52

Branches: 867

Corporate Offices: 7

AD Offices: 40


Products: Deposits, ATM card, Online banking, Advances, Agrani Bank Shilpa Unnayan Bond.

Slogan :Committed to serve the Nation

Website : www.Agranibank.org.com

Agrani Bank Limited is a scheduled 100% state owned commercial bank. AGRANI BANK LIMITED emerged as nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. As part of the plan of the government’s long term financial sector reformation and modernization it has been incorporated as a public limited company on 17 may, 2007 and acquired all assets, liabilities, rights and obligations of the former Agrani Bank. This has offered the bank new opportunity and the possibility for shaping its’ future with greater autonomy and flexibility.

The bank continued to grow steadily in all major areas. Deposits increased by 8 percent in 2008 and reached at Tk. 146.81 billion from Tk 135.92 billion in 2007. The banks profit continued to grow. The operating profit rose by 20 percent to Tk 6.33 billion in 2008 from Tk 5.26 billion in 2007, due to which capital shortfall has been reduced in 2007. AGRANI BANK LIMITED commenced formal operation on May17, 1972.

Agrani Bank Limited has over 234 ATM’s installed all over Bangladesh, making it the largest network by a large margin. Banks that have signed agreements to use Agrani Bank Limited’s ATM network:

· Bank Asia

· Islami Bank BD Limited(IBBL)

· Social Investment Bank Limited(SIBL)

· Dhaka Bank Limited

· AB Bank Limited

· Prime Bank

· United Commercial Bank Limited (UCBL)

· Southeast Bank Limited (SEBL)

Vision of Agrani Bank Limited:

To become a leading bank of Bangladesh operating at international level of efficiency, quality and customer service.

Mission of the bank:

We will go operating ethically and fairly within the stringent framework set by our regulators. We will go fusing ideas and lessons from best practice to explore new avenues to stay stronger and more efficient and competitive as well. We will apply advance information and communication technology for the benefit of our customers and employees. We will invest to strengthen the future of the bank.

Motto of the Bank:

To adopt and adapt modern approaches to stand supreme in the banking arena of Bangladsh.

Credo of the Bank:

Believing in integrity, transparency and accountability, along with professional skill that will provide high standard of service to all customers and stakeholders.


The management of the bank is vested in a 7-member board of directors appointed by the government. The managing director is the chief executive and he is assisted by deputy managing director, six general managers and other senior executives. The general managers are in charge of the bank’s branches in seven administrative divisions of the country namely Dhaka, Chittagong, Rajshahi, Khulna, Sylhet, Barisal and Rangpur. The bank has 22 departments at its head office, including a training institute at Dhaka. Total number of employees of the bank was 13269. Agrani Bank had 246 branches, of which 37 were temporarily closed. The bank has now 867 branches of which 7 circle offices, 30 division, 52 zonal offices, 7 corporate offices and 40 authorized dealer offices.

Management Setup: SETUP

Name Designation
Dr. Khondoker Bazlul Hoque Chairman
Mr. Ranjit Kumar Chakraborty Director
Mr. Shekhar Dutta Director
Mr. Nagibul Islam Dipu Director
Mr. Md. Ekramul Hakim Company Secretary
Mr. Lian Kim Seng Company Secretary
Mr. Nik Hisham Nik Company Secretary
Md. Abul Bashar CEO and Director
Md. Monir Uddin General Manager
Md. Enamul Hoque General Manager
Md.Omar Farooque General Manager
Md. Khalilur Rahman General Manager
Md. Khurshed Hossain General Manager
Md. Sarwar Jahan Deputy General Manager
Mrs.Aqiqunnessa Deputy General Manager
Md. Mijanur Rabbi Deputy General Manager
Md. Abdur Rashid Deputy General Manager
A.S.M. Rafique Deputy General Manager


In addition to traditional deposit taking in various accounts and providing loans to almost all sectors of the economy, the bank offers many other services through its schemes of school banking, inland traveler’s cheques, pension funds, industrial development bond and inland remittance. The bank operates some income generating and economic development projects such as the Productive Employment Project, Netrokona Integrated Agri-product and Water Management Project, IFAD Project for poverty Alleviation through Employment Creation, Kurigram Poverty Alleviation Project, Crop Intensification Project, National Micro Irrigation Development Project, Micro Entrepreneurship Development Project, and Agricultural Diversification and Intensification Project. The bank participates actively in foreign exchange business including overseas remittance services. The total volume of foreign exchange business handled by the bank in servicing imports and exports and remittances during 2008-2009 amounted to Tk 211750 million compared to only Tk 310 million in 1972-73. At present, the bank has correspondent relationship with 903 foreign banks/bank offices throughout the world. The company has subsidiaries in Singapore and Malaysia.

Financial Highlight of Agrani Bank Limited:

Financial highlights of AGRANI BANK LIMITED for last two years are given below:

Highlights on the overall activities of the Bank for the years 2009 and 2008

Serial No. Particulars 2008 Taka

(In million)

2009 Taka

(In million)

01 Authorized capital 8000 8000
02 Paid up capital 2480 2480
03 Reserve Fund 160 740
04 Retained Profit 700 2770
05 Total Equity 3340 6420
06 Total Deposit 135920 146810
07 Total Loans and advances 118490 113360
08 Interest Suspense and Penal interest 9500 6720
09 Provisions for Loans and Advances 13900 11530
10 Net Loans and Advances 95090 95110
11 Investments 21900 29330
12 Export business 48920 49540
13 Import Business 113430 109520
14 Remittances 42810 52690
15 Guarantee Business 1050 1120
16 Total Income 13680 14980
17 Total Expenditure 8420 8650
19 Fixed Assets 2220 2110
18 Total Assets 186280 187320
17 Net profit after provision, amortization and tax 860 2650
18 Operating Profit 5260 6330
19 Returning on Equity (ROE) 29.55% 41.28%
20 Return on asset (ROA) .92% 1.41%
21 Net interest margin in percent 3.69% 4.24%
22 Earnings per share 34.56% 106.52%

Products of Agrani Bank Limited:

ATM Card:

Account Holders of Agrani Bank Limited can now avoid the risk of carrying cash by subscribing to our Automated Teller Machine (ATM) Service. ATM Card Holders can draw cash from any ATM location and also enjoy other services like paying variety utility bills like those of BTTB, AKTEL and Grameen Phone through ATM service. The service is open round the clock in all the days including holidays.

The ATM cardholder can enquire about the balance of his/her ATM Account from any outlet at any moment. Cash withdrawal of TK. 500, to TK 10,000 can be made from ATMs. Maximum cash withdrawal limit is TK 10,000 at a time and TK 20,000 in a day. Maximum 10 transactions can be made in a day.

Agrani Bank Limited’s ATM Account Holders can enjoy the services from the following outlets under a “shared network arrangement” with other Banks.

Online Banking:

AGRANI BANK LIMITED truly On-Line Banking is a fully automated real-time, anywhere, any way banking service which covers: 24 hours a day and 365 days a year un-interrupted banking services. AGRANI BANK LIMITED has selected all the necessary items for truly on-line Banking.

The truly on-line banking will officially be inaugurated on 3rd January, 2005. In this unique real-time, any-where, any-way banking program of AGRANI BANK LIMITED, the valued customers and trusted partners will enjoy a full range of modern banking services at desired speed, absolute accuracy and competitive Price. AGRANI BANK LIMITED is fully aware of the confidentiality and security of your personal and account’s information stored into our computer systems. The confidentiality and security of your data is achieved by establishing four layers of security – at application, network, database and operating system levels.

Agrani Bank Shilpa Unnayan Bond:

Agrani Bank Shilpa Unnayan Bonds of TK 50,000 TK 100,000 & TK 500,000 denominations were introduced in July 1999 with a view to accumulating a fund of Taka 500 crore to finance industrialization. Purchaser of this Bond can separately withdraw the accumulated interest of six months. The purchaser enjoys a lot of Tax benefits.

Agrani Bank Shilpa Unnayan Bond for 5 years 10%
Agrani Bank Shilpa Unnayan Bond for 7 years 11%

General Credit:

Agrani Bank Limited delivers credit facilities to any businessman or trader engaged in any commercial activity having productive purposes that should contribute to economic growth of the country. Loan pricing system is customer friendly and prime customers enjoy rebates in repayment of loans.

Industrial Credit:

The Bank extends loans to big entrepreneurs and also to small and medium industrial ventures to boost up overall investment in the industrial sector of the country. The Bank offers financing on easy terms to the following “Thrust Sectors”:

  1. Agro-based industries
  2. Computer Software & IT
  3. Artificial flower
  4. Electronics
  5. Frozen food
  6. Export oriented non- traditional agro product
  7. Gift item
  8. Export oriented leather goods
  9. Oil & Gas
  10. Jewelry and Diamond cutting & polishing
  11. Textile industry
  12. Silk worm cultivation & silk industry etc.
  13. Agrani Bank Ltd. provides credits also to the following sectors:
  1. Fisheries
  2. Fish Processing
  3. Cold Storage
  4. Ice factory
  5. Food & allied
  6. Dairy
  7. Poultry
  8. Rice Mills etc.

Rural Credit:

After the nationalization in 1972 and the Bank’s involvement in financing agricultural sector in 1977, Agrani Bank Limited has been reinforcing efforts of the government to meet its strategic objective of increasing production, output and employment through undertaking different agricultural credit programmes / projects. Some of these programmes / projects are outlined below for understanding the role of Agrani Bank Limited in increasing agricultural production & poverty alleviations:

· Crop loan programme

· Crop Diversification Project:

· Shrimp Culture Programme ( General):

· Semi -intensive shrimp culture programme:

· Fisheries Financing Programme

· Credit for Irrigation Equipment:

· Agricultural Equipment Project:

· Credit Scheme for Bananas Cultivation:

· Credit to Salt Growers:

· Daridra Bimochon Karmasuchi (DABIK)

· Productive Employment Project (PEP):

· Marginal and Small Farm Systems Crop Intensification Project ( MSFSCIP ) -IFAD Loan no.-194-BD

· Swanirvar Credit Programme:

· Financing in small scale cottage industries:

· Rural Finance Project ( RFP)

· Shoshya Gudam Rin Prokalpa :

· Small Enterprises Development Project (SEDP, BGD-041):

· Self Employment Programme for the Unemployed Youth

· Financing NGOs for On-lending to rural poor

· Netrakona Integrated Agricultural Production and Water Management Project

· Credit for Rural Transport

Agrani Bank Ltd. Foreign Exchange Corporate Branch: BRANCH

Foreign Exchange Corporate is located at DIT Avenue, a commercial area in Motijheel. All kinds of banking operations are done by Agrani Bank Ltd, Foreign Exchange Corporate Branch. General banking, foreign Exchange and credit departments provide high class services to their clients. Agrani Bank Ltd. Foreign Exchange Corporate Branch is one of the highest profits earning branch of Foreign Exchange Corporate area.

Performance of Foreign Exchange Corporate Branch:

The financial performance from 2008 to 2009 of the Agrani Bank Ltd. Foreign Exchange Corporate branch is given in the following charts:

Operating Profit:

Foreign Exchange Corporate Branch earns TK. 5597000 in January, 2008 and TK. 10912000 in January, 2009. All the details are given below:

January 5597 10912
February 5390 9729
March 8540 11472
April 3427 10328
May 9230 11788
June 10020 11925
July 10488 13640
August 9125 10052
September 8158 9897
October 7228 11085
November 1 8918 11053
December 9193 10935

Figure in Thousand

Above information are shown below in chart­

Profit 08

Profit 09

q Profit 09




Current Deposit:

Current Deposit from 2008 to 2009 is given in the following table:

Year CD 2008 CD 2009
Jan 92.56 119.76
Feb 99.11 115.24
March 96.22 117.78
April 106.73 145.77
May 117.16 129.45
June 110.31 225.11
July 77.95 209.58
Aug 95.33 215.73
Sep 125.22 229.99
Oct 92.29 190.29
Nov 87.51 151.28
Dec 151.15 134.59

Above information are shown below in chart­:

Saving Deposit:

Saving Deposit from 2008 to 2009 are given in the following table:

Year SD 2008 SD 2009
Jan 104.27 175.07
Feb 108.83 152.02
March 103.48 155.55
April 109.5 170.11
May 112.1 180.95
June 127.25 207.3
July 120.97 194.22
Aug 118.26 218.62
Sep 123.92 209.62
Oct 125.65 251.93
Nov 136.42 229.11
Dec 146.95 247.33

Above information are shown below in chart­

In the above chart it is observed that Savings deposit increased in 2009 as compared to 2008.

Short Term Deposit:

Short Term Deposit from 2008 to 2009 are given in the following table:

Year Std 2008 Std 2009
Jan 354.89 397
Feb 441.22 403.91
March 392.36 462.25
April 179.72 361.89
May 349.32 358.68
June 295.32 333.45
July 224.45 338.32
Aug 283.09 355.9
Sept 263.3 370.83
Oct 265.92 361.88
Nov 38.55 325.5
Dec 345.81 377.06


In international trade, because of distance involved, buyers and sellers do not know each other. Besides both these parties are subject to rules and regulations of their respective countries it is difficult for them to appreciate each other integrity and creditworthiness, and apart from this, it is also difficult to know various regulations prevailing in their respective countries regarding imports and exports. Thus the buyer wants to be assured of goods and seller to be assured of payments, Commercial Banks, therefore assure these things to happen simultaneously by opening Letter of Credit guaranteeing payment to seller and goods to buyer. By opening a letter of credit on behalf of’ a seller, commercial bank undertakes to make payment to a seller subject to submission of documents drawn in strict compliance with letter of credit terms giving title to goods to the buyer. Thus, letter of credit is a conditional guarantee.

Different Modes of International Trade Payments:

In international trade methods of payment could take any of the following forms: I. Cash in advance

1. Cash in advance

2. Open account

3. Collection

4. Documentary credit

The first three are the traditional trade payment methods and under documentary credit, the bank assures payment subject to the completion of documentary condition.

Cash in Advance:

Under this system the buyer puts funds at the disposal of the seller prior to shipment of goods and provision of services, i.e. this may done by cheque, draft or TT favoring the exporter.

Open Account:

An open account method is an arrangement between the buyer and whereby the goods are manufactured and delivered before payment is made. Unlike cash in advance method, the open account payment is obviously more advantageous to the buyer as he pays for the goods only after receiving them and satisfying him about delivery time, quantity and quality.


Collection is a method under which goods are shipped and the bill of exchange (draft) is drawn by the Seller on the buyer. The documents are sent to the bank with clear instruction for collection through one of its correspondent bank located in the buyer’s country. The documents are to be delivered only after the payment has been made or draft is accepted. There are two examples of collection method are D/P and D/A bills.

Documents against Payment (D/P Bill):

This is one of the most widely used methods of trade payment. The seller ship the goods and draw a sight bill of exchange (draft) on the buyer and the is presented to the drawee (buyer or importer) along with shipping documents for payment. Drawee pays the draft and takes delivery of documents.

Documents against Acceptance (D/A 13111):

In this method usance bill of exchange is drawn on the buyer by the seller which is presented to the drawee for acceptance by a bank on his own country (collecting bank). Drawee accepts draft and fix up a date of payment (date of maturity). The collection system is less risky for the seller as compared to open account trading, but the seller is still dependent on the buyer to take delivery of documents and pay or accept the Draft(s).

Clean collection:

Another variant of collection is clean collection under which the seller draws only a draft on the buyer for the value of goods/services and presents the draft to his bank which sends the draft along with a collection letter to a correspondent bank usually in the buyer’s Country.

Documentary Credit:

In international trade the seller wants to make sure that the buyer is able to pay in time once the goods have been shipped and that risk of non-payment is minimized. He therefore, wants to find out bow a third party i.e. the bank can help him in the practical arrangements for these transactions. Similarly, the buyer is interested that he gets possession of goods before he pays for them and he is able to make sure that the goods are exactly those he ordered.

Definition of Letter of Credit:

Letter of credit (L/C) can be defined as a Credit Contract where the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit.

Different Types of Letter of Credit:

Letter of Credit is an important instrument in the business world. On the basis of different criteria it may classify in the following way. Based on Revocability:

· Revocable Credit

· Irrevocable Credit

· Confirmed Irrevocable Credit

Revocable Credit:

This type of credit can be revoked or cancel at any time without the constant of, or notice of the beneficiary. As per Article of UCPDC600 “A revocable credit may be define Revocable credit gives the buyer maximum flexible, as it can be amended or cancelled without prior notice to the seller up to the moment of payment by the issuing bank at which the issuing bank has made the credit available. In modem banking, the use of revocable credit is not widely spread.

Irrevocable Credit:

The irrevocable credit is a commonly used type of documentary credit. The Credit which cannot be revoked varied or changed/amended without the consent of all parties-seller (beneficiary), Issuing Bank and Confirming Bank (in case of confirmed L/C). As per UCPDC 600, an Irrevocable Credit constitutes a definite undertaking of the issuing bank, provided that the terms and conditions of the credit are complied with. Irrevocable Credit may be confirmed or unconfirmed.

Confirmed credit gives the seller double assurance of payment. Under confirmed credit, the seller has not only get the undertaking of issuing bank; but also enjoy the protection/assurance from a bank in his own country with definite undertaking for payment and acceptance.

On the Basis of payment Criteria:

· Sight payment L/C

· Deferred Payment L/C

Sight Payment L/C:

This type of L/C is based upon payment on presentation of documents. When the L/C bears a clause of payment at sight then the L/C is called sight payment L/C. It is settle by sight bill- a bill which is payable on demand or at sight or on presentation and when no time for payment is specified in it. Sight bill also called D.P. Bill i.e. Document against Payment.

Deferred Payment L/C:

When the payment of L/C is to be made after a specified period of time of shipment then the L/C is called deferred payment L/C. A clause of payment, i.e. payment at 90 days sight, must be included on L/C. It is settled by a time bill which is payment at determined future time. It is also term as D.A Bill i.e. Document against Acceptance. In D.A Bill. The documents of the bill are delivered to the drawee of the bill on acceptance and payment is made afterwards per terms of the bill by the drawee.

On The Basis of Destination Criteria:

  • Inland L/C
  • Foreign L/C

Inland L/C:

When the L/C applicant & beneficiary from same country and goods handled with in country then the L/C is called Inland L/C.

Foreign L/C:

Parties of L/C specially applicant and beneficiary of two different countries deals each other through L/C, this type of L/C is called foreign L/C.

Revolving Credit:

A Revolving Credit is one where, under the terms and conditions thereof, the amount of the Credit is renewed or reinstated without specific amendment to the credit being needed. Revolving credit may be revocable or irrevocable.

Transferable Credit:

A transferable is one which can be transferred by the original beneficiary to one or more parties. In transferable credit, the beneficiary becomes the middlemen and transferee becomes the actual supplier of the goods. It is normally used when the first beneficiary does not Supply the merchandise himself, but is a middleman and thus wishes to transfer part, or all, of his sights and obligations to the actual supplier(s) as second beneficiary (s). This type of credit can only be transferred once.

Back to Back Credit:

One credit backs by another. It may so happen that the beneficiary/seller of an L/C is unable to supply the goods direct as specified in the Credit as a result of which he needs to purchase the same goods and make payment to another supplier by opening a second letter of credit. In this case, the second credit called a “Back to Back Credit”.

Under Back to Back concept, the mother L/C stands as security for opening of second credit, i.e. Back to Back Credit. Back to Back credit are opened in conformity to the terms and conditions as stipulated in mother credit except the price of the goods, shipment period and validity of L/C . In Back to Back credit the negotiated price is quoted.

Red clause Credit:

A Red Clause Credit is a credit with special clause incorporated into it that authorizes the advising bank or conforming bank to make advances to the beneficiary before presentation of documents. The clause is incorporated at the specific request of the applicant, and the wording is dependent upon his requirements. It is so called because the clause was originally written in red ink to draw attention to the unique nature of this credit.

Under the above mentioned clause, the opening bank is liable for the pre-shipment advances made by the negotiated bank, in case the beneficiary fails to repay or deliver the documents for negotiation.

Green Clause Credit:

A Green Clause Credit is a credit with a special clause incorporated into it that which not only authorizes the advising bank to grant pre-shipment advances but also storage cost for storing the goods prior to shipment. It is useful in situation where shipping space is not readily available, i.e. some African countries. It is so called because the clause was written in green ink to draw attention to the unique nature of this Credit. At present this type of Credit is not in use.

Standby Letter of Credit:

The standby letter of credit is very similar in nature to guarantee. The beneficiary can claim payment in the event that the principal does not comply with its obligations to the beneficiary. Payment can usually be realized against presentation of a sight draft and written statement that the principal has failed to fulfill his obligations.

Parties to a Letter of Credit:

There are a number of parties involved in an L/C and the rights & obligations of the different involved parties also differ from each other.

The involved parties can be named below

· Importer/buyer/applicant;

· Opening/issuing bank;

· Exporter/seller/beneficiary;

· Advising /notifying bank;

· Confirming bank;

· Negotiating bank;

· Paying/reimbursing bank;

· The transferring bank, if any.

Importer/Buyer is the people who request/instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Opening/Issuing Bank is the bank which opens /issues an L/C on behalf of the importer. It is also called the importer’s /buyer’s bank.

Exporter/Seller/Beneficiary is the party in whose favor the L/C is established. Advising/Notifying Bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank or a correspondent bank.

Confirming Bank is a bank which adds its confirmation to the credit and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank.

Negotiating Bank is the bank which negotiates the bill and pays the amount to the beneficiary. It has to carefully scrutinize the documentary credit before negotiation in order to see whether the documents apparently are in order or not. The advising bank and negotiating bank may or may not be one and the same. Sometimes it can also be the confirming bank.

Paying/Reimbursing Bank is the bank or whom the bill will be drawn. It is nominated in the credit to make payments against stipulated documents complying with the terms and conditions of the credit. It may be or may not be the issuing bank.

Transferring Bank is the bank, which will transfer the L/C, being instructed by the original beneficiary.

3.6 Operation of Documentary Letter of Credit: LETTER OF CREDIT

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

· Issuing

· Advising

· Amendment (if necessary)

  • Presentation and

· Settlement

Issuing a Letter of Credit:

Before issuing an L/C, the buyer and seller located in different countries, concludes `sales contract’ providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank- to issue a credit in favor of seller (beneficiary). Instruction / Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form.

Advising a Letter of Credit:

Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature(s) of the officer(s) of the opening bank and insure that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export.

Amendment of Credit:

Parties involved in an L/C, particularly the seller and the buyer can not always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended.

In case of revocable credit, it can be amended or canceled by the issuing bank at any time and without prior notice to the beneficiary. But in case of irrevocable credit, it can neither be amended nor canceled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary.

UCPDC 600 regarding amendment to a Credit:

Article 10(a): Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the arrangement of the issuing bank, the confirming bank, if any, and the beneficiary.

Article 10(b): An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and it will be irrevocably bound as of the time it advises the amendment. A confirming may, however, choose to advise an amendment without extending its confirmation and, if so, it must the issuing bank without delay and inform the beneficiary in its advice.

Article 10 (c): The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advises such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any acceptance by the beneficiary of such amendment(s). As of that moment the credit will be amended.

Article 10(e): Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.

Presentation of Documents:

The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of .he credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found if order, the bank will pay, accept the documents and if they are found as per credit requirements, either

(a) Effects payments, or

(b) Reimburses in the pre-agreed manner Settlement:

Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. These are:

(a) Settlement by Payment: The seller presents the documents to the paying bank and the bank scrutinizes the documents. 1f satisfied, the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then sends the documents to the issuing bank. If the issuing bank is satisfies with the requirements, payment is obtained by the paying bank from the issuing bank.

(b) Settlement by Acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drawn on the bank (where credit is available) as the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.

(c) Settlement by Negotiation: The settlement procedure starts with the submission of documents by the seller to the negotiating bank accompanied by a draft drawn on the buyer or any other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner.

Agency Arrangement:

Agency arrangement is the establishment of correspondent relationship between two separate banks to canalized transitions between the designated banks for promoting mutually beneficial business relationship.

Establishing Agency Arrangements

This is usually done by letter. The first letter can be initiated by the bank based on the need to have a relationship with an institutional in a particular country. Likewise Agrani bangle-Bank Limited approached by another bank to route their business in Bangladesh.

Where there is an already existing arrangement, AGRANI BANK LIMITED may have to formalize relations through exchange of letters. The gist of the letter should simply state that you want to formalize/set up agency arrangements with the bank concerned, list the branches to be included, give full mailing address, advise whose test keys are to be used give details of main FC accounts with names of correspondent Banks where account is held, type of arrangements (L/C advising, guarantees etc.).

On being formally approached by a bank for the counter party in turn obtains a list of correspondents of that bank in the region of operation. Then an analysis is done on the basis of latest Annual Report/Balance Sheet of the intending correspondent with regard to its financial position (capital, assets and profitability). The creditability is also judged by obtaining confidential opinion/report through its foreign correspondent or through the correspondent of the bank.

If the information’s mentioned above are satisfactory, agency arrangement/ correspondent relationship is established between the two banks with an exchange of keys, authorized signatory booklet BK.E (Bilateral Key Exchange).

Test Keys

AGRANI BANK LIMITED has their own test keys for their branches, and if they wish to issue these to correspondent banks/branches, it can also be so generated. Several correspondent banks are using our test keys.

Usually however, AGRANI BANK LIMITED advises correspondent banks that AGRANI BANK LIMITED desires to use the correspondent bank’s test key and ask them to send the test to AGRANI BANK LIMITED head office or send them directly to UBE3L branches at mailing address provided. With the establishment of SWIFT the existing test key are being replaced by BKE with correspondent banks.

Foreign Currency Accounts of Authorized Dealer:

In order to be executing foreign exchange transaction, the authorized dealers in foreign exchange maintain branches, normally in current accounts, in the form of foreign currencies with the overseas branches/correspondent banks. The foreign currency account maintained by the authorized dealers in foreign exchange with the foreign banks/correspondents is called Nostro Accounts.

When we talk about `Nostro’, we should also be familiar with the relevant terms ‘Vostro’ and ‘Loro’. All are Italian words which literally mean `our’ `your’ and `their’ respectively.

Current accounts of foreign banks with their correspondents in the latter’s currency is called Vostro Accounts. What is Nostro account for a bank in particular country is a Vostro Account for the bank abroad maintaining the account. So taka account of an overseas correspondent of a bank in Bangladesh is Vostro Account for the latter which is Nostro Account for the former. Loro accounts are (other banks) current account which the banks maintain with banks abroad in behalf of their clients. These may be inter-bank entries, whereby a transfer in foreign currency is made by one bank to another for an account of third bank. For example, Standard Chartered Bank New York may remit to Agrani Bank Limited, Dhaka for the credit to the account of American express bank maintained with them. Therefore the foreign currency account maintained by our correspondent abroad in the name of third party may be termed as Loro Accounts, meaning their account with you.

However the most important accounts for the authorized dealers in foreign exchange in Bangladesh are Nostro Accounts. They keep their balances in these Nostro Accounts for executing day by day transaction.

Book Keeping and Reconciliation of Nostro Account:

For the purpose of book-keeping & reconciliation of accounts of the banks marinating Nostro Accounts abroad, it is required to maintained proforma account in the general ledger under the heading of each foreign correspondent. The proforma account is also termed as SHADOW account or MIRROR account as the entries made in the books of the foreign correspondent are reflected in the proforma account of the bank.

Reporting to Bangladesh Bank

Authorized dealer in Bangladesh are required to exchange control department. Bangladesh Bank, head office, Dhaka within I S days of opening of the ‘Nostro

Account with the following particulars.

· Name of the currency in which the account is opened

· Name and address of the foreign bank/correspondent with whom the account is opened

· Date of opening of the account.


Foreign Exchange:

Foreign exchange is the mechanism by which the currency of one country gets converted into the currency to another country. Foreign Currency is any currency other than domestic currency. The term, foreign exchange has different connotations in different contexts. Sometimes it is referred to as the process of conversion of one currency into another, sometimes as the process of transferring money from one country to another. In Bangladesh it has a legal definition too. In terms of section 2(u) of the F.E.R Act, 1947, as adapted in Bangladesh, ‘foreign exchange’ means foreign currency and includes instruments expressed in foreign exchange, all deposits credits. and balances payable in 4’oreian currency as well as foreign currency instruments such as draft, tt, bills o` exchange, promissory note and letter of credit payable if, any foreign currency. Bangladesh earns foreign exchange mainly through export of’ goods and services. Foreign exchange business has been identified as one of the key areas!’ or development of ‘the bank’s business.

Foreign take place in following three ways in AGRANI BANK LIMITED:

· Import.

· Export

· Remittance


Imports are purchase of foreign goods or services by Consumers, Firms, Companies, Government, Semi government Organization in Bangladesh.

Import Procedures/ Formalities (Steps Involved) in AGRANI BANK LIMITED

T o carry on the business of import by AGRANI BANK LIMITED, the first thing one need is registration with the licensing authority of the area. ‘To get this registration the interested person/institution submits, the application along with the following papers/documents directly to the Chief Controller of Imports and Exports or respective zonal offices of CCI & E.

· Income tax registration certificate.

· Nationality certificate.

· Certificate from Chamber of Commerce and Industry or Registered Trade Association.

· Bank solvency certificate

· Copy of trade license.

· And any other document if required by CCI & E.

On receiving application the respective C (‘1 & F offices will scrutinize the documents and conduct physical verification (if’ feel necessary) and issue Demand Notice to the prospective importers to Furnish the following papers/documents through Agrani Bangla Bank Limited:

· Original copy of Treasury chalan deposited as IRC fees.

· Asset certificate.

· Affidavit from 1st class Magistrate.

· Rent receipt.

· 2 passport size photograph.

· Partnership deed in case of partnership firms.

· Certificate of Registration, Memorandum and Articles of Association in case of limited company.

AGRANI BANK LIMITED will scrutinize the papers/ documents and verify the signature of the applicant. After securitization and verification, AGRANI BANK LIMITED, forward the same to the respective CCI & E office with, forwarding ‘Schedule in duplicate through bank’s representative. The CCI & E office wi1l acknowledge on duplicate copy of the forwarding schedule and return back the same to the bank representative.

Agrani Bank Limited Supply the Following Documents/Papers

· Letter of-credit application form

· Letter of credit authorization form.

· Import form.

· Charge documents paper.

With the above essentials bank will do the following:

· Landed cost analysis

· Present market position of the goods to be imported

· Credit information bureau report from Bangladesh Bank

The L/C Application for Support:

To open a L/C the application must submit an application to the bank’s printed format called L/C application form. The application form must be completed and filled in and signed by the authorized person of the importer giving the following details:

· Full name and address of the importer and exporter.

· L/C value for USD, which must not exceed the LCA value.

· Brief description of the goods with its unit price, quantity, quality etc.

· Origin of the goods, port of destination, port of loading etc.

· Mode of advising L/C.

· Opening of L/C under UCPDC published no 600 ICC revisions 2007.

· LCA number.

· Mode of shipment.

· Insurance cover note.

· Whether shipment/ Transshipment allowed.

· Last date of shipment and negotiation.

· Special instruction if any.

Lodgement of Documents

Lodgement means retirement of funds. Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiations`, bank may claim interest for making delay. Lodgement constitute the to followings.

Requisition for the foreign currency: For arranging necessary fund for payment, a requisition is sent to the International Department.

Preparing sale memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID).

Creation of PAD liability: AGRANI BANK LIMITED lodges the converted the bill amount at BC (Bills (-collection) rate prevailing on the date of lodgement to PAD A/C and an IBETCA prepared at the converted bill amount at T.T clear rate is sent to ID. PAD Al:’ should be adjusted within 21 days.

Payment instruction: Payment instruction is given to the reimbursement bank to debit the issuing banks. NOSTRO A/C to make payment to the negotiating bank.

Payment Intimation to the Negotiating Bank: A Intimation is sent negotiating batik ensuring that payment has been made.

Accounting Treatment

Then the telex charge, service charge, and interest (if any) are debited to the PAD A/C.

Income A/C Cr. (Service charge& Telex charge)

Shipping documents is then stamped with PAD Number & entered in the PAD


Intimation to the applicant

As soon as above formalities arc completed the importers are served with PAD bill intimations for retirement of concerned import document. A letter of intimation regarding receipt of the documents should be sent to the applicant with a request to hake delivery of the documents on settlement of all dues against it.

Retirement of Documents:

On intimation the importer approaches with a letter for retirement of’ the document against full payment with up to date interest and charges payable. AGRANI BANK LIMITED prepares cost memo in printed form on account of the concerned party giving details head of charges payable.

L/C Practiced In Agrani Bank Limited Foreign Exchange Corporate Branch

Opening of Letter of ‘Credit:

At the request (.)!’ the applicant (importer), AGRANI BANK LIMITED open an L/C in favor of’ the Beneficiary (exporter). The bank which open or issue L/C is called L/C opening or issuing Bank.\

Required Information:

Issuing an L/C hank required following information:

    • Full particulars of the Bank account of having same bank.
    • Name of business (proprietorship, partnership or limited company).
    • Historical background of’ the individual or institution. 4. Amount of limit required.
    • Modes of payment.
    • Statement of assets & liabilities.
    • Trade license & import registration number with renewal date.
    • Balance of fund in bank account.
    • Profi0rnm invoice/indent.
    • TIN, VAT
    • Insurance cover note.
    • Sales agreement.

Documents/Papers Supplied by Bank:

    • Bank supply the following documents/ papers:
    • Letter of Credit/ documentary credit application form.
    • Letter of credit authorization form.
    • Continuation of documentary credit application.
    • Undertaking for fluctuation of foreign currency.
    • Undertaking for waiver of non-delivery clause in the insurance cover note.
    • Undertaking for war.
    • Import form (IMP form).
    • Charge documents paper.

· Promissory note

· Letter of arrangement

· Letter of disbursement of loan

· Letter of revival

· Letter Of continuity.

· Letter of guarantee.

· General letter of TR

· Letter of hypothecation.

· Letter of supplementary agreement.

Application Checking:

Before opening an L/C, the issuing bank must check the following:

· L/C application properly stamped_ signature verified and margin approved and properly retained.

· Indent/Proforma Invoice signed by the Importer and Indentor/Supplier.

· Ensure that the relevant particulars of 1,/C application correspond with those

stipulated in /Proforma invoice.

· Validity of I.CA entitlements of goods, amount etc. confirms to the L/C application.

· Conversion and rate of exchange correctly applied.

· Charges like commission, F.C.C., postage, telex charge, if any, recovered.

With the above essentials bank does the followings:

  • Landed cost analysis.
  • Present market position of the goods to be imported
  • Credit Information Bureau report from Bangladesh Bank.
  • Collect credit report about beneficiary.

Credit Report about Beneficiary:

Credit report is a confidential report about the exporter that is collected from information Services Company or other reliable sources such as foreign correspondent bank. It is required before L/C opening. It is collected for confirmation about honesty and reliability of exporter. A typical credit report includes the company’s name & address, starting year, history, authorized capital and paid up capital, financial strength and composite appraisal. The financial strength is an indication of the tangible net worth and the composite appraisal condition is linked to the level of risk and, is an overall evaluation of credit worthiness.

Composite appraisal takes into the account the financial condition and several factors such as trade reference history, legal structure, management experience and any adverse listing.

Contents of a Letter of Credit:

A Letter of Credit generally contains the followings:

· Date of’ Issue

· Letter ofCredit No.

· Amount (generally in USD)

· Name of issuing, Bank

· Name of Advising Bank

Name & Address of Applicant

· Name & Address of Beneficiary

· Last date of shipment.

· Date of Expire

· Name of the port of beneficiary.

· Designation

· Country of 4?origin

· Description of Merchandise.

· Terms and condition

· Addition terms and conditions

· Reimbursement.

Copies Requires of a Letter of Credit:

Letter of Credit ‘is an important a document to all related party and authority. So issuing bank required is generate 7 copies of a foreign L/C and 5 copies of a(ocal L/C. These are the following:

· Copy, for Advising Bank

· Copy for Beneficiary

· Copy for Applicant

· Copy for Head Office

· Copy for PSI (Pre-shipment Inspection Company)

· Copy for CCI & E (Chief Controller of import & Export)

· Copy for own record.

In case of inland L/C copses of PSI & CCI & [: are not required.]

Advising Letter of Credit:

Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Befor