1.1. Introduction:
Bank is a financial institution. The economy is mostly depended on the bank since the bank facilitates the economic and financial transactions. Every industry large, medium & small is absorbing the facilities provided by the bank relating to its production to export and also to import the materials.
The Bank will put reliance on market forces and provide increased inducement to savers to mobilize savings and hold fast to profitability potential to allocate funds to the users of such sectors of trade, commerce and industries as may be consistent with the socio-economic objectives of the nation. Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from savers to those who borrow for consumption and investment. In a modern society, banks are very much important to the economy because of their ability to create money.
Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Since 1990, Bangladesh government has taken a lot of financial sector reforming measures for making financial sector as well as banking sector more sound and transparent, a formulation and implementation of this reform activities have also been participated by different international organization like World Bank, IMF etc.
The government of Bangladesh has been pursuing a liberal policy to attract foreign exchange business because foreign exchange business is considered as a key to economic development. Countries like Bangladesh are mostly depended on import of raw materials to export quality goods.
1.3. Objective of the Report
In this report the objective is basically to find out all sorts of practical dealings that are conducted in case of handling various type of banking activities in each department, specially foreign exchange department, the theoretical aspects, that is what should be the procedures and requirements maintained from first to last, and actual practices as well as the ultimate gain for the bank in conducting financial activities are mainly discussed. So the purpose and objective of this report can be summarized as follows.
· To depict the Trade service operations and its impact in the economic development of Bangladesh from the perspective of AB Bank Ltd.
· To know deeply about Import, Export and remittance.
· To identify the role of Trade service operations.
· To identify some problem in foreign operation.
- To identify the factors that must be considered and analyzed in determining Export and Import policy and procedure.
- To apprise Remittance Service with special emphasis on Remittance department.
- To analyze the Foreign Exchange performance of AB Bank Ltd.
- To identify the problems with Foreign Exchange system and suggested measures.
· To state practical Knowledge gathered in the customer service department about account opening and others.
· To state practical knowledge about credit appraisal system and credit management
1.4. Scope of the Study:
The report is highlighting the major functional area of foreign exchange department and procedure of import, export and remittance.
1.5. Methodology:
Methodology of the study includes direct observations, face-to-face conversation with the employees of different desk, study of files, circular and practical desk work. In conducting this report basically, there have been two types of data and information used. The name of those two types and their sources to reveal the information for preparing this report has been showed in a flow chart.
EXECUTIVE SUMMARY
As a requirement of BBA program from Department of Finance, Stamford University Bangladesh, I have completed my internship from AB Bank Limited, Motijheel Branch. I have prepared my report with the objective of finding out how the branch complies with the Bangladesh Bank’s Foreign Exchange guide line in their policy, process and procedures. I have also analyzed the export, import, remittance (inward and outward) situation of the branch. Some limitations such as time constrain and unavailability of data is faced during this study.
AB Bank Limited is the first private sector bank in Bangladesh. At present the Bank operating its business by 79 branches. The Bank is now providing online banking service to its customers to have their better services.
This report “PROCEDURE OF FOREIGN TRADE FINANCE OF AB BANK LTD. is prepared based on the foreign exchange operation of the AB Bank Limited.
There are Seven (7) chapters in this report.
In Chapter 1-Introduction: origin of the report, scope and objective of the study, methodology and limitation are also discussed here.
In Chapter 2: this chapter includes Organization in focus such as history, organizational and capital structure, Organizational hierarchy, Change of name and logo, Rating report, Product and services, Five years performance and key financial indicators, Retail Banking, SME business, International trade.
In Chapter 3: The overall Trade Financing is describing here. Foreign Exchange department has three sub-sections. One is foreign remittance section, another is import section and the third one is export section. Foreign remittance includes all sale and purchase of foreign currencies on account of Import, Export, Travel and other purposes. However, specifically foreign remittance means sale & purchase of foreign currencies for the purposes other than export and import. All foreign remittance transactions are grouped into two broad categories? Outward remittance & Inward remittance. in import section, import mechanism, source of finance, import procedure, procedures of opening L/C to import etc are discussed. In export section, export policy, export incentives, export procedures, export financing, Back to Back Letter of Credit etc are discussed.
In Chapter 4: The Trade Financing by AB Bank Ltd like Inward & Outward Remittance, export & its procedure, Back to Back L/C, Import & its procedure , Lodgement & Retirement of Document etc. is described here.
In Chapter 5: SWOT analysis of ABBL, Financial ratio analysis and Performance overview.
In Chapter 6: At the last section of the report includes Ending part- conclusion, findings, & recommendation are highlighted.
In Chapter 7: Last but not the least in this chapter highlights Bibliography and Appendix part.
Analyzing the performance and operations of the AB Bank Limited I have found that the AB Bank Limited has continued its growth. The profit of the bank has growth significantly. The deposit growth concludes the customer satisfaction and their loyalty toward the operation and service of the AB Bank Limited which turned out as a leading private commercial bank of the country-Bangladesh. As a proud internee of this bank, I am very much pleased to work in such a reputed organization like AB Bank Limited– “To be the trend setter for innovative banking with excellence and perfection.”
1.6. Limitation of the Study:
A wholehearted effort was applied to conduct the project paper and to bring a reliable and fruitful result. In spite of having the wholehearted effort, there exist some limitations, which acted as a barrier to conduct the conduct the project paper. As the report is prepared in a short span of time, it could not be made comprehensive and conclusive. Moreover, the accuracy of the report is largely depended upon the information obtained from the relevant sources. Greater emphasis was given to collect information from informal sources like discussion with clients and our officials, which may appear to be an inherent limitation of the study.
The limitations are:
· Sufficient data for prepare a report is not available.
· The employees of the bank are so much busy so they cannot provide me to give information about the foreign exchange such as import, export etc.
· As it’s a vast area of business that demands on hand experience for an in depth analysis.
· Another limitation was the sensitivity of the data. As it is a highly competitive market, in some cases management were reluctant to give some specific data.
· Limitations of bank’s policy of not disclosing some data and information for obvious reasons, which could be very much useful. For the sake of confidentiality of the organization, employees did not disclose much information.
· Lack of comprehension of the respondents was the major problem that created many confusions regarding verification of conceptual question
· Confidentiality of data was another important barrier that was confronted during the conduct of this study. All the concerned personnel of the bank have not been interviewed.
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AB Bank Limited is one of the fasted growing banks among all the commercial banks in Bangladesh. ABBL bears a unique history of its own. The aim of the company was to mobilize resources from within and invest them in such way so as to develop country’s industrial and Trade Sector and playing a catalyst role in the formation of capital market as well. Its membership with the bourse helped the company to a great extent in this regard.
AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982.
AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer’s and client’s trust while upholding their reliability, across time.
During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World.
In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2009 financial year with good results. AB attained highest ever profitability in the history of the Bank’s 28 years of existence. The Banks consolidated profit after taxes amounted to Taka 336.20 crore which is 46.11% higher than that of 2008. The asset base of AB stood at taka 10691.20 crore (growth of 27 percent) while total capital crossed the threshold and reached the level of taka 1079.0 crore at the year end
2.2 Organizational Structure of ABBL.
AB Bank Ltd. (ABBL) was incorporated on 31st December 1981, under the company’s act-1913 as a pioneer commercial bank in the private sector in Bangladesh with its Head Office in Dhaka. The bank started functioning from 12th April 1982 with the approval of Bangladesh Bank under the guidelines, rules and regulations given for scheduled commercial banks operating in Bangladesh. It was initially a joint venture commercial bank between Bangladeshi sponsors and Dubai Bank Ltd. Dubai (U.A.E.) having respective share holdings as under:
| Bangladesh Sponsors | 20% |
| Bangladeshi General Public | 15% |
| Bangladesh Government | 05% |
| Dubai Bank Ltd. | 60% |
Table 1: Organizational Structure of AB Bank Ltd
Subsequently, the Union Bank of Middle East Ltd. inherited the shares of Dubai Bank Ltd. in 1986 and continued as its shareholder till early 1987, when they decided to offload their investment in Bangladesh. As per provisions of the bank Articles of Associations, with the approval of Bangladesh Bank and the controller of Capital issue Government of Bangladesh, the shares (60%) held by the Union Bank of Middle East (UBME), were purchase by the Bangladeshi Sponsored Directors, raising total shares of holding to 80% of total share capital. However, as desired by the government of Bangladesh the sponsors. Directors, who acquired the 60% shareholdings of Union Bank of Middle East (UBME), unclosed 50% of share, purchased by them from UBME to the general public of Bangladesh raising the public share holdings to the 45% of total share capital of the bank.
The Objective of the bank is to undertake all kinds of banking and foreign exchange business in Bangladesh as well as abroad through its brandies/correspondents.
2.3 Capital Structure of ABBL.
The authorized capital of AB Bank Ltd. is taka 600.00 crore divided into 6.00 crore ordinary shares of taka 100 each, from the existing Tk. 300.00 crore on 05 march, 2009. The total paid up capital rose to taka 2564.00 million at the end of 2009. At present the composition of the existing shareholders of the bank is as under:
| Bangladeshi sponsors/ Directors | 50% |
| Bangladeshi General Public | 49.43% |
| Govt. of Bangladesh | 0.57% |
Table 2: Capital Structure of ABBL
2.4 Change of Name and Logo of ABBL.
Arab Bangladesh Bank Ltd. was incorporated on 31st December 1981, under the company’s act 1913. The bank started functioning from 12th April 1982. It is the first private bank in Bangladesh. Motijheel Branch is the corporate branch of this bank. The branch has enjoyed its 28th anniversary during this year.
Arab Bangladesh Bank Ltd. Changed its name to AB Bank Limited (ABBL) with effect from 14 November 2007 vides Bangladesh Bank BRPD Circular Letter No-10 dated 22 November 2007. Prior to that Shareholder of the Bank approved the change of name in the Extra-Ordinary General Meeting held on 4 September 2007. Effective 1 January 2008, ABBL changed its Logo as well.
| Previous Name & Logo | New Name & Logo | ||||||
| Arab Bangladesh Bank Ltd. | AB Bank Ltd | ||||||
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Table: Name & Logo of ABBL
2.5 Corporate Information of ABBL.
Legal Form: A public limited company incorporated on 31st December, 1981 under the Companies Act, 1913 and listed in the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd.
Objective
“To exceed customer expectations through innovative financial products & services and establish a strong presence to recognize shareholders’ expectations and optimize their rewards through dedicated workforce.”
Vision Statement
“To be the trendsetter for innovative banking with excellence & perfection”
Mission Statement
“To be the best performing bank in the country”
2.6ORGANIZATIONAL HIERERCHY OF ABBL:
2.7Rating Report ON ABBL:
AB Bank Limited was rate by Credit Rating Agency of Bangladesh Limited (CRAB). CRAB has affirmed AA3 rating in the long term and ST-1 rating in the short term of AB Bank Limited based on Audited Financials of 31 December 2009 and other relevant information.
The summery of their ratings is given below:
| Entity Rating June 2009 | Entity Rating December 2009 | Definition |
| Long Term | Long Term | Commercial Bank rated AA3 in the long term belongs to “Very Strong Capacity & Very High Quality” cohort. Bank has very strong capacity to meet its financial commitments. Bank is judged to be of high quality and is subject to low credit risk. |
| AA3 | AA3 | |
| Short Term | Short Term | Commercial Bank rated ST-1 in the short term is considered to have highest capacity for timely payments of obligations. Bank is characterized with excellent position in terms of liquidity, internal fund generation and access to alternative sources of funds. |
| ST-1 | ST-1 | |
| Date of Rating | 15th June, 2010 | |
Rating Report of AB Bank (Source: AB Bank Annual Report 2009)
RATIONALE
Credit Rating Agency of Bangladesh Limited (CRAB) has assigned “AA3” (pronounced Double A Three) rating in the Long Term and “ST-1” rating in the Short Term to the AB Bank Limited (ABBL). The present ratings of ABBL based on audited financial statements up to 31 December 2009 and other relevant information. The rating takes into account both qualitative and quantitative indicators. Qualitative indicators considered include parameters such as corporate governance practice, effective asset-liability management, good franchise value, experienced top level management, diversified product line, risk management practice, standard IT infrastructure of the Bank etc. However, the ratings are constrained by moderate asset quality of the Bank. The quantitative analysis concentrated in financial positions like sound profitability level, adequate capital adequacy, good liquidity position, moderate market share etc. However, the rating has concern about increase of bank’s non-performing assets, dependency on high cost fixed deposits, average loan to deposit ratio etc. Commercial bank rated AA3 in the long term is adjudged to be very strong bank, characterized by good financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates very strong capacity for timely payment of financial commitments, with low likeliness to be adversely affected by Foreseeable events. Bank rated ST-1 in the short term is characterized by very satisfactory position in term of liquidity, internal fund generation, and access to alternative sources of funds.
2.8Products and Services Of ABBL:
2.9 FIVE YEARS AT A GLANCE:
2.9 FIVE YEARS AT A GLANCE:
Figure in Million Taka
| Particulars | 2005 | 2006 | 2007 | 2008 | 2009 |
| Operating Profit (PBP & T) | 755.03 | 710.69 | 3325.29 | 4298.39 | 5802.35 |
| Net Operating Profit (PBT) | 407.45 | 532.19 | 2817.99 | 3600.62 | 5270.61 |
| Profit after Tax (PAT) | 162.45 | 532.19 | 1903.49 | 2300.62 | 3417.19 |
| Authorized Capital | 8000 | 2000 | 2000 | 3000 | 6000 |
| Paid-up Capital | 520 | 572 | 743 | 2230 | 2564 |
| Statutory & Other Reserves | 650 | 773 | 1357 | 2066 | 3101 |
| Shareholders’ Equity | 1526.88 | 2582.76 | 4511.59 | 6722.51 | 10086.52 |
| Deposits | 27361.44 | 42077.00 | 53375.35 | 68560.47 | 83082.63 |
| Loans & Advances | 21384.63 | 31289.25 | 40915.35 | 56708.77 | 72063.26 |
| Investments | 4061 | 6281 | 8885 | 11396 | 16369 |
| Fixed Assets | 370 | 1148 | 2381 | 2445 | 2441 |
| Total Assets | 33065.40 | 47989.34 | 63549.86 | 84053.61 | 106912.31 |
| Import Business | 23151 | 42860 | 48441 | 70041 | 65956 |
| Export Business | 12595 | 17876 | 20677 | 28937 | 30640 |
| No. of Branches | 67 | 68 | 71 | 72 | 77 |
| No. of Employees | 1525 | 1590 | 1725 | 1804 | 1952 |
KEY PERFORMANCE INDICATORS
| Particulars | 2005 | 2006 | 2007 | 2008 | 2009 |
| Earnings per Share (Taka) | 31.26 | 93.08 | 256.10 | 103.18 | 131.13 |
| Price Earnings Ratio (Times) | 57.41 | 43.02 | 34.50 | 9.16 | 8.97 |
| Book Value per Share (Tk.) | 269.62 | 240.96 | 251.22 | 293.76 | 451.74 |
| Return on Equity-ROE (%) | 10.64 | 20.61 | 42.19 | 40.96 | 40.01 |
| Return on Assets-ROA (%) | 00.50 | 01.11 | 03.41 | 3.12 | 3.52 |
| Capital Adequacy Ratio | 09.17 | 09.23 | 10.75 | 12.84 | 13.78 |
| NPL as % of Advances | 08.21 | 04.02 | 04.31 | 2.99 | 2.75 |
| Advance Deposit Ratio (%) | 78.16 | 74.36 | 76.66 | 82.71 | 84.32 |
| Assets Utilization Ratio (%) | 59.19 | 62.58 | 67.12 | 72.60 | 76.79 |
2.10 PROFITABILITY:
Key business areas registered growth, which was reflected in the bottom line growth of over 30 percent in Net Operating Profit. AB bank was also able to off-set “UN-reconciled entries” worth Tk.95.07 crore which would definitely contribute towards consolidation of financial health of the institution besides bringing in transparency in deliverable in the future. Bank could also add significantly towards shareholders value addition as the Earnings per Share (EPS) stood at Tk.131.13 the year-end which is three times over the last year’s figure at the same cut-off date.
Return on Assets (ROA) at 3.52 percent Return on Equity (ROE) at 40.01 percent and Asset Utilization Ratio at 76.79 percent underlines the magnitude of ABBL performance for the year 2009
In 2009 ABBL diluted some of its investment portfolio thereby generating capital gain worth Tk.76.09 crore signifying the role and prospects of Portfolio / Investment Banking wing towards meeting Bank’s strategic needs.
2.11 RETAIL BANKING:
AB Bank started its retail banking operations in the year 1997 (re-launched in the year 2002) with the setting up of the Consumer Credit Division. Consumer banking in AB Bank is high volume personal banking and exclusive service to high net worth individuals, professionals, businessmen among others. Over the years, this particular Division identified and explored the various avenues of customer lending and developed several products suiting to the need of the prevailing market. Today AB Bank’s clientele base comprises over 6700 customers having a portfolio size worth Tk.325.00 crore approximately. In the year 2009 consumer credit experienced nearly 26 percent growth over last year and contributed to the bottom line of the Bank.
CONSUMER CREDIT PRODUCTS
– Personal Loan – Secured / Unsecured – Auto Loan
– Personal Overdraft – Secured – Easy Loan for Executives
– Jewelry Loan (Gold Grace) – House / Office Furnishing &
– Education Loan – Renovation Loan
– Home Loan
2.12 SME BUSINESS:
Small and Medium Enterprise has emerged as the cornerstone on economic development of Bangladesh in terms of job creation, income generation, and development of forward and backward industrial linkage besides catering to the local demand mitigation. AB Bank has always been a SME focused institution as nearly 64 percent of the Loan portfolio are liked to this particular Business segment. AB is actively present in the following segment of SME Sector – Agri-Machinery, Animal Feed, Poultry, Dairy Products, Clinics & Hospitals, Electric Appliances, Fruit Preservation, and Garment Accessories etc. The core strength of AB in this segment is its widening reach and online Banking throughout. Judging the potentialities of the Sector a separate SME Business Unit is being shaped to director banking services at the door step of SME customers.
2.13 INTERNATIONAL TRADE:
International Trade is an important component of foreign exchange business of the Bank. In 2006, this particular wing of the Bank registered remarkable growth through strengthening the trade finance areas and providing value added services in this area.
2.13.1 IMPORT BUSINESS:
Import business kept the growth momentum and reaped business worth Tk.65,956 crore at 2009 registering little decrease but at the end of the year it increased business level. Major import finance were in the areas of capital machinery, industrial raw materials like edible oil, crude edible oil, textiles, fabrics, milk powder, scrap vessels etc.
2.13.2 EXPORT BUSINESS:
Export business registered growth in 2009. Total Export business volume reached Tk.30640 crore showing an increase over the previous year. Concentrations of export business were in the area of readymade garments, frozen fish and other products.
2.13.3 REMITTANCE BUSINESS:
Remittance business reached US$260 million registering growth over 2009. Bank has drawing arrangements with the Exchange Houses situated at important locations of the globe depending on the concentration of the expatriate Bangladeshis. AB Bank is exploring possibility of expanding its network to augment the flow of inward remittance business through dedicated personalized services to beneficiaries.
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3.1 Export Section:
Foreign exchange department is international department of the bank. It deals with globally and facilitates international trade through its various modes of services. It deals with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. These banks are known as authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. This is why this department is called foreign exchange department.
Some national and international laws regulate functions of this department. Among these, Foreign exchange Act, 1947 is for dealing in foreign exchange business, and import and export control Act, 1950 is for documentary credits. Governments’ import & export policy is another important factor for import and export operation of banks. Also UCPDC 600 and URC 522 both of them are very important guideline.
Creation of wealth in any country depends on the expansion of production and increasing participation in international trade. By increasing production in the export sector we can improve the employment level of such a highly populated country like Bangladesh, Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through ABBL are readymade garments exporters, They open export L/Cs here to export their goods, which they open against the import L/C opened by their foreign importers.
Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.
3.1.1Export policy:
Export policies formulated by the Ministry of Commerce, GOB provide the overall guideline incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime.
The export-oriented private sector, through their representative bodies and chambers a consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government.
3.1.2 Export Incentives:
A. Financial Incentives:
§ Restructuring of Export Credit Guarantee Scheme
§ Convertibility of Taka in current account;
§ Exporters can deposit 40% of FOB value of their export earnings in own account in dollar and pound sterling;
§ Export Development Fund;
§ Expansion of export credit period from 180 days to 270 days;
§ 50% tax rebate on export earnings;
§ Duty draw back;
§ Bonded warehouse facilities to 100% export oriented firms
§ Duty free import of capital equipment for 100%export oriented firms
B. General incentives:
§ National Export Trophy to successful exporters
§ Training course on external trade;
§ Arrangement of international trade fairs, commodity-based exhibitions in the country and participation in foreign trade fairs.
C. Other incentives:
· Assistance in improvement of quality and packaging of exportable items;
· Simplification of exports procedures.
3.1.3 Export Procedures:
The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950.
Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to incorporate on EXP forms and other papers connected with exports.
· Registration of Exporters:
For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Raishahi/ Mymensingh/ Sylhet/ Comilla/ Badshal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents:
· Nationality and Assets Certificate-
· Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company-,
· Bank Certificate
· Income Tax Certificate
· Trade License etc.
· Securing the Order:
After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent.
In this purpose the exporter may get help from:
· License Officer
· Buyers Local Agent
· Export Promoting Organization
· Bangladesh Mission Abroad
· Chamber of Commerce (local & foreign)
· Trade Fair etc
· Signing the Contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc.
· Receiving Letter of Credit:
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment.
The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit-.
· The terms of the L/C are in conformity with those of the contract”
· The L/C is an irrevocable one, preferably confirmed by the advising bank;
· The L/C allows sufficient time for shipment and negotiation.
(Here the regulatory framework is UCPDC-600, ICC publication)
Terms and conditions should be stated in the contract clearly in case of other mode of payment:
· Cash in advance-,
· Open account,
· Collection basis (Documentary/ Clean)
(Here the regulatory framework is URC-522, ICC publication
· Procuring the Materials:
After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.
· Shipment Of Goods:
Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time.
Documents for shipment:
i. EXP form,
ii. ERC (valid),
iii. L/C copy,
iv. Customer Duty Certificate,
v. Shipping Instruction,
vi. Transport Documents,
vii. Insurance Documents,
viii. Invoice
ix. Other Documents,
x. Bills of Exchange (if required) Certificate of Origin,
xi. Inspection Certificate
Quality Control Certificate,
xii. G.S.P. Certificate,
xiii. Phyto-sanitary Certificate.
· Final Step: Submission of the documents to the bank for negotiation.
3.1.4 Procedure of collection of Export bill:
3.1.5 Export Financing:
Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract.
· Pre-shipment credit
· Post-shipment credit
Pre-shipment credit:
Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes-
· Cash for local procurement and meeting related expenses.
· Procuring and processing of goods for export.
· Packing and transporting of goods for export.
· Payment of insurance premium.
· Inspection fees.
· Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings-.
· Export cash credit (Hypothecation)
· Export cash credit (Pledge)
· Export cash credit against trust receipt.
· Packing credit.
· Back to back letter of credit.
· Credit against Red-clause letter of credit.
Export cash credit (Hypothecation):
Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. As the bank has got no security in this case, except charge documents and lien on exports UC or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither r the ownership nor the possession is passed to it.
Export cash Credit (Pledge):
Such Credit facility is allowed against pledge of exportable goods or raw materials. In this case cash credit facility are extended against pledge of goods to be stored in the god own under bank’s control by signing letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods under banks effective control as security for payment of bank. In the event of failure of the exporter to honor his commitment, the bank can sell the pledged merchandise for recovery the advance.
Export Cash Credit against Trust Receipt:
In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the Exportable goods remain in the custody of the exporter. It is required to execute a stamped export trust receipt in favor of the bank, he holds wherein a declaration is made that goods purchas4ed with financial assistance of bank in trust for the bank. This type of credit is granted when the exporter wants to utilize the credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank’s custody. This facility is allowed only to the first class party and collateral security is generally obtained in this case.
Packing Credit:
Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and shipment of the goods. Generally for movement of goods from the hinterland areas to the pots of shipment the Banks provide interim facilities by way of packing credit.
This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Practically except for single transaction, most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a particular period. The drawings are required to be adjusted fully once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export documents.
Charge Documents for P.C.
Banker should obtain the following charge documents duly stamped prior to disbursement:
· Demand Promissory Note
· Letter of Arrangement
· Letter of Lien of Packing Credit (On special adhesive stamp)
· Letter of Disbursement
· Packing Credit Letter
Additional Document for P.C.
· Letter of Partnership along with Registered Partnership Deed in case of Partnership Accounts.
· Resolution of the Board of Directors along with Memorandum & Articles of association in case of Accounts of Limited Companies. In case of Corporation, Resolution of the Board Meeting along with Charter.
· Personal Guarantee of all the Partners in case of Partnership Accounts and a=of all the Directors in case of Limited Companies.
· An undertaking from the Directors of the Public Limited Company to obtain prior clearance from the Bank before declaring any intend/final dividend.
Back to Back Letter of Credit (BTB):
Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because of some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, ABBL keeps no margin.
Sometimes there is provision in the export UC that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened.
Payment of Back to Back LC:
Client gives the payment of the BTB L/C after receiving the payment from the importers. But in some cases, client sells the bills to the ABBL. But if there is discrepancy, the ABBL sends it for collection.
In case of BTB L/C, ABBL gives the payment to the beneficiary after receiving the payment from the UC of the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate.
For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 3% to 5%.
A schedule named Payment Order; Forwarding Schedule is prepared while making the payment. This schedule is prepared when the payment of UC is made. This schedule contains the followings:
· Reference number of the beneficiary’s bank and date.
· Beneficiary’s name.
· Bill value.
· Payment order number and date.
· Equivalent amount in Taka.
Advance against Red-clause Letter of Credit:
Under Red clause letter of credit, the opening bank authorizes the Advising Bank/Negotiating Bank to make advance to the beneficiary prior to shipment to enable him to procure and store the exportable goods in anticipation of his effecting the shipment and submitting a bill under the L/C. as the clause containing such authority is printed in red ink, the L/C is called Red clause and Green clause respectively. Though it is not prohibited, yet very rare in Bangladesh.
Post Shipment Credit:
This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises as the exporter cannot afford to wait for a long time for without paying manufacturers/suppliers. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through-.
· Negotiation of documents under L/C
· Foreign Documentary Bill Purchase (FDBC)
· Advances against Export Bills surrendered for collection;
Negotiation of documents under L/C:
The exporter presents the relative documents to the negotiating bank after the shipment of the goods; a slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful prompt, systematic and indifferent while scrutinizing the documents relating to the export.
Foreign Documentary Bill Purchase (FDBC):
Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. ABBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or bycrediting his account or by the pay order.
For this purpose, ABBL maintains a separate register named FDBC Register. This register contains the following information:
· Date
· Reference number (FDBC)
· Name of the drawer
· Name of the collecting bank
· Conversion rate
· Bill amount both in figure & in Taka.
· Export form number
· Export L/C number
Advances against Export Bills surrendered for collection:
Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. The bank generally negotiates bills drawn under L/C, without any discrepancy in the documents, and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property.
3.1.6 Export Documents Checking:
General verification: –
· L/C restricted or not.
· Exporter submitted documents before expiry date of the credit.
· Shortage of documents etc.
Particular verification:
· Each and every document should be verified with the L/C.
3.2 Import Section:
Imports of goods into Bangladesh is regulated by the ministry of commerce and industry in terms of the Import and Export (Control) Act, 1950, with import policy orders issued by annually, and Public Notices issued from time to time by the office of the Chief Controller of Import and Export (CCI & E). Through the process of import some vital but which are inadequate in our country products are imported to meet the local needs of the people.
3.2.1 Import Mechanism
To import, a person should be competent to be an ‘importer. According to Import and Export (Control) Act, 1950, the officer of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. His requests o instructs the opening bank to open an L/C.
Import may be allowed under the following sources of finance:
(a) Cash-
i. Cash foreign exchange (balance of the foreign exchange reserve of Bangladesh Bank;
ii. Foreign currency accounts maintained by Bangladeshi National working/living abroad.
(b) External economic aid.
(c) Commodity exchange.
Procedures:-
An importer is required to have the following to import through ABBL-
i. Applicant has to apply for opening LC by a prescribed form.
ii. Applicant has to submit the Letter of Intent or Letter of Proforma Invoice.
Letter of Intent: Many sellers have their agent in seller’s country. If the contract of buying is made between the buyers and the agent of the sellers then Letter of Intent is required.
Letter of Performances Invoice: If the contract is made directly between the buyer and the sellers then Letter of Performances Invoice is needed.
iii. Applicant has to submit IRC (Inventors Registration Certificate). It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyers and the agents of the sellers. IRC is of two types – COM and IND. COM is given for commerce purpose and IND is given for industrial purpose.
iv. Applicant has to submit LCAF (Letter of Credit Authorization Form).
v. Applicant has to submit insurance document.
vi. Applicant has to prepare FORM-IMP.
vii. Recently, there has been made a provision to give a certificate named TIN (Tax Payers Identification Number).Taxation department issues this certificate.
viii. Then after proper scrutiny bank will open an L/C. While opening L/C, importer must keep certain percentage of the document value in the bank as margin.
3.2.2 Procedure to Open an L/C:-
To open an L/C, the requirements of an importer are:
· He must have an account in ABBL.
· He must have Importers Registration Certificate (IRC).
· Report on past performance with other bank. ABBL collects this report from Bangladesh Bank.
· CIB (Credit Information Bureau) report from Bangladesh Bank.
· A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit.
· If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed