“Foreign Exchange Operations in Bangladesh”
Foreign exchange operation
Foreign exchange operations in banks takes place through four basic operational part of a bank’s day to day activity. They are-
v Import
v Export
v Foreign Remittance
v International Division &Treasury
Import Operation
2.1 In every import export transaction there must be:
q An Agreed products or services
q A sales contract
q Delivery details and Incoterms
q Shipping and delivery details
q Terms of payment
q Required documentation
q Insurance coverage
International Trade Cycle
Law of Contract
Commonly used payment terms
Open Account
Advance Payment
Documentary Collection
Documentary Credit
What is Documentary Credit?
It is a conditional guarantee by a bank (Issuing Bank) given to be the seller (Beneficiary) at the request, and in accordance with the instructions of the buyer (applicant) to effect payment up to a stated sum of money, within a prescribed time limit and against stipulated documents.
Parties involved in a Documentary Credit
The Applicant : Importer who applies for DC
The Issuing Bank : Importer’s Bank who issues the DC
The Advising Bank : The Bank in Exporter’s Country authenticating the
genuineness of the DC (UCP#7)
The Beneficiary : Exporter in whose favor the DC is issued
The Reimbursing Bank : The Bank designated by the issuing Bank to effect payment
to the Negotiating Bank upon their request.
The Confirming Bank : The Bank which adds its confirmation to the credit
(UCP#9B, C, D)
Special Types of Documentary Credit
| q Freely Negotiable vs. Restricted
q Revocable q Irrevocable q Confirmed q Local |
q Foreign
q Red Clause q Revolving q Transferable q Back to Back |
LC defined
It is a conditional undertaking given by a bank (Issuing Bank) at the request of a customer (Applicant) or on its own behalf to pay a seller (Beneficiary) against stipulated documents provided all the terms and conditions of the credit are complied with.
Uses:
A letter of credit is an essential element for conducting world today. It ensures beneficiary to get price of his consignment consigned to an unknown buyer. So it acts as a bridge between buyer and seller of two different countries, that helps foreign trade to a great extent.
Parties to L/C
i. Importer/ buyer/ applicant
ii. Exporter/ Seller/ beneficiary/ Supplier
iii. Issuing bank/ Opening bank
iv. Advising bank/ Notified bank
v. Confirming bank
vi. Negotiating bank
vii. Paying bank/ Reimbursing bank
To import goods of services, the buyer approaches his/ her bank to open letter of credit in favor of foreign supplier. The opening bank issues the L/C and advise it through its correspondents.
Importer: The person who requests the opening bank to open L/ C.
Exporter: The party in whose favor L/ C is established.
Issuing Bank: The bank which opens/ issues L/ C.
Advising Bank: The bank through which L/ C is advised.
Confirming Bank: The bank, which adds its confirmation to the credit. Negotiation bank: The bank, which negotiates the bill.
TYPES OF LETTER OF CREDIT
Almost all commercial letters of credit are documentary credits. Therefore, the UCP deals only with documentary credits. A documentary credit may be classified under the following types depending upon the particular provisions it contains:
Ø Payment, acceptance and negotiating credits
Ø Revocable and irrevocable credits
Ø Confirmed and unconfirmed credits
Ø With Resources and without resources credits
Ø Fixed and revolving credits
Ø Transferable credits
Ø Back-to-back credits
Ø Red clause and green clause credits
Ø Stand by credits
Payment, acceptance and negotiating credits
” All credits must clearly indicate whether they are available by sight payment, by deterred payment, by acceptance or by negotiation. ” Thus a letter of credit may be-
a) Payment credit;
b) Negotiating credit;
c) Acceptance credit;
d) Deferred payment
Revocable and irrevocable credit:
A credit may be
I) Revocable, or
II) Irrevocable
The credit should therefore clearly indicate whether it is revocable or irrevocable.
A revocable credit is one, which can be cancelled or amended by the issuing bank at any time without prior notice to the beneficiary. The cancellation or amendment however, takes effect against the bank, which has negotiated bills under the credit only on receipt of notice of such cancellation, or amendment. The issuing is liable for bills negotiated confirming to the terms and condition of the credit before the notice of revocation is received by the negotiating bank.
An irrevocable credit constitutes a definite undertaking of the issuing bank or makes payment provide the terms and conditions of the credit are complied with. An irrevocable credit can neither be amended nor cancelled without the agreement of all parties concerned.
The difference between a revocable credit and an irrevocable credit is quite clear. While a revocable credit can be cancelled or modified without the consent of the exporter, it is not possible in the case of irrevocable credit.
Confirmed and unconfirmed credit :
When a letter of credit is advised to the beneficiary through a bank in the beneficiary’s country without adding its confirmation. If the advising bank adds confirmation to the credit, it becomes a confirming bank and the credit a confirmation credit.All confirmed credit is also irrevocable letter of credit. It is so because no bank in the exporter’s country would be willing to undertaking a liability on a revocable credit on which there is no definite undertaking by the issuing bank.
With resources and without recourse Credit:
The bill of exchange drawn under a letter of credit may indicate that it is drawn without resources to the drawer. Unless the credit authorizes drawing a ‘without resource’ bill of exchange, it is not proper to present such a bill of exchange.
A bill of exchange is only one documents drawn under the letter of credit and can’t be discussed in isolation of legal imported the credit. Therefore, to understand the utility of drawing a ‘without resource’ bill of exchange, we should first know the recourse available to the parties involved, viz., the negotiating bank, confirming bank and the issuing bank.
The exporter’s intention in drawing a without recourse bill of exchange is to ensure that in case of the documents are rejected by the issuing bank or payment is not made by the issuing bank for any reason, he should not be called upon to pay back the amount he received earlier on negotiation of documents.
Fixed and Revolving credits :
A fixed letter of credit is one which the limit is reduced permanently to the extent of bills drawn under the credit.Under a revolving letter of credit, the limit under the credit is renewed as and when bills drawn under it are paid, to the extent of such bills.A revolving letter of credit is useful where continuous transactions between the exporter and importer are expected and the amount of each drawing is sought to be limited.For an exporter with a large contract spreading over a period of years, a revolving credit offers the following advantages:
i) He need not await receipt of letter of credit every time he exports, and
ii) Since the same credit covers all the transactions the terms and condition do not change.It makes it easy for him to prepare documents as required by the credit.
Transferable credit:
A transferable credit is one under which the exporter has the right to make the credit available to third parties. The exporter may be only an intermediary who procures goods from the suppliers and arranges them to be sent to the importer. A credit is transferred in the following ways: the exporter, now called the first beneficiary, will apply to the negotiating bank to transfer and establish in favor of the manufacturer a letter of credit with the same terms and condition as that of the original with the exception to the following:
a) The amount of the credit may be reduce. The difference would be the profit or commission on the transaction for the first beneficiary.
b) The validity period and date of shipment may be curtailed.
c) Because the value of good is reduced, the percentage for which insurance cover must be effected may be in such a way as to provide the amount of cover stipulated in the original credit.
Red clause and green clause Letter of Credit:
Also known as ‘packing’ or ‘anticipatory’ credit a red clause letter of credit printed in red, authorizing the negotiating bank to grant advances to the exporter for the purchase of processing, packing and arranging for movement of goods up to the port of shipment. The advance, with interest and other charges, is recoverable from the bills that would be turned under the letter of credit and only the balance would be paid of exporter.
The amount of letter of credit should be less than the amount of the letter of credit so that it remains fully secured by the obligation of the opening of bank.
The negotiating bank is not required to supervise the utilization of the advance.
Back to back L/ C:
When one L/ C is backed by another L/C then the L/C is called back to back L/C. For procurement of raw materials and accessories banks sometimes provide finance by opening back to back letter of credit. Back to back L/Cs are frequently used for export of readymade garments. Bank to bank L/C does not involve cash outlay at the time of pre-shipped stage. It constitutes a commitment to pay when the goods are shipped as per the terms of the credit. Back to back L/C is opened for a issuance period basis. This bill will be paid after received the export proceeds.
Back-to-Back LC
Standby Letter of Credit or Guarantee Credit:
A standby letter of credit is any letter of credit, or similar arrangement however named or described, which represents an obligation to the beneficiary on the part of the issuer;
a) To repay money borrowed by or advanced to for the account of the party: or
b) To make payment on account of any indebtedness undertaken by the account party; or
c) To make payment on account of any default by the account party in performance on the obligation.
Under a standby credit, also known as guarantee credit, the issuing bank assures the beneficiary that in the event of non-perforn1ance and non-payment of an obligation by the applicant, the beneficiary may get the payment from the issuing bank. The claim should be a draft accompanied by the request documentary evidence of non-performance as stipulated in the credit.
Letter of Credit and its terms and conditions:
In the top of the L/C, issuing bank address along with telephone no, telex no, and fax no is quoted. L/C no with date and amount both in words and figures are also quoted. In the L/C, beneficiary’s name and address, advising bank and applicant’s name and address are clearly quoted. To the advising bank, original and duplicate L/C are forwarded here original for beneficiary and duplicate for advising bank.
Name of merchandise with quantity, quality, per unit price etc., Performa invoice no or indent no with date along with indenture’s Bangladesh bank pern1ission no are also quoted in merchandise pare.
IMPORT PROCEDURES
Formalities & Restrictions :
The word “Import” is most familiar to the bankers, which means bringing of goods and service to own country from other countries. The word is widely used by the bankers allover the world for the same purpose as stated earlier.
Way of Import: Import into Bangladesh may be two ways – (1) By way of opening L/C&
(2) Without opening L/C.
(I) Import by way of opening L/C requires to fulfill following criteria of private sector importer;
a) Registered importer having valid IRC
b) Trade license (valid)
c) Membership certificate from local chamber of commerce of related association (valid).
d) Income tax clearance/ declaration in case of new comer.
e) VAT registration certificate.
If a private sector importer fulfils above requirements, a banker can process an L/C for import of goods & services from abroad but following papers/documents are to be obtained before opening of L!C in addition it the above mentioned papers/documents:
1. L/C application.
2. Indent! Performa invoice/purchase order/contract/agreement.
3. Charge documents duly & properly executed.
4. LCAF duly sealed & signed. 5. Insurance cover note
The importer must be a customer of the L/C issuing bank / branch & the L/C may be opened
after sanction by the competent authority.
(2) Import into Bangladesh without opening L/C may be made in the following cases against
LCAF:
a) Books, journals, magazines, periodicals against sight draft or usance bills. Any importable item
by making payment from Bangladesh to the tune of maximum USD. 2500/ -in a year
b) The items allowed by the credit, Loan, Grant.
c) International chemical reference by registered allopathic industrial unit with the approval of
Director, Drug Administration.
Scrutiny of Documents :
The letter of credit constitutes one of the most important methods of financing trade. Under a banker’s letter of credit, the issuing bank gives a undertaking on behalf of the buyer that the bank will honor the obligation of payment on presentation of stipulated documents. Thus letter of credit provides security if the beneficiary observes its terms and conditions. The beneficiary of the documentary letter of credit when presents the stipulated documents to the negotiating bank, he expects the bank to honor its obligation under the credit in return. The negotiating bank scrutinizes the document in strict accordance with the L/C terms and negotiates the bill if the documents are in order. After negotiation, the bank claims reimbursement as per L/C terms.The L/C issuing bank / draw bank, after receiving of the above documents, scrutinizes all the documents before lodgment of the same in their books / registers. The following points are considered mainly at the time of scrutiny of documents.
Common Documents under DC
Bill of exchange/Draft:
Ø The draft must be date before expiry of the L/C and within the stipulated period for negotiation.
Ø It must be dawn or endorsed to the order of the bank.
Ø It is drawn by the party indicated as the beneficiary of the credit.
Ø It is drawn on the party indicated as the draw of the credit.
Ø It is market as drawn under the proper L/C of the bank quoting the L/C number.
Ø The tenor is in conformity with that stipulated in the L/C.
Ø The amount is identical with the amount mentioned in terms of the credit.
Bill of Lading (B/L)
Ø The full set of B/C is submitted including original copy.
Ø It is marked “Shipped on Board”
Ø It is drawn in favor of the bank endorsed to the order off the bank and dated
after issuance of the L/C
Ø The B/L is clean
Ø If the terms of sale is C& F, B/L is to be marked “Freight paid”.
Ø Short from B/L is not acceptable
Ø Charter party B/L is not allowed unless specified in the L/C
Ø B/L is not stale
Ø Other (if any) as per L/C terms.
Commercial invoice
Ø The invoice is signed by the exporter / beneficiary
Ø The required numbers of copies of the invoice are placed as per L/C terms.
Ø Description of the goods with measurement / weight are mentioned in full.
Ø The value and price of the goods to be tallied with L/C terms
Ø The L/C number, name of the ship with shipping mark, shipments date L.C.A.F/ license numbers of the importer, indent number etc. are to be quoted in the invoice properly.
Ø The quality and quantity of the goods as mentioned in the invoice must agree with that of L/C terms.
Ø The name of the importer and the L/C issuing bank is mentioned in the invoice.
Certificate of origin
Ø The certificate of origin may be issued by the chamber of commerce & Industry of exporter’s locality or by the supplier as stipulated in the L/C.
Ø The goods must be originated from the country as per indication given in the L/C.
Ø All other documents like packing list, per-shipment inspection certificate etc are in accordance with the terms of the credit.
Ø The importer retires the bill within a reason -able period paying all the charges and bill value. If importer fails to retire the bill from his own source, he may approach for loan against imported merchandise from the bank.
Lodgment of Documents:
After shipment of goods the beneficiary sends the documents to the opening bank through the negotiating bank. After receiving the documents from the negotiating bank, the opening bank checks the documents very carefully as per terms & conditions of the back- to- back L/C. if there is no discrepancy or the applicant accepts the discrepancy, if any, then the documents are lodged. International foreign Bills Collection register according to the serial number. After getting the shipping documents in order i.e. clean documents lodgment of documents to be made with in three working days. Steps to be taken in lodgment. Bank and branch name seal to be affixed on the forwarding schedule, B/E seal on all shipping documents and banks crossing seal in bill of exchange and bill of lading to protect fraudulent use of the same. To put B/E serial number on all shipping documents. To make entry in the B/E ledger.
2.10 Retirement of Documents:
After the arrival of goods in the port the party comes to retire the documents. Then the following entry is passed.
Dr. Party’s A!C
Dr. Marginal Deposit A/C
Cr. Bill of exchange A/C
Cr. Interest A!C.
Interest is calculated on be amount from the date of reimbursement to the date of retirement. If the margin is kept with the bank a minimum 30 days, then interest is paid to the party at the savings rate and following vouchers are passed.
Dr. Expense control A!C Interest paid on margin L/C cash.
Cr. Party’s A!C.
Original documents are handed over to the importer after proper endorsement along with original LCA. The importer clear the goods on showing all these documents. The customs authority gives a bill of entry as a document of entering the importer goods in the country. The importer surrenders this bill of entry to the bank and forwards the bill of entry to Bangladesh bank along with the duplicate of IMP from.
EXPORT OPERATION
3.1 An exporter has to obtain a firm contract or an export L/C/Firm contract he has to make the goods ready and necessary arrangement for shipment particularly the following arrangements have to be done:
Ø Booking of shipping space.
Ø Packing of the goods with shipping makes as per instruction of Export L/C/contract.
Ø Booking of space for storage of export cargo at the port of loading.
Ø Arrangement for transportation of goods to the port.
Ø Approaching bank (A.D) for issuing EXP.
Ø Whenever an exporter approaches the branch for issuing and certifying EXP. Branch is to satisfy that he maintains a CD A/c with the branch. He is a manufacturer, producers or supplier of the goods to be exported. Market reputation is satisfactory. Being satisfied following papers and documents are to be obtained:
Ø Application for the exporter.
Ø Valid export Registration certificate (ERC).
Ø Original copy of export L/C/Firm contract.
3.2 Checking of papers and documents by the branch:
i. Application:
Ø Items are permissible for export.
Ø Arrangement made for realization of Export Proceeds within 4(Four) months.
Ø Arrangement has been made for receipt of title of he goods like Bill of Loading, Air Way Bill etc.
ii) Export L/C:
Ø Irrevocable / Confirmed L/C issued by an Internationally reputed bank under UCPDC inforce and transfer made (if transferable) as per provision of article 48 of ICC- 600.
Ø Genuineness of Advising or Transferring the L/C is to be verified.
Ø Time for shipment is sufficient.
Ø Negotiation authority is provided therein.
Ø Reimbursement clause is definite.
Ø B/L clause conforms to the provision of Guidelines for foreign Exchange Transactions.
Ø All other terms and conditions are favorable.
iii) Contract:
Ø Contract is confirmed and duly signed by the seller and the purchaser.
Ø Buyer consignee is bonafide (Branch has to obtain credentials of the buyer through Foreign Correspondence).
Ø Full description of the goods to be exported with quantity, quality, price and unite price are given.
Ø Mode of transport with port of shipment and destination.
Ø Date of shipment.
Ø Delivery Term-FOB, CFR, CIF etc. mentioned clearly.
Ø Payment clause at Sight DC/ DP/ USANCE.
Ø Validity of the Contract.
Ø Being satisfied branch is to issue a set of EXP. Duly recorded in Export Register as per specification given in appendix in 5/65 of Guidelines For Foreign Exchange Transaction Volume-1 published by Bangladesh Bank.
Ø Exporter is to fill up and sign EXP. Under his seal. Branch is to check that all the copies EXP have correctly been filled in as per particulars of export L/C/contract. Signature of the export is to be verified and certify under seal and signature of the branch manager on the space provided.
Papers and documents are to be handed over to C& F Agent:
Ø EXP duly signed by Export and certified by the bank.
Ø Copy of Export L/C Contract.
Ø Commercial invoice duly issued and signed by the exporter.
Ø Packing List.
Ø Insurance cover note in case of Export on CIF basis.
Ø From VBF-9 (Prescribed by Custom Authority for declaration of Export Cargo).
Ø Detail instructions regarding shipment:
Ø Date by which the goods should be put on board.
Ø Name of the bank in Bangladesh to whose order BL/air way duty Bill should be drawn.
Ø Number of original and non-negotiable B.L to be obtained.
Ø A proof of export from the Custom Authority for claiming duty draw back (wherever admissible).
C & F Agent has to arrange:
Ø Booking of shipping space.
Ø Storage of Export Cargo at the port.
Ø Marking the shipping marks on each packet / container.
Ø Issue instruction to the carrier regarding the date by which goods are to be shipped on board and shipping documents to be issue with necessary clauses and number of copies to be supplied.
After shipment Exporter will submit the following documents to the branch:
Ø All negotiable copies of B/L
Ø Commercial Invoice duly signed.
Ø Bill of Exchange.
Ø Consular invoice (If required).
Ø Pecking list.
Ø Certificate of Origin.(If required).
Ø Pre-shipment inspection certificate (If required).
Ø GSP certificate (wherever necessary).
Ø Original copy of export L/C/Contract.
Ø EXP duly certified by the custom authority.
Ø Any other documents required as per export L/C Contract.
Ø Exporter is to submit the export documents under cover of a letter mentioning a number of documents submitted and detail instructions regarding payment and delivery of documents.
Branch is to verify that-
The number of the documents mentioned in the forwarding letter are found intact.
Instruction regarding payment and delivery of documents are in confirming with the terms and conditions of Export L/C contract.
i) Sight Documents are to be delivered against payment at sight of the draft.
ii) D.A Documents to be delivered against acceptance of the draft by the drawee
and documents are to presented on due date for payments.
iii) D-P-Documents are to be delivered against payment.
iv) All the documents required as per terms and conditions of L/C contract are
submitted. Documents submitted are to be scrutinized and the discrepancies are to be noted on the scrutiny sheet.Exporter is to be informed of the discrepancies immediately. Export will rectify the discrepancies which are rectifiable by them.
Export Financing
Financing of exports constitutes an important part of a bank’s activities. Exporters require financial services at different stages of their export operation. During each of these phase exporters need different types of financial assistance depending on the nature of the export contract. Export financing can be classified into two categories.
1) Pre-shipment credit
2) Post-shipment credit
Pre-shipment credit
Pre-shipment credit, as the name suggests, given to finance the activities of an exporter prior to the actual shipment of goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to transportation of goods for export to foreign country. Pre-shipment credit takes place the following forms:
1) Export Cash Credit (Hypothecation)
2) Export Cash Credit (Pledge)
3) Export Cash Credit against Trust Receipt
4) Packing Credit
5) Back to Back letter of credit
6) 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 of export L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of credit creates a charge against the merchandise in favor of the bank but neither 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 facilities are extended against pledge of goods to be stored in the godown under bank’s control by signing letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods under bank’s effective control as security for payment of bank dues.
Export Cash Credit against Trust Receipt
In this case, credit limit is sanctioned against Trust Receipt. The exportable goods remain in the custody of the exporter. He is required to execute a stamped export trust receipt in favor of the bank. This facility is allowed only to the first class party and aollateral security is generally obtained in this case.
Packing Credit
In this cash credit, facilities are extended against security of Railway Receipt / Steamer Receipt / Barge Receipt / Truck Receipt evidencing transportation of goods to the port for shipment of the goods in addition to the usual charge documents and lien of export letter of credit. This type of credit is sanctioned for the transitional period from dispatch of the goods till negotiation of the export documents. The drawings under Export cash credit (Hypothecation/Pledge) limit are generally adjusted by drawings in packing credit limit which in turn, liquidated by negotiation of export documents.
Back to Back Letter of Credit
Under this arrangement, the bank finances export by opening a letter of credit on behalf of the exporter who has received a letter of credit from the overseas buyer. Since the second letter of credit is opened on the strength of and backed by another letter of credit it is called Back to Back Letter of credit. The need for a back to back letter of credit arise because the beneficiary of the original (export) letter of credit may have to procure the goods from the actual producer who may not supply the goods unless its payment is guaranteed by the bank in the form of letter of credit. The bank’s credit related to back to back letter of credit is realized subsequently from export proceeds.
Credit 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 /typed in red ink the L/C is called Red clause and Green Clause L/C respectively. Though it is not prohibited, it is very rare in Bangladesh.
Post-shipment credit
This type of 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 can not afford to wait for a long time for without paying manufacturers / suppliers. Banks in our country extend post-shipment credit to the exporters through:
1) Negotiation of documents under L/C
2) Purchase of DP and DA bill’s
3) Advance against Export Bills surrendered for collection
Negotiation of documents under L/C
Under this arrangement, after the goods are shipped, the exporter submits the concerned documents to the negotiating bank for negotiation. The documents should be negotiated strictly in accordance with the terms and conditions and within the period mentioned in the letter of credit. If the documents are found complying the terms and conditions of L/C, the bank may purchase/discount the drafts/documents.
Purchase of DP and DA bill’s
In such case, the banks purchase/discount the DP (Documents against Payment) and DA (Documents against Acceptance) bills operated under the payment method of documentary collection. While doing so, the banks scrutinize all the export documents separately and minutely. Clear instructions is to be obtained from the drawer of the bill in regard to all important issues related to the negotiation of the bills.
Advance against Export Bills surrendered for collection
Banks generally accept export bills for collection of proceeds when they are not drawn under a L/C or when the documents, even though drawn against an L/C contains some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank 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 bills. In addition to the export bills, banks usually ask for collateral security like a guarantee by a third party and equitable / registered mortgage of property.
FOREIGN REMITTANCE
Function of Foreign Remittance Department
OUTWARD REMITTANCES:
Outward remittances are those sent aboard in foreign exchange. These also include payment into convertible Taka account or non-resident Taka Account (the so-called vostro Account) of foreign banks maintained with banks in Bangladesh. The bank must exercise utmost care to see that foreign exchange sold to a client is used for the declared purpose.
Travel Related Services:
There would be a large number of customers– regular as well as casual– coming to the bank to buy foreign exchange for travel abroad on various purposes.Up to US$ 1000 or equivalent per person may be issued during a calendar year to Bangladesh nationals proceeding by air to destinations in SAARC member countries and Myanmar. Within this annual limit, up to $ 500 or equivalent may be issued per person for overland travels to these countries. For visits to destinations in other countries foreign exchange up to $ 3,000 per person may be issued during a calendar year.
Medical Treatment Abroad :
Up to $10,000 or equivalent may be released by the branch on the basis of a recommendation of the Medical Board set up by the Health Directorate, foreign exchange may be released as per the cost estimate given by the foreign medical institution. Applications for release of exchange exceeding $10,000 should be forwarded along with supporting documents to Bangladesh Bank for prior approval.
Participation in Seminars, Conferences etc:
Up to $ 250 per diem for countries in the SAARC region and Myanmar and $200 per diem may be released by the branch to private sector officials for attending seminars, conferences and workshops arranged by recognized international bodies.
Release of Foreign Exchange for Hajj:
The Government of Bangladesh announces each year the scale at which foreign exchange may be issued to intending pilgrims for performing Hajj. Release of foreign exchange for this purpose should be made as per instructions issued for this purpose by Bangladesh Bank at the beginning of Hajj season
Remittance of Foreign Exchange for Education Abroad:
Foreign exchange may be released for studies abroad by Bangladesh nationals in all regular courses (subject to being consistent with the Education Policy of the Bangladesh Govt.) in recognised institutions.
Transfer of Assets:
Foreign nationals leaving Bangladesh permanently on expiry of employment contracts may transfer abroad their genuine savings from salaries/benefits clearly stated in the employment contracts approved by the Board of Investment (BOI). They shall also be eligible to transfer abroad retirement benefits such as provident fund, pension, and gratuity as per the employment contracts. The branch may, without prior approval of Bangladesh Bank, effect remittances of those dues including sale proceeds of investment in government securities as per the following instructions.
Family Remittance Facility:
Foreign nationals who are resident in Bangladesh and have income in Bangladesh are permitted to make monthly remittances to the country of their domicile out of their current savings up to 50% of their net income to cover their commitments abroad.Bonus or commission receivable by foreign nationals cannot be added for calculating monthly entitlement in anticipation of the grant of bonus or commission This can be included only after the net amount of bonus or commission has been actually paid by the employers. Remittance will be spread over the subsequent twelve months.
NWARD REMITTANCES:
Inward remittances are those received from aboard in foreign exchange. Bank should encourage its customers to send more foreign exchange through various accounts. Inward remittance is vary important for Bangladesh, as a large portion of our foreign exchange comes from Wage Earners and other inward related business The branches must exercise utmost care to see that foreign exchange received from a client is credited swiftly so that they cannot be interested to sent money through unauthorized channel.
Family maintenance:
Bangladeshi National Working Abroad can send foreign exchange to Bangladesh from the country of their domicile which is exempted from tax. This amount has to be credited by the bank within 03 days from that date of necessary documents by the bank.
Commission earned from various business:
Commission arise from business between resident and nonresident can send such amount to Bangladesh, which is may be taxable subject to the government annual gazette declaration.
Disposal of Foreign Exchange on Return from Abroad :
On return, unspent amounts brought back (with declaration in FMJ form for amounts more than US$ 5000) may freely be sold to an AD or may be retained in RFCD Account an amount of up to US$ 5000 may be retained in hand.
Investment by Foreign Nationals in Certificates & Securities:
All requests for investment by foreign nationals in Bangladesh Government Securities such as Defence Savings Certificate for the purpose of claiming income tax relief against investment allowance should be submitted through the branch to the Bangladesh Bank for prior approval.
FOREIGN CURRENCY ACCOUNTS:
Private Foreign Currency Accounts:
Who Can Open the Accounts?
Ø Bangladesh nationals residing abroad,
Ø Foreign nationals residing abroad or Bangladesh,
Ø Foreign firms operating in Bangladesh or abroad, and
Ø Foreign missions and their expatriate employees in Bangladesh. Bangladesh Bank may specially allow opening of foreign currency accounts not covered by this
FC Accounts of Overseas Bangladeshi Nationals:
*Bangladesh nationals working abroad or proceeding abroad to take up employment may open
foreign currency accounts.
*No initial deposit is required to open this account.
*Account holder may operate the account himself or nominate other persons in Bangladesh for this
purpose.
*The account may be opened in pound sterling, US dollar, euro or Japanese yen.
*The account may be maintained as long as the account holder desires.
*These accounts should ordinarily be fed by remittances by account holder himself.By funds sent
by other wage earners,Sale proceeds of currency notes, traveller’s cheques, drafts etc. brought
into Bangladesh by the account holder while on temporary visit to Bangladesh provided foreign
exchange in excess of US$ 5000 (or its equivalent) is duly declared to the Customs on Form FMJ
at the time of their arrival.
*Funds lying to the credit of FC accounts of Bangladesh nationals can be utilized for import of
goods and commodities as per Import Policy announced by the Government from time to time.
FC Accounts of Bangladeshis Working in Foreign organisations:
Foreign currency accounts may be opened in the names of resident Bangladesh nationals working in foreign/ international organizations operating in Bangladesh provided their salary is paid in foreign currency. Such accounts may be credited only with the foreign currency portion of the salary and debited for all approved current transactions like cost of travel, education for children, medical treatment etc.
Non-Resident FC Deposit Accounts (NFCD):
All non-resident Bangladesh nationals and persons of Bangladesh origin including those with dual nationality and ordinarily residing abroad may maintain interest bearing time deposit account named Non-Resident Foreign Currency Deposit (NFCD) Account with the authorised dealers. These accounts may be opened initially with minimum amount of US$ 1000 or pound sterling 500 or equivalent
Foreign nationals and companies/ firms registered and /or incorporated abroad, banks, other financial institutions including institutional investors and 100% foreign owned (A-Type) industrial units in the Export Processing Zones in Bangladesh are also allowed to maintain NFCD Account. The minimum amount of time deposits in such cases should be US$ 25,000 or its equivalent in pound sterling, euro mark or Japanese yen. Other terms and conditions in respect of these account holders will be similar to those mentioned above for NFCD Accounts of non-resident Bangladesh nationals.
Resident FC Deposit Account:
Branches may allow persons ordinarily resident in Bangladesh to open and maintain Resident Foreign Currency Deposit (RFCD) accounts with foreign exchange brought in at the time of their return from travel abroad. Any amount brought into Bangladesh with declaration to the Customs authorities in form FMJ and up to $5000 brought in without any declaration can be credited to such accounts. Proceeds of export of goods or services from Bangladesh or commission arising from business deals in Bangladesh cannot be credited to such accounts.
Convertible Taka Accounts:
The branches may open convertible Taka Account in the names of foreign organizations/nationals viz., diplomatic missions, UN organizations, non-profit international bodies,foreign contractors and consultants engaged for specific projects under the Government or semi Government agencies,the expatriate employees of such missions / organizations who are residents in Bangladesh.
Nonconvertible Taka Account:
Foreign organizations and their expatriate personnel entitled to open convertible Taka account may maintain non-convertible account with the branch without prior approval of Bangladesh Bank. This account may be debited/credited for the following purpose:
Private Non-resident Taka Account:
The Taka accounts maintained with banks in Bangladesh by private individuals, firms and companies resident outside Bangladesh are known as Non-resident Taka accounts. The accounts of foreign nationals residing in Bangladesh and foreign firms and companies located and operating in Bangladesh and accounts of U.N. and its organizations are, however, treated as resident accounts and kept outside the scope of Exchange Control. The accounts of Bangladesh nationals who leave the country except those who hold office in the service of Bangladesh Government are required to be treated as non-resident Taka account so long they remain outside Bangladesh.
Non-resident Blocked Account:
A blocked account means an account in which operation is prohibited by an order of Bangladesh Bank. Under the F.E.R. act, 1947 Bangladesh Bank can “Block” an existing Non-resident account or direct any payment due to a Non-Resident to be made only to a N/R blocked Account.Opening and operation of in a N/R blocked Account requires prior approval of Bangladesh Bank.
INTERNATIONAL DIVISION
Responsibilities of International Division
AD Licence and Correspondent Relation:
International Division at the Head office shall be responsible for providing guidance and necessary logistics to the branches and liase with Bangladesh Bank and other agencies. The Division should identify the branches in various locations based on volume of international business that can profitably operate foreign exchange business and then apply to Bangladesh Bank for Licenses to deal in foreign exchange on prescribed form. Bangladesh Bank normally insists on the prospect for adequate business to justify the authorization. The bank also has to have trained manpower as a prerequisite for issue of AD licence.
International Division should arrange for establishment of correspondent’s relationship with banks in as many countries as is warranted by customers’ needs. Agency arrangement involves an agreement between bank and a foreign bank/branch for conducting international banking and financial transactions emanating from exports, imports and other foreign exchange business. Generally the following points are covered by agency arrangements:
v Control Documents: Exchange of authorised signature booklets, Test Key materials etc. between two banks.
v Area of Operations: The names of the branch/offices of the two banks, which will be authorised to operate under the arrangement.
v Subject of Operation: The instruments which will be used to execute the transactions viz. D.D./T.T./M.T./L.G./L.C. etc.
v Currency of Operation: U.S dollar, Pound sterling, Euro, Yen etc. in which transactions are to be conducted.
v Reimbursement: Mode of reimbursement of drawings on each other through Nostro and Vostro Account and providing of cover against such drawings are set out in the arrangement.
Monitoring and reporting:
International Division will work as watchdog over the branches to ensure that they observe the rules and regulations meticulously. For this propose it will maintain a calendar of returns to ensure (a) receipt of reports and returns from the branches and (b) transmission of reports and returns to Bangladesh Bank and other agencies on due dates.
The branches should also be encouraged to apply innovative ideas to attract new business.
Forms and Specimens :
International Division will arrange for printing and supply of various forms to the branches. These should be periodically reviewed to reflect the emerging development in the field of technology, communication and financial products.
Reference Books:
International Division will collect and supply the branches with various updated reference materials including ‘Guidelines for Foreign Exchange Transactions’ and Foreign Exchange circulars issued by Bangladesh Bank from time to time, Import Policy, Export Policy, Industrial Policy and laws and regulations concerning joint stock companies, banking, insurance, contracts etc.
Training and Orientations:
International Division will arrange suitable orientation and training programmes for the staff in collaboration with BIBM and other organisations at home and abroad as well as in its own training institute. The Division will also hold discussion programmes with the branch staff to interact on business strategies.
Nostro and Vostro Account:
Foreign Currency Account maintained with correspondents’ abroad is termed by us as “Nostro Account” meaning “Our Account with you”. The foreign correspondents, however, describe our Account maintained by them as “Vostro Account” meaning ‘Your account with us’.
Similarly our foreign correspondents may at times want to maintain Non-resident Taka Accounts with us. These are, from their point of view, their Nostro Accounts but from our point of view “Vostro Account”—‘Your account with us’. These types of accounts would, however, be very far and few.
Foreign Currency Account if any, maintained by us with our correspondents abroad in the name of third party is termed by us as “Loro Account” meaning ‘their Account with you’. These types of accounts will also be rare.
Limit of Foreign Currency Balances:
Bangladesh Bank fixes an overall limit of foreign currency balance that each bank can maintain with correspondent’s abroad as working balance. The limit is set in terms of US dollar but banks are free to maintain balances in other convertible foreign currencies in different financial centres, provided the US dollar equivalent is kept within overall limit set by Bangladesh Bank.
Proforma (Shadow or Mirror) Account in General Ledger
Our correspondents abroad debit our accounts for payments made by them for our sale transactions and credit with funds paid into these accounts by our correspondents abroad or overseas customers against our purchase transactions. These have the effects of either reducing or increasing the balances in foreign accounts. The Head Office maintains contra proforma account in the General Ledger in the name of each foreign correspondent. For instance, if a “Nostro Account” is maintained in US dollar with Chemical Bank in New York, a contra proforma account under the style Chemical Bank (Our Account) is opened in the General Ledger and other books of accounts. These are proforma accounts. Debit entries in the Nostro Account are reflected in the Proforma Account as credit items, while credit entries in Nostro Account are reflected as debit items in the proforma Account. Such proforma Accounts have separate columns for debits, credits and balance expressed in both foreign currency as well as their Taka equivalent, and the rates of exchange at which the relevant foreign exchange transactions are put through.
Non-Resident ( N. R. ) Taka Account of Foreign Correspondents:
ID will have to approve opening of Non- Resident Taka accounts in the name of the bank’s foreign correspondents, subject to report to Bangladesh Bank giving names and address of the foreign banks. Such accounts can, however, be opened only against receipt of inward remittances in freely convertible currencies. Transfer of Taka to the credit of such N. R Taka account constitutes an outward remittance and is equivalent to a sale of foreign currency. Such transfers can be made only against approved outward remittance. Transfer between two N.R. Taka accounts are however, permitted freely.
All debits/credits and balances in N. R. Taka account of foreign correspondents should be reported to Bangladesh Bank on the appropriate returns.
Borrowings from Abroad:
Banks are allowed to obtain short term loans or overdrafts in foreign currency from their correspondents abroad only in the normal course of their foreign exchange business for a period not exceeding 7 days at a stretch but not for any speculative purpose. However, if such loans and O/Ds are to be secured by collaterals, prior approval of the Bangladesh Bank is to be obtained. Interest on such short-term loans and O/Ds can be remitted without prior approval of Bangladesh Bank but subject to submission of report to them in due course.
j)Long-term loans in Foreign Currency :
Prior approval of Board of Investment is required for obtaining any long-term loans in foreign currency.
Open Position:
Bangladesh Bank sets prudential limits on bank’s open (overbought/oversold) exchange position. The ID should ensure that the prescribed open position limit is not exceeded. If the bank exceeds the prescribed limit and fails to furnish satisfactory explanation for the same, it may be asked to sell the excess amount ready and cover its position by buying forward for deliveries corresponding to the maturities of its own forward obligations. In general, the Bank should aim at maintaining their ready and forward positions month by month reasonably in line, avoiding heavy ready purchases against forward commitments.
Overbought/oversold position:
The ID will work out the open exchange position daily and report to Bangladesh Bank the positions (overbought/oversold) as at the close of business on Thursday of each week (see chapter 2, Vol.2 of the Guidelines for Foreign Exchange Transactions). If, for reasons beyond control, the overbought/oversold position during the period under report is in excess of the prescribed limit, a letter explaining the circumstances must accompany the weekly return.
Square a position:
When the bank runs short in any currency it may purchase the same from the inter-bank market, overseas correspondent or Bangladesh Bank. Similarly, it can square up the long position by selling the currency in the inter-bank market, or to overseas correspondents or Bangladesh Bank.
If the bank runs a short/long position in other currencies such as Swiss franc, euro etc., th