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“Foreign Exchange Operations of Mutual Trust Bank Limited”
Part- 1 Introduction
Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is highest in the initial stage. Schumpeter (1933) regarded the banking system as one of the two main agents (other being entrepreneurship) in the whole process of development. Keynes also emphasized the role of bank services in the process of economic development of a country, while he was addressing the House of Lords regarding International and Monetary System (quoted in Sharma 1985). Moreover Alexander Gerschenkron (1962) in his popularly known “Gerschenkron’s Hypothesis” explained the banking system as the key role player at certain stage of the industrialization process.
Bank is the most important financial institution in the economy. It plays vital role in the economy by providing means of payment and in mobilizing resources. The economic development of a country depends on the development of banking sector to a great extent. The dependence of banking sector in modern economy is increasing day by day because this sector ultimately contributes to run the wheel of development in a more dynamic way. Today’s modern banks are not only provides traditional banking, rather banks are expanding the menu of financial services, banks are making the untouchable service touchable for their customers. The changing and expanding role of banking has made the banking business more complex and competitive. For survival and growth of this business demands creativity,
Specialization and knowledge and adoption of new technology. But technology, creativity, specialization all these cannot support a bank to survive unless the services are marketed in the right track. For this banks need experts who will able to run the business even in against the wind.
1.2) Objective of the study
To prepare the report has been acquainted with day-to-day foreign exchange functions of MTBL; know the progress of foreign exchange and foreign trade of MTBL, to gain in-depth knowledge of export, import and remittance of MTBL highlighting the foreign exchange activities of this bank. The primary & secondary objectives of this report are-
1.2.1 Primary Objective
The general objective of this report is to fulfill the requirement of internship report to get BBA degree and it is also necessary to get admitted for MBA. The main objective is to know the significant relation that exists between import-export and branch performance in this sector. On the other hand the significant relation that exists between import-export and business world.
1.2.2 Secondary objective
Secondary objective are given below-
· To know and focus the whole import-export mechanisms.
· To know and focus the remittances activates.
· To know and focus the rules and regulation of import-export mechanisms.
· Identify some problems and also make some recommendations.
· To observe the working environment in commercial banks.
· To apply theoretical knowledge in the practical field.
· To build up the pillar of the career for near future.
1.3 Scope of the study
The scope of the organizational part covers the organizational structure, background, objective, function and department and business performance of MTBL as a whole. The main part covers the operational scenario of advance, foreign exchange, remittance of Dhanmondi branch as well as over all of MTBL. This refers that how the bank help the customers in exporting and importing the goods, providing advance, and how it remits the money of the foreign clients, etc. all are in the project part of the report.
1.5) Methodology of the Report
· Things that have been consider before selecting the topic:
1. Interest: Bangladesh is an import based country which is the part of foreign exchange. It consist import, export and remittance. Letter of credit is the part of import and export. Remittance is really important for the country economy. So it’s interesting to know about the process about the foreign exchange operation.
2. Magnitude: foreign exchange operation is very important. Its data are available and within the time make a report about it is possible.
3. Measurement of concepts: the basic concepts about the import, export and remittance are clear.
4. Relevance: the topic is relevant to the previous study and major subjects.
5. Availability of data: import, export and remittance data are quite available.
6. Ethical issues: import, export and remittance data are not that much confidential. So the ethical side also is maintained.
· Selecting the method:
Foreign exchange operation is systematic situation, service and program. These are the characteristics of descriptive method. So in the report descriptive method is used to describe the foreign exchange operation.
· Research design after selecting the topic:
1. Literature review
2. Objective of the research
3. Method of data collection
4. Tool for data collecting
5. Data processing and
6. Data analysis
7. Reporting the findings and recommendation
· Literature review:
Literature part has been taken from the Bangladesh Bank web site, different wed site and from the different financial books.
· Objective setting:
1. Primary: It is an overall statement of the study. So to make the statement has been given priority to the main associations and relationships that have been discovered or established.
2. Secondary: These objectives have been made on the specific aspects of the topic that investigated within the main framework of the main study.
The objectives Wording has been made clear complete and specifically communicate the readers intention. The objectives contain only one aspect of the Study and Used action oriented words or verbs to writing the objectives.
· Method of data collection
Sources of data
The report is descriptive in nature. The information was collected from both primary and secondary sources of data. Regarding the information required was collected within the organization from the Corporate Division of Mutual Trust Bank Limited.
1. Data from primary sources
§ Practical desk work.
§ Face to face conversation with the respective officers and clients.
§ Informal questionnaire survey of Bank customer.
§ Personal observation.
§ Relevant file study as provided by the officers concerned.
2. Data from secondary sources
§ Study on Annual Reports of Mutual Trust Bank Limited.
§ Online data from MTBL website.
§ Published or unpublished or personally collected data from officers, Local officers and Head office of the Mutual Trust Bank Limited.
§ Different journal regarding Mutual Trust banking.
· Tools for data collection
§ Observe the foreign exchange dept banker for fifteen hours per week for six weeks, focusing mostly on observes at the customers, dealings with the customers, especially those conversations in which things changes to the work processes and issues need to focus in the work and maintaining the customer relationships and identifies these things.
§ The technique were to observe the people, actions and situations without asking from the respondent
2. Interview: personal interview
§ Interview foreign exchange dept banker to clarify and provide insight into conversations. Interviews have been attempted to conduct these interviews shortly after conversations of interest. While the interviews could not formal or structured. The general strategy for the interviews is to start off with short questions and follow up on the interviewee’s responses, to capture the meaning and to avoid imposing my meanings on the interviewee.
· Data processing:
a. Editing: Examining the collected raw data to detect errors and omissions and to correct these when possible
b. Classification the data according to attributes: here data is analyzed on the basis of common characteristics which can either be
c. Tabulation: it summarizing raw data and displaying the same in compact form for further analysis.
I. It facilitates the process of comparison.
II. It facilitates the summation of items and the detection of errors and omissions.
III. It provides the basis for various statistical computations.
· Data analysis:
· Qualitative data analysis:
a. Identifying the main theme
b. Integrate the main theme
· Quantitative data analysis
a. Data analysis happened though the computer by using excel.
· Reporting the findings and recommendation:
After analyzing all data the lacking have been discover that put in to the findings. And the recommendations also have been drawn. To write the findings and recommendation the academic writing style has been followed. And the language style is formal and not journalistic.
Complete literature review by 05 February
Complete fieldwork by 26th March
Complete analysis by 02th April
Give viva about internship on 18th April
Complete final report by 20th April
· Time preference
The time preference of the study relates to the period covering the years 2007 to 2011 and also shown some analysis from 2010 to 2011 as per month analysis & evaluation. All these years has been taken for different analysis purposes.
· Checking system
All qualitative and quantitative data has been checked twice to make it error free.
· Ethical issues maintained
During the study some of the data and information are obtained that are very much confidential. Those data and information has been hidden to show in the report.
1.6) Limitation of the study
Mutual Trust Bank Ltd. is a large financial institution; therefore it is not possible to find out the true pictures within a short period. To prepare the report I faced some problems & limitations. Those limitations are unavoidable for me. That may causes reduction in the quality of my report. Some of the major problems are pointed below-
- Lack of time: had to complete this report within a very short span of time that was not sufficient for investigation.
- Lack of Supervision: As the officers were busy with their daily work, they could provide me very little time. Sometimes, they did not want to supervise due to pressure of work load.
- Restricted Information: There is various information the bank officer did not provide due to security and other corporate obligations.
- Other limitation: As I am a newcomer, there is a lack of previous experience in this concern. And many practical matters have been written from my own observation that may vary from person to person. Constraints are one of the major problems / limitations to know the information.
Part -2 Company Profile
As a fully licensed commercial bank, a highly professional and dedicated team is managing MTB Bank with long experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so the bank and its responsibilities itself changed in the market condition. MTB Ltd is a banking company incorporated in the People’s Republic of Bangladesh with limited liability.
2.1 Background and History of the Company
The Company was incorporated on September 29, 1999 under the Companies Act 1994 as a public company limited by shares for carrying out all kinds of banking activities with Authorized Capital of Tk. 1,000,000,000 divided into 10,000,000 ordinary shares of Tk.100 each. The Company was also issued Certificate for Commencement of Business on the same day and was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999.
As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation and entitled to carry out the following types of banking business:
§ All types of commercial banking activities including Money Market operations.
§ Investment in Merchant Banking activities.
§ Investment in Company activities.
§ Financiers, Promoters, Capitalists etc.
§ Financial Intermediary Services.
§ Any related Financial Services.
The Company (Bank) operates through its Head Office at Dhaka and 76 branches and 79 ATM booths. The Company/Bank carries out international business through a Global Network of Foreign Correspondent Banks
2.2 MTB at a Glance
|Name||Mutual Trust Bank Ltd.|
|Registered Office||MTB Centre, 26 Gulshan Avenue, Plot 5, Block SE(D), Gulshan 1, Dhaka-1212|
|Authorized Capital||Authorized Capital of Tk. 380, 00, 00,000 divided into 38, 00, 00,000 ordinary shares of Tk.10 each.|
|Paid up Capital||BDT 2543.50 million. As per 2011.|
|Net Profit (after tax)||BDT 992.14 million (as per Annual report 2011)|
|Operating Profit||BDT 3491.18 million (as per Annual report 2011)|
|Earnings Per Share||3.04 (as per Annual report 2011)|
2.3 Shareholders and Shareholding Structure of MTB
Institutional Sponsors, Directors and general public all are involved in composition of the shareholding structure of MTBL respectively.
Table 2.3.1: Shareholders and Shareholding Structure of MTBL
|Sponsors and Directors||39.42 %|
Figure 2.31: Shareholders and Shareholding Structure of Sponsors and Directors, Institute & Public
2.4 Vision, Mission of Mutual Trust Bank LTD:
“You Can Bank On Us”is the motto of Mutual Trust Bank Limited. Mutual Trust Bank limited is prepared to meet the challenge of the 21st century well ahead of time. To cope with the challenge of the new millennium it hired experienced and well-reputed banker of the country from the inception. So the Bank defined:
Vision of Mutual Trust Bank Limited
Mutual Trust Bank Vision is based on Philosophy known as MTB3.We envision MTB to be
Ø One of the Best Performing Bank in Bangladesh
Ø The Bank of Choice
Ø A Truly World-class Bank
Mission of Mutual Trust Bank Limited
We aspire to be one of the most admired banks in the nation and be recognized as an innovative and client-focused company, enabled by cutting-edge technology, a dynamic workforce and a wide array of financial products and services
Efforts are focused of Mutual Trust Bank Limited
|On delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to our customer.|
Strategic priorities of Mutual Trust Bank Limited
|To have sustained growth, broaden and improve range of products and services.|
2.5 Objectives of Mutual Trust Bank LTD:
Objectives of MTB
§ To ensure inflow of funds at combination of least possible cost.
§ To maintain a discreet credit policy.
§ To enhance versatility and diversification through the penetration of new market segment, thereby fulfilling unmet needs.
§ To practice stronger IT-driven initiative that will meet the challenges and requirements of the bank and its clients.
§ To enrich the banking section with improved awareness on Corporate Social Responsibility.
§ To provide extensive career opportunities through competitive pay and benefits and a flexible environment.
2.6 Core Values of Mutual Trust Bank:
- Shareholder– Create sustainable economic value for our shareholders by utilizing an honest and efficient business methodology.
- Community– Committed to serve the society through employment creation, support community project and events and be a responsible corporate citizen.
- Customer– Render state-of-the-art service to our customers, offering diversified products and aspiring to fulfill their banking needs to the best of our abilities.
- Employees– Be reliant on the inherent merit of the employees and honor our relationship as a tribute to be a part of this renowned financial institution.
2.7 Products and Services of Mutual Trust Bank
Mutual Trust bank Limited has not yet only gained enormous popularity but also been successful in mobilizing deposit and loan products since commencement of banking operation. The bank has made significant progress within a very short time period due to its dynamic management and introduction of various consumer-friendly loan and deposit products. All the products and services offered by the bank can be classified under three major heads as below:
A) Deposit Products:
1. MTB Regular Savings
2. Current Account
3. Brick By Brick
4. MTB Double Saver Plan
5. Fixed Deposit
6. Children’s Education Plan
7. MTB Millionaire Plan
8. Monthly Benefit Plan
9. MTB senior
10. MTB Inspire
11. MTB Graduate
12. MTB Privilege Savings
13. MTB Ruby
14. Special Notice Deposit (SND)/ Former STD
B) Loan Products:
1. Consumers’ Credit Schemes:
§ Personal Loan
§ MTB home Loan
§ Travel Loan
§ MTB car Loan
§ Small business loan
§ MTB Digoon
§ MTB Microfinance
§ MTB Krishi
§ MTB Mousumi
§ MTB Green Energy
§ MTB Revolving Loan
§ Advance Against Salary
§ CNG Conversion Loan
§ Education Loan
§ Marriage Loan
§ Hospitalization Loan
C) Card Products
1. Local Cards
2. International Cards
Project Finance | BG (Bid Bond) | Finance for Importing Capital Machinery | Lease Finance | House Building Finance | Term Loan NBFI |Working Capital Finance
Secured over Draft (SOD) | Cash Credit (Hypo) | Cash against Document | Short Term Loan | Inland Bill Purchase (IBP) | Foreign Bill Purchase (FBP) |
Back to Back L/C opening | Export Bill Discounting (FDBP and IDBP) | Secured Over Draft (SOD-general/export bill) |
Loan Against Trust Receipt (LTR) | Term Loan (TR) |
Non-funded trade finance
L/C Opening (Sight & Deferred) | L/C Advising | L/C Transfer | Bank Guarantee | Secured Over Draft (SOD) in the form of SOD (general/export bill) and SOD (Others-work order, FDR, land, etc.) | Bank Guarantee in the form of Performance guarantee, Advance Payment guarantee |Inland Bill Purchase (IBP) includes mainly government security bills and bonds || Foreign Bill Purchase (FBP) includes foreign drafts |
Syndications & Structured Finance
Infrastructure Financing e.g. Power, Telecom, Hotels | Aircraft Financing | Manufacturing Project Financing e.g. Steel, Cement, Glass, Petrochemical | Agro-based Project Financing | Micro Financing |
Term Finance Working Capital Finance | Trade Finance |
N RB Savings | NRB DPS | NRB FD
MTB Bhaggobati | Green Energy Loan | MTB Probaho| MTB Buniad | MTB Gunabati |
2.10 Service Portfolio:
3. Foreign Trade
4. Remittance and Fund Transfer
Figure 2.10: Service Portfolio
3. Departments of Mutual Trust Bank
Mutual Trust Bank Limited has always been prepared the internship program for its internees. It is strictly followed by both parties. There are 3 different departments in Dhanmondi branch and they are:
1. General Banking (GB)
2. Credit Department (CD)
3. Foreign Exchange Department (FED)
3.1 General Banking (GB)
General Banking is the starting point of all the banking operating. General Banking department aids in taking deposits and simultaneously provides some supplementary services. It provides those customers who come frequently and those customers who come one time in banking for enjoying supplementary services. In some general banking activities, there is no relation between banker and customers who will take only one service form bank. On the other hand, there are some customers with who bank are doing its business frequently. It is the department, which provides day-to-day services to the customers. Every day it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, demit funds, issue bank drafts and pay orders etc. since bank in confined to provide the service everyday general banking is also known as retail banking.
The job was really hard at GB. I also had to hear a lot of complaints from the customers. At first, I was demoralized. But later on, I have learned how to deal with it.
3.2 Credit Department (CD)
The word credit is derived from the Latin word “credo” which means “I believe” and is usually defined as the ability to buy with a promise to pay. It consists of actual transfer and delivery of goods and services in exchange for a promise to pay in future. It is simply the opposite of debt. Diversification of banking service has accelerated the use of credit in the expansion of business operation. It is a fundamental precept of banking everywhere that advances are made to customers in reliance on his promise to pay rather than the security held by the banker.
Whatever credit facility anybody is looking for, he/she will surely find it at MTBL. It has a comprehensive selection of facilities to offer, from a simple personal loan, credit cards, auto loan and overdraft facilities to home loan. MTBL provides loan at very low interest rate compare to the other commercial banks. It has a wide variety of credit facility that makes it different from the other banks to the consumers.
There are mainly two types of credit products. They are –
1. Consumer loan product
2. Corporate loan product
People who want to tale loan for different purpose like personal purpose or for business purpose they come to this section and take loan at a lower interest rate. This department generally deals with giving loan and collecting the loan money back.
3.3 Foreign Exchange Department (FED)
Foreign exchange transaction plays a vital role in the economic development of a nation. Foreign exchange transaction comprises both international trade & remittance. There are various rules and restrictions in international trade that means import and export transactions. To export or import any items the exporters or importers need financial support. The commercial banks of Bangladesh play an important role by providing them financial support through loan, various incentives and advising letter of credit. This paper empirically discuss with the rules, restrictions and procedures of foreign exchange transactions comprising LC advise, negotiation of documentary bills, repatriation of proceeds and its impact on profits. An easy and simple procedure of such transactions may help the exporters and importers to increase their business in future.
4. Foreign Trade & Foreign Exchange Transactions (Theoretical Framework)
To know about the overall Foreign Exchange section, it is necessary to have some theoretical knowledge. The theoretical description is given below-
4.1 Foreign Exchange
Foreign Exchange means foreign currency and it includes any instrument
drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.
Foreign Exchange Act 1947 defines foreign exchange as “Foreign currency and includes deposits, credits, and balances payable in foreign currency as well as drafts, travelers cheques, letter of credit, bills of exchange drawn in local currency but , payable in foreign currency”.
According to Dr. Paul Einzig, “Foreign exchange is the system or process of converting one national currency into another and transferring money from thecountry to another.” Foreign exchange deals with foreign trade and foreign currency.
4.2 Foreign Trade
No country is self-sufficient in all the goods. Some countries have special advantage to produce some items. Bangladesh can manufacture readymade garments easily due to lower cost of labor. So, Bangladesh is exporting readymade garments to USA where as USA is exporting machinery to Bangladesh due to their favorable transaction to that item. These kinds of cross border transaction or exchange of goods are called foreign trade.
4.3 Foreign Exchange and Foreign Trade
MTBL undertakes spot purchase and sales foreign currencies by deploying its own fund.
Foreign exchange and foreign trades of a country are conducted according to the law of that country. Mutual Trust Bank Ltd. performs all its banking operations including foreign exchange activities according to that law. Mutual Trust Banks conduct their foreign exchange businesses mainly into two ways:
a) Bank provides service as an agent for the transaction and earns service charge, commission etc.
b) Bank invests its fund for the purchase of foreign currencies and sale of such currencies on the basis of present transaction and may earn profit thereof.
4.4 Foreign Exchange Transactions
Conversion of currencies or exchanges is known as foreign exchange transactions. The conversion may arise for atransaction between a bank and its customers or between a bank and another bank at home or abroad. The transaction involves at least two currencies. For a bank in Bangladesh, the process of conversion frequently involves conversion of Bangladeshi taka into foreign currencies or vice- versa.
For instance, one of the customers of your bank wishes to send an amount of $1000 to his son in USA. Assuming that this remittance is permissible or that permission from the exchange control authority has been obtained, you will issue a draft in favor of the beneficiary for $1000 drawn on your USA correspondent or a branch of yours, if any, in favor of your customer’s son and ask your customer to pay the equivalent amount in Taka. The transaction involves two things: payment of $ 1000 from your dollar account – your NOSTRO account maintained with your USA branch or correspondent and recovery of its taka equivalent at the ruling ready (spot) rate of exchange between taka and dollar. In another instance, your customer may ask you to buy a draft for Tk.10000 drawn on a bank in Iran towards the value of jute bags supplied to the Iranian buyer against a letter of credit open by a bank of Iran. If you are satisfied that the documents accompanying the drafts are in order, you will pay the taka amount and ask that bank of Iran to pay you equivalent amount in dollar or Iranian Real.
In the illustration given above, remittance of $1000 to USA would involve conversion of local currency into a foreign currency and in the later case the transaction would involve conversion of a foreign currency- dollar or Iranian Rial into local currency.
4.5 Wings of Foreign Exchange
A Bank’s Foreign exchange department has three definite wings through which foreign exchange transactions are conducted.
Figure 4.5: wings of foreign exchange
The achievement of Mutual Trust Bank in the above three areas of foreign exchange business has been quite phenomenal. The Bank has been providing services to import and export trade and for repatriation of hard-earned foreign exchange of Bangladeshis living and working abroad and has, by now, consolidated its position in these areas. The following chapters will discuss about these areas in details.
4.5.1 Wings of Foreign Exchange: Import
Import trade of Bangladesh is controlled under the Import & Export control Act (IEC) 1950. Authorized Dealer Banks will import the goods into Bangladesh following import policy, public notice, F, E circular & other instructions from competent authorities from time to time.
188.8.131.52 Definition on Import
Buying of goods & services from foreign countries for sales is considered as import. The person or organization who import the goods & services from foreign countries is known Importer and from which goods & services are imported is known as Exporter. In case of Import, the importers are asked by their Exporters to open a Letter of Credit (L/C). So that there payment against goods & services is ensured.
184.108.40.206 General Provision for Import
Regulation of Import – Import of goods under this order shall be regulated as under:
§ Banned list: Banned goods are not allowed to import through the foreign exchange transaction. Such as Live Swine, Eggs of shrimps and prawns etc.
§ Restricted list: Any item, which is restricted by the “Import Policy Order 1997-2002” in Annexure –1(b) shall be importable only on fulfillment of the conditions (b) specified therein against the item.
§ Free Importable Items: The items which are not included either in the Banned list or Restricted list shall be freely importable:
§ In addition to the conditions mentioned inthe Restricted and Banned Lists the conditions restrictions and procedures for import of various items mentioned in the test portion of this Order, shall as usual apply in case of import of those items.
220.127.116.11 General conditions of Import Goods
1) Import Trade Control Schedule Numbers-For import purpose use of new ITC Numbers with at least six digits corresponding to the classification of goods as given in the Import Trade Control Schedule 1998, based on the Harmonized Commodity Description and Coding System shall be mandatory.
2) NOC on the basis of ROR (Right of Refusal): No objection Certificate on the basis of right of Refusal form any authority shall not be required for import of any freely importable item by any Public Sector Agency. However, in cases where a public sector agency is required to import banned or restricted items included in the control list prior permission of the Ministry of Commerce shall have to be obtained on the basis of ROR issued by the ministry of Industries or by the Sponsoring Ministry/Division or by both as the case may be.
3) Restriction regarding source of procurement of goods:
(a) Goods from Israel or goods originating from that country shall not be importable. Goods shall also not be importable in the flag vessels of that country.
(b) All kinds of import from and export to Serbia and Montenegro, fragments of former Socialist Republic of Yugoslavia shall be banned.
4) Pre- Shipment Inspection: Unless otherwise specified pre-shipment inspection of imported goods shall not be obligatory in case of import be the private sector importers.
5) Shipment of Bangladesh Flag Vessels: Subject to waiver specified below shipment of goods shall normally be made on Bangladesh flag vessels.
18.104.22.168 Types of Importer
Goods are imported for personal use, commercial or industrial purpose. So there are three kinds of importer such as:
1. Personal Importer.
2. Commercial Importer.
3. Industrial Importer.
22.214.171.124 Authorized Dealers
Authorized Dealer means a Bank, Authorized by Bangladesh Bank to deal in Foreign Exchange under the Foreign Exchange Regulation (FER) Act 1947. But there are some persons or firms, authorized by Bangladesh Bank to deal in Foreign Exchange with limited scope are called Authorized Money Changers. To get a license for authorization a bank will apply the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka is complying the subsequent conditions:
i. The Bank must have adequate (about five) manpower trained in Foreign Exchange
ii. Prospect to attract reasonable volume of Foreign Exchange business in the desired location.
iii. The bank meticulously complies with the instruction of Bangladesh Bank.
iv. The bank will commit to deal in Foreign Exchange within the limit & will submit periodical returns as instructed by Bangladesh Bank.
126.96.36.199 Functions of Authorized Dealer
Authorized Dealer can handle all kinds of Foreign Exchange transaction as per Foreign Exchange Regulation (FER) Act 1947 under the instruction of Bangladesh Bank. Following are the main function of an Authorized Dealer:
i. Exchange of Foreign Currencies.
ii. To make arrangement with Foreign Correspondent.
iii. Buying & Selling Foreign currencies.
iv. Handling of Inward & Outward Remittance
v. Opening of L/C & Settlement of Payment.
vi. Investment in Foreign Trade.
vii. Opening & Maintenance of Accounts with Foreign Banks under intimation to Bangladesh Bank.
viii. Export Documents handling.
188.8.131.52 Letter of Credit (L/C)
Letter of Credit (L/C) is a payment guarantee to the seller by the issuing bank on behalf of the importer. In other words, it is a letter of the Issuing Bank to the beneficiary undertaking to effect payment under some agreed conditions. L/C is called documentary Letter of Credit, because the undertaking of the Issuing Bank is subject to presentation of some specified documents. Through the L/C Buyers & Sellers enter into a contract for buying and selling goods/services and the buyer instructs his bank to issue L/C in favor of the seller. Here bank assumes fiduciary function between the buyer and seller.
184.108.40.206 Flowchart of L/C
Accounting treatment for opening L/C
For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening it bank will create a contingent liability. In that case, the accounting posting will be the following-
Customer liability …….. Dr.
- While paying money but the issuing bank, issuing bank will reverse the above entry & the entry will be-
Contingent liability…….. Dr.
- Then the issuing bank will give another entry-
Payment against Document (PAD)……….. Dr.
MTBL General Account…………………………….. Cr.
PAD will debit because the bank will pay the money against some documents. MTBL General Account is a miscellaneous account. It will be credited because by this entry MTBL creates a liability. It has to pay the money to the advising bank. & the gain made by the transaction is shown at Exchange Gain Account. All this entries are made after receiving some documents from the exporters. The above procedure is called Lodging. After giving the above entry, MTBL will inform the clients for collecting the documents from the bank.
After opening L/C, MTBL (Issuing Bank) must receive the documents for any other proceedings. These documents are-
1.Bill of Exchange
4.Bill of Lading
5.Country of Origin
220.127.116.11.1 Different Parties to a Documentary Credit
Normally the subsequent parties are related to a documentary credit. Such as
1) The Issuing Bank: This is the bank who issues Documentary credit on account of its client.
2) The advising Bank: This is a Bank acting as Agent of the Issuing Bank, to advise the L/C to the beneficiary.
3) The confirming Bank: This Bank gives the beneficiary a double assurance of payment. This is a third Bank undertake to make payment, to the beneficiary, if the Issuing Bank fail to make Payment.
4) Negotiating Bank: This Bank provides value to the beneficiary against presentation of documents complying credit terms. Usually this is exporter’s Bank who purchases the export documents.
5) Reimbursing Bank: This is a Bank acting as Agent of the Issuing Bank Authorized to make payment or to honor reimbursing claim of the Negotiating Bank.
6) The Transferring Bank: If the L/C is transferable then the 1st beneficiary through a bank nominated by the Issuing Bank this bank is called the Transferring Bank.
7) The Applicant: Importer or buyer is the applicant of a Letter of Credit. Applicant must be the client of the Issuing Bank.
8) The beneficiary: Exporter or Seller of the goods is the Beneficiary of a Letter of Credit.
9) Notify Party: The Party / Bank to whom the arrival of shipment has to be notified or to be informed is called notify party.
18.104.22.168.2 Import Procedure
To import a person should be an importer. In accordance with Import & Export Control Act, 1950 the office of chief Controller of Import & Export provides the registration (TRC) to the importer. After getting, this person has to secure a letter of credit authorization from Bangladesh Bank. Then he becomes a qualified importer; He is the person who requests or instructs the opening bank (MTBL) to open an L/C. He is also called opener or applicant of the Letter of Credit.
22.214.171.124.3 Import Registration Certificate
Import Registration Certificates are issued by the office of chief controller of imports and exports. Intending importers are to submit applications to CCI & for registration along with required documents are as follows:
4.Income tax certificate along with TIN, VAT
6.Membership certificate from Trade Association Certificate of incorporation, Article and Memorandum of Association. Partnership Deed for partnership firm.
126.96.36.199.4 Procedure for Registration
To obtain import registration certificate (IRC) the applicant will submit the following paper to the CCI & E through this nominated Bank.
a) Questionnaire duly filled in & signed by the applicant
b) Trade License
c) Membership certificate from chamber of commerce or any other trade Association
d) Nationality Certificate
e) Income tax registration certificate, VAT.
f) Partnership deed/certificate of registration with the register of Join Stock companies where applicable.
On being satisfied, the CCI & E issues IRC obtain original copy of treasury challan for payment of registration fee.
188.8.131.52.5 Preliminary Steps for Opening L/C
Before opening the L/C Bank will takes the subsequent steps:
1) Applicant to be Bank’s A/C Holder: Bank (MTBL) will open the L/C on behalf of an entity who has an account with the Bank. Unknown person will not be allowed to open L/C.
2) Registered importer: Before opening the L/C bank must confirm that the L/C applicant is a registered importer or personal user, and the IRC of the importer has been renewed for the current year.
3) Permissible item: The item to be imported must be permissible and not banned item. If the item is from conditional list, the condition must fulfill to import the same.
4) Market Report: Bank will verify the marketability of the item & market price of the goods. Sometimes the importer may misappropriate the Bank’s money through over invoicing.
5) Sufficient Security or margin: Price of some items fluctuates frequently. In case of those items Bank will be more careful to take sufficient cash margin or other security.
6) Business Establishment: Bank should not open an L/C on behalf of a floating businessman. The importer must have business establishment, particularly he must have business network for marketing the item to be imported.
7) Restricted Country: Goods not to be imported from Israil.
8) Credit report of the beneficiary: It the amount of L/C in one item exceeds TK. 5.00 lac, supplier’s credit report is mandatory. Bank will collect credit report of the beneficiary through its correspondent in abroad.
9) Application of the client to open the L/C: The client will approach to open the L/C in Bank’s (MTBL) prescribed form, duly stamped & signed, along with the following paper & documents: Such as
1. Indent/Pro forma invoice.
2. Insurance cover note with money receipt.
3. LCAF duly filled in & signed.
4. Membership certificate form chamber of commerce/Trade Association.
5. Tax payment certificate/declaration.
6. IMP & TM form signed by the importer
7. Charge documents
8. IRC, Pass book, Trade license Membership certificate & VAT, registration certificate in case of new client.
9. Export L/C in case of back-to-back L/C.
10) Permission from Ministry of Commerce: If the goods to be imported under CIF (cost insurance & freight), then permission from ministry of commerce to be obtained.
11) Creditability of the Client: In consideration of all the above points, if Bank (MTBL) becomes satisfied regarding the client then L/C may be opened on behalf of the client. Before opening the L/C bank will issue & authenticate a set of LCAF in the name of the importer.
184.108.40.206.6 Presentation of the Documents
The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer. Then he has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank them checks the document against the credit. If the documents are found in order the bank will pay accept or negotiate to Bank. Then bank checks the documents. The usual documents are:
· Bill of lading
· Certificate of origin
· Packing List
· Shipping Advice
· Nor negotiable copy of bill of lading
· Bill of exchange
· Pre-shipment inspection report
· Shipment Certificate
220.127.116.11.7 Steps Involved in Import procedures:
- Procurement of IRC from the concerned authority
- Signing purchase contract with the seller
- Requesting the concerned bank (Mutual Trust Bank) to open an L/C on behalf of the importer favoring the exporter/seller/beneficiary.
- The issuing bank opens/issues the L/C in accordance with the instructions/request of the importer & request another bank (advising bank) located in sellers /exporter’s country to advice the L/C to the beneficiary. The issuing may also request the advising bank to confirm the credit, if necessary.
- The advising bank advises the seller that the L/C has been issued.
- As soon as the exporter /seller receives the L/C & is satisfied that he can meet L/C terms & conditions, he is in a position to make shipment of the goods.
- After making shipment of the goods in favor of the importer the exporters submit the documents to the negotiating bank for negotiation.
- Lastly, importer collect their goods from the dock, port etc.
18.104.22.168.8 Different Types of Letter of Credit provided by MTBL
22.214.171.124.8.1 Back to Back L/C:
Back-to-Back L/C is defined as a credit, which is opened at the instructions and the request of the Beneficiary of the original Export L/C on the strength credit. Back to Back is a term given to an ancillary credit, which arises where the seller’s uses the credit, granted to him by the Issuing Bank to his supplier. Sometimes Back-to-Back credit is called Counter Veiling Credits, i.e. credit and counter credit.
There are two types of Back-to-Back credit:
§ Foreign Back to Back Credit
§ Local Back to Back Credit
126.96.36.199.8.2 Revolving L/C:
A revolving credit is a credit, which provides for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. It can be resolved with respect to either:
§ Amount (i.e. total value of the credit)
188.8.131.52.8.3 Case to Case L/C
An importer opens this type of L/C in all around the year. Before importing any goods the importer can open this L/C.
184.108.40.206.8.4 Limit L/C
An importer opens this L/C once in a year. In this L/C the importer set the total import for the year. By this L/C he can import goods around the year. For importing he has not open new L/C before every import.
220.127.116.11.8.5 At Sight L/C
Payment must be made within seven (7) working days after the documents have been received from the exporter.
Nowadays most the import deals are handled by the head office rather than branches but some local area clients open LC in the branch of their own area to import goods like war materials, machineries, final products and so on. In Dhanmondi branch here only few importer like Mina Bazar, Agora, Almas, Bridge Cheme and so on open LC.
The entire old or regular importer get the chance of 10% limit, it means they need to deposit only 10% of their total money of goods in the bank and Bank trust them because they are regular clients. When the clients are new they have to deposit 100% money in the bank to open LC. Here the clients can deposit hard cash money or FDR for the LC.
4.5.2 Wings of Foreign Exchange: Export
The export policy 1997-2002 has been formulated by the government to operate within imperative and opportunities of the market economy with a view to maximizing export growth and narrowing down the gap between import payment and export earnings. As per existing Export Policy an Exporter can export any goods or services except the items listed as band and restricted in the said policy. Duration of present EPO-5 years effected from 1st July 1998, but it is valid till announcement of new policy.
Foreign Exchange Regulation Act, 1947 Clearly states that nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB. So a clear lawful procedure must be followed in case of export of goods & services.
4.5.2 1 meaning of export
– Selling goods to foreign countries against of foreign currency.
– Export means lawfully carrying get of anything from one country to another country for sale. The import and export trade of the country is regulated by the IEC Act. 1950.
18.104.22.168 Export Policy
As per export policy order, 1997-2002 now in force an exporter can export any goods or services except the items listed as banned and restricted in the said policy.
4.5.2 .2.1 Objectives of Export / Export Policy
Growth of national wealth, increase of production in export sectors, generation of employment & flow of capital and to achieve the growth of GDP target @7%.
22.214.171.124 Exporter Registration
An exporter must obtain Export Registration Certificate from the office of the Chief Controller of Import & Export (CCI & E). The procedures for obtaining export registration certificate (ERC) from the CCI & E, the following documents are required:
1) Application as per format prescribed by CCI & E.
2) Bank Solvency Certificate.
3) Membership Certificate from a Chamber of Commerce.
4) Nationality certificate.
5) Partnership deed (Registered / Un-Registered) for partnership business concern.
6) Memorandum & Articles of Association & its incorporation certificate for public limited company.
7) Income Tax payment certificate (TIN)
8) Recent passport size photographs of the applicant.
9) Treasury Challan showing payment of fees for ERC.
4.5.2 4 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 promotion organization
- Bangladesh Mission Abroad
- Chamber of Commerce(local & foreign)
- Trade fair etc