Foreign Exchange Practices of AB Bank Limited

Foreign Exchange Practices of AB Bank Limited

Chapter-1

INTRODUCTION

1.1 Background of the Report

Any academic course of the study has a great value when it has practical application in the real life. Only a lot of theoretical knowledge will be little important unless it is applicable in the practical life. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more fruitful when we engage ourselves in such field to make proper use of our theoretical knowledge in our practical life, only then we come to know about the benefit of the theoretical knowledge. Such an application is made possible through internship. When theoretical knowledge is obtained from a course of study it is only the half way of the subject matter. Internship implies the full application of the methods and procedures through rich acquired knowledge of subject matter can be fruitfully applied in our daily life. Such a procedure of practical application is known as internship. The case study is titled “Foreign Exchange practices of AB Bank Limited”. As a student of BBA this study will be more significant in my practical life. I have worked for 6 weeks at “Mohakhali Branch” of AB Bank Limited to complete the internship program as an academic requirement.

1.3 Report Objectives

Objective of the study acts as a bridge between the starting point and the goals of the study. To illustrate the objectives properly, presented into two parts:

· General:

· To get practical idea about commercial banking activity.

· To observe the Foreign Exchange Practices of AB Bank Limited and their services.

Specific:

· To observe the major outline of foreign business.

· To observe the foreign correspondents of ABBL.

· To observe the post import financing operations.

· To analysis the expansion of Foreign Trade business of the ABBL.

· To identify the problems of it’s financing.

· To recommend solutions of or solving the problems faced by ABBL in Foreign exchange Business.

1.4 Scope of the Report

The main objective of the study is to obtain a clear idea about Foreign Exchange business of our banking operation i.e. how the L/C is opened and how the import & export is done. The other objectives are as follows:

· To fulfill the requirement of our BBA Program.

· To evaluate the performance of the AB Bank Limited import and export business.

· To recommend about foreign exchange business of the AB Bank Limited.

1.5 Methodology of the Report

While I was conducting the study I have collected various types of primary and secondary data. Data has been collected through different sources, by interviewing the responsible officers and from different circular published by the Bank disciplined way. I can say that the study input were collected from two sources:

· The Primary sources of Data:

· Practical banking work.

· Face to face conversation with the respective officer of the branch.

· Face to face conversation with the clients.

· Relevant file study as provided by the officers concerned.

· Observation.

· The Secondary sources of Data:

· Annual Reports of the ABBL.

· Periodicals published by the Bangladesh Bank.

· Different books, articles etc. regarding Foreign Exchange operations.

1.6 Limitations of Report

The study was not free of limitations. The limitations faced during the preparation of this report are given below:

· Lack of adequate information:

There was lack of sufficient primary and secondary data. As banking job is one of the busiest jobs, therefore they are busy, and show lack of interest of collecting information.

· Lack of communication:

Sometimes respondents are not capable of answering question because they cannot recollect or have never given attention to what they do and why. Respondents may have answered the question without knowing correct answer in order to appear smart, or they may have try to help me by giving pleasing answer.

· Secrecy of information:

Some of the information needed to explore the current market scenario of the company was not disclosed. Such as, information related to price, sales and advertisement.

Chapter-2

LITERATURAL REVIEW OF AB BANK LIMITED

2.1 Definition of Bank

Generally, bank is referred to a financial intermediary that deals with money. The definition of Bank may be as follows:

· As per Bank companies act 1991:

· Banking Company means any company which transacts the business of banking in Bangladesh and includes a new bank and specialized bank.

· Bankingmeans the accepting for the purpose of lending or institute of deposit of money from public repayable on demand or otherwise and withdraw able by draft, order or otherwise.

· Provided by Banking Institutes:

· A bank performs an essentially distributive task, service or acts as an intermediary between borrowers & lenders. In broader sense, however, a bank can be considered the heart of a complex financial structure.

– American Institute of Banking

· Stated very simply, banks deal in money and in that connection offer certain related financial services.

– Harold Wallgren for American Bankers Association

· Provided by Famous Economist :

· A Bank is an institution whose debts are widely in sell element of other people debts to each other – R.S. Sayers.

· A Banker is a dealer in debt his own and other peoples – Crowther

· A Bank is a financial intermediary a dealer in loans and debts – Cairn cross.

The above-mentioned characteristics sketched to outline the definition of a “Bank” are nowadays shared by a lot of different types of financial institution. Therefore, because banking activities now overlap many diverse businesses, we will consider a variety of modern financial institutions – including commercial banks but also savings-and-loan associations, brokerage firms, and mutual funds – as “banks”.

2.2 Objective of a Bank:

The objectives of a Bank can be looked at from 3 different perspectives of the 3 key parties to the banking activities. The bank owner, the govt. and the bank clients.

· From the owner’s perspective:

· Earning Profit: Just like any owner(s) of a commercial institution, a bank owner’s main objective is to earn profit, which is achieved mainly through monetary exchanges.

· Rendering Service: Banks provide different types of services to the government and people of the country.

· Good Will: In order to earn profit through rendering services, banks need to have a lot of good will, maybe a bit more than other commercial institutions.

· Raising Efficiency: To earn maximum profit, banks need to provide efficient service, for which they require expert workforce.

· From the Government’s perspective:

· Issue of Notes & Currencies: Since civilizations have moved along from the barter system, it has been the objective of the Government of different countries to provide its economy with a proper exchange media through issuance of notes & currencies through banks, which also take upon the duty of maintaining the system.

· Capital Formation: The government wants that bank assist in the macroeconomic objective of capital formation by encouraging people to participate in savings.

· Capital Investment & Industrialization:The government, as a part of their secondary macroeconomic objective, wants the bank to assist in capital investment & industrialization by lending out their accumulated capital.

· Money Market Control: Government tries to stabilize the money market through banks.

· Employment: As part of their primary macroeconomic objectives, they expect banks to provide employment for its people.

· Advice on Financial Matters: Since banks hire a lot of financial experts and advisors, it often seeks advice from banks to help them develop policies.

· From the Bank Clients’ perspective:

· Deposit:One of the banks’ main objectives is to accept its clients’ deposits.

· Safety: Providing safekeeping of its clients’ monetary possessions and valuables is another one of banks’ essential objectives.

· Advisors & Consultants:Banks provide its clients with advisors and consultants to help them chalk out an appropriate savings plan.

· Representatives or Trustees: Both the clients and government rely on the bank to act as their representatives and trustees of monetary exchange activities.

· Raising living standard: By providing interests against their deposits, banks help their clients to improve their living standards.

2.3 Historical Background of AB Bank Limited

With the adoption of new policy in 1951 by the Government of the People’s Republic of Bangladesh to allow private capital to take initiative with regard to the formation of banks. A group of Bangladesh entrepreneurs proceeded to establish the first bank in the private sector with the assistance and support of renowned. Dubai based Gala Dari family having stakes in international trade & finance and industry, a foundation was thus laid for the formation of a joint venture bank with Dubai Bank Ltd, the major share holders of which were the esteemed Gala Dari Brothers. The new bank named Arab Bangladesh Bank Ltd. Was incorporated in Dhaka on December 31^st, 1981 and it commenced its banking business from April 12^th 1982. Mr. M. Matiul Islam was, made the first chairman of the bank and Mr. Hafizul Islam was its first Managing Director .In 1986, the Union Bank of the Middle East Ltd. (LIBMR) inherited the shared of Dubai Bank Ltd. and continued as a shareholder till early part of 1987 when they decided to offload their invest in Bangladesh and concentrate their activities in the U.A.E. In terms of articles 23(a) and 23(b) of the articles of association of the company and with necessary approvals of the relevant authorities including Bangladesh Bank, the shared held by them in the company were transferred to group “A” shareholders i.e. Bangladeshi spacers and shareholders. AB Bank Limited, the first private sector bank under Joint Venture with Dubai Bank Limited, UAE incorporated in Bangladesh on 31st December 1981 and started its operation with effect from April 12, 1982. Dubai Bank Limited (name subsequently changed to Union Bank of the Middleast Limited) decided to off-load their investment in AB Bank Limited with a view to concentrate their activities in the UAE in early part of 1987 and in terms of Articles 23A and 23B of the Articles of Association of the Company and with the necessary approval of the relevant authorities, the shares held by them in the Bank were sold and transferred to Group “A” Shareholders, i.e. Bangladeshi Sponsor Shareholders. However, no individual sponsor shareholder of AB Bank holds more than 10% of its total shares.

Since beginning, the bank acquired confidence and trust of the public and business houses by rendering high quality services in different areas of banking operations, professional competence and employment of the state of art technology.

During the last 28 years, AB Bank Limited has opened 77 Branches including one Islami banking branch, one foreign Branch in Mumbai, India also opened two Representative Offices in London and Yangon, Myanmar respectively and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World.
AB Bank Limited, the premier sector bank of the country is making headway with a mark of sustainable growth. The overall performance indicates mark of improvement with Deposit reaching BDT.42076.99 million, which is precisely 53.78% higher than the preceding year. On the Advance side, the Bank has been able to achieve 46.32% increase, thereby raising a total portfolio to BDT 31289.25 million, which places the Bank in the top tier of private sector commercial banks of the country. On account of Foreign Trade, the Bank made a significant headway in respect of import, export and inflow of foreign exchange remittances from abroad.

2.4 Services Provided By AB Bank Limited

General Banking

General Banking is designed to provide financial service to the general people in saving their money, smoothing transactions for businessman and ensure security of the precious wealth of the clientele. Under general banking the AB Bank Ltd. provides offers varies kind of accounts, remit funds, issue demand draft, telegraph transfer, pay order etc. since bank is confirmed to Provide the services everyday general banking is also known as “Retail Banking”.

• Deposit Schemes:

Bank has the following customer friendly deposit schemes:

• • Current Deposit Scheme (CD)
  • Savings Deposit scheme (SB)
  • Short Term Deposit Scheme (STD)
  • Pension Savings Scheme (PSS)
  • Education Savings Scheme (ESS)
  • Marriage Savings Scheme (MSS)
  • Double Benefit Deposit Scheme (SBDS)
  • Fixed Deposits ( 1, 2, 3, 6 & 12 months )

Loans and Advance

Credit is the confidence of the lender in the ability and willingness to the borrower to repay the loan at a future date. It is generally believed that confidence is the basis of all credit transaction. The fundamental principle upon which credit is generally based on character, capacity, capital, responsibility, reliability and resources of borrower. Lending is a function that is crucial to the banker, because of the associate risk and profit potential. Quality of lending depends on safety, liquidity, yield, diversity, productivity, purpose national and social interest, management ability, borrower analysis and business analysis.

· Loan Schemes:

Foreign Exchange

Foreign exchange means exchange of foreign currency between two countries. Foreign exchange deals with foreign financial transactions. There are three types of foreign exchange transactions:

· Import.

· Export &

· Foreign Remittance.

Functions of Foreign Exchange Department

The main topic of my internship report is “Foreign Exchange Practices of AB Bank Limited”. I will discuss about the topic in the later chapter.

Chapter-3

PROFILE OF AB BANK LIMITED

3.1 A Brief Overview of the AB Bank Limited

AB Bank Limited, the first private sector bank under Joint Venture with Dubai Bank Limited, UAE incorporated in Bangladesh on 31st December 1981 and started its operation with effect from April 12, 1982.

Dubai Bank Limited (name subsequently changed to Union Bank of the Middleast Limited) decided to off-load their investment in AB Bank Limited with a view to concentrate their activities in the UAE in early part of 1987 and in terms of Articles 23A and 23B of the Articles of Association of the Company and with the necessary approval of the relevant authorities, the shares held by them in the Bank were sold and transferred to Group “A” Shareholders.

As of December 31, 2009; the Authorized Capital of the Bank is BDT 3484513. The 28^th Annual General Meeting held on July15, 2010.

Since beginning, the bank acquired confidence and trust of the public and business houses by rendering high quality services in different areas of banking operations, to professional competence and employment of the state of art technology.

During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World.

3.2 About the branch

AB Bank Mohakhali Branch is one of the largest branches of ABBL is located in Dhaka. It is the corporate branch of this bank. It started function in the year 1992 of June. Presently there are 31 employees in this branch as of 29^th April 2010 which includes 2 SAVP, 1 AVP, 2 senior principal officers, 7 principal officers, 2 management trainee, 7 senior officers, 4 officers, 2 Trainee officers, 3 internees and others are messengers, attendant, tellers, typist, security guards and drivers.

Name of the Branch AB Bank ( Mohakhali Branch.)

Location 14,Mohakhali, Pacific Centre

Telephone No 7163110, 9565956

Branch Code 4011

Fax no 880-02-9562817

Web www.abbank.com.bd

Branch Manager Syed Farhad Alam

Sub-Manager MD. Jahangir Alam

3.3 Hierarchy of the AB Bank Limited

3.4Mission, Vission & Comitments to clients of AB Bank Limited

Mission

Serving the customers with safe, efficient and flexible products and services.

Increasing benefits for the shareholders.

Moving towards the comprehensive and sustainable development of the bank.

Investing in the human resources as the basis for long term development.

Vission

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy

Commitment to clients

· Provide service with high degree professionalism and use of modern technology.

· Create long term relationship based on mutual trust.

· Respond to customer needs with speed and accuracy.

· Share their values and beliefs.

· Grow as bank customer grows.

· Provide product at service at competitive pricing.

· Ensure safety and security of customer valuables in trust with us.

3.5 AB Bank – Capital & Reserve

Table1: Total Capital at 31 Dec 2009

Table 2: Total Reserve at 31 Dec 2009

3.6 Operational Area of AB Bank

AB Bank limited has 77 conventional Branches, 1 Islamic Banking Branch which located in Kakrail, Dhaka and 1 overseas Branch which located in Mumbai. 77 conventional Branches where 28 branches are located in Dhaka City, 23 branches are located in Chittagong, 08 branches are located in Sylhet, 07 branches are located in Rajshahi, 06 branches are located in Khulna and 1 branches are situated in Barisal. The registered Head office of AB Bank Limited is situated at BCIC Bhaban, 30-31, Dilkusha C/A, Dhaka-1000; Bangladesh.

The AB Bank has a subsidiary company, AB International Finance Limited, incorporated in Hong Kong with Limited liability.

3.7 Orientation of Development Target

In 2010, ABBANK strives to maintain the growth rate of 30-40%, continues development in the direction of a retail commercial bank, with diligent and friendly service as the key.

Detailed plan in 2010:

– Total assets increases 52% as comparedwith 2009, reaching to VND35,000 billion. Compared with 2009, reaching to VND550 billion.

– Total mobilization increases 61% as comparedwith 2009, reaching to VND20,399 billion.

– Total Outstanding loan reaches VND17,340 billion.

– Net income from the services accounts for14% total net income.

MEDIUM AND LONG TERMDEVELOPMENT STRATEGIES

– Developing a range of products and serviceswith high technology.

– Strengthening cooperation with thepartners for diversifying and modernizing

products and services.

– Focusing on the targeted groups of customers:individual, small and medium enterprises,import export enterprises andcontractors of EVN.

– Increasing the ratio of service income.

– Chartered capital: VND3,830 billion

3.8 Core Objectives

The bank’s overall objective is to have a higher profitability than that of the weighted average of other banks. As such the main focus of the Bank is on highly profitable business with convincing growth potential. Vision for the future is the characteristic that differentiates AB Bank from other competitors.

3.9 Five Years AT A GLANCE of AB Bank

In Million Taka

Table 3: Five Years at a glance of AB Bank

3.10 Prospects & Plan In The Future

For 2010, the economy may still face difficulty due to the continuous effect of global recession. Therefore, the Board of Directors set to focus the operation of AB Bank in the coming years as follows:

– Continuously enhancing the operational capability by enhancing the financial and technological capabilities, development of modern IT and management methodology in the whole system. Enhancing the quality of human resources to achieve the target of stable development, safety and also strengthening risk management supervision ,reporting and prevention, timely handling of risks in operation.

– Strengthening close cooperation with strategic shareholders, focusing on gaining the traditional customers, providing the modern financial and banking service to meet the demand of domestic and foreign customers.

– Strengthening cooperation with bank, financial institutions in aspects of: technical support, training, enhancing management capabilities, risk management, professional cooperation to develop the products and business.

– Developing competitive compensations and benefit policies.

– Continuously enhancing the brand and image of ABBank.

Also the Board of Directors assigns the Strategy Committee to develop a development strategy for the Bank to 2012 as well as coordinate with May bank to complete the strategy and plan to 2015.

Chapter-4

ANALYSIS & FINDINGS OF

FOREIGN EXCHANGE PRACTICE

OF

AB BANK LIMITED

4.1 Introduction

Foreign trade can be easily defined as a business activity, which transcends national boundaries. These may be between parties or government ones. Trades among nations are a common occurrence and normally benefit both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes.

Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economical profitable for a country to specialize in the production of that commodity in which the producer country has the greater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc.

This trade among various countries causes for close linkage between the parties dealing in trade. The bank, which provides such transactions, is referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through letter of credit (L/C).

4.2 Foreign Exchange

As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which is known as foreign exchange. The term “Foreign Exchange” has three principal meanings. Firstly, it is a term used referring to the currencies of the other countries in terms of any single one currency. To a Bangladeshi, Dollar, pound sterling etc. are foreign currencies and as such foreign exchange. Secondly, the term also commonly refer to some interments used in international trade, such as bill of exchange, Drafts, Travel cheque and other means of international remittance. Thirdly, the terms foreign exchange is also quite of ten referred to the balance in foreign currencies held by a country.

In terms of section 2(d) of the foreign exchange regulations 1947, as adopted in Bangladesh, Foreign Exchange means foreign currency and includes any instrument drawn, accepted made or issued under clause (13) of article 16 of the Bangladesh Bank order, 1972, all the deposits, credits and balances payable in any foreign currency and draft cheque, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign country.

In exercise of the power conferred by section 3 of the foreign exchange regulation, 1947, Bangladesh Bank issues license to schedule bank to deal with exchange. These banks are known as Authorized Dealers. Licensees are also issued by Bangladesh Bank to persons or firms to exchange foreign currency instruments such as T.C, currency notes and coins. They are known as Authorized money changers.

4.3 Functions of Foreign Exchange Department

· Exports:

· Pre-shipment advances.

· Purchase of foreign bills.

· Negotiating of foreign bills.

· Export guarantees.

· Advising/Confirming letters – letter of credit.

· Advance for deferred payments exports.

· Advance against bills for collection.

· Imports:

· Opening of letter of credit (L/C)

· Advance bills.

· Bills for collection.

· Import loan and guarantees.

· Remittances:

· Issue of DD, MT, TT etc.

· Payment of DD, MT, TT etc.

· Issue and enhancement of traveler’s cheque.

· Sale and enhancement of foreign currency notes.

· Non-resident accounts.

4.4 The Most commonly used documents in Foreign Exchange

· Documentary Letter of Credit.

· Bill of exchange.

· Bill of Lading.

· Commercial Invoice.

· Certificate of origin of goods.

· Inspection certificate.

· Packing List.

· Insurance Policy.

· Pro-forma Invoice / Indent.

· Documentary Letter of Credit:

In simple terms, a documentary credit is a conditional bank undertaking a payment. Expressed more fully, it is a written undertaking by a bank (issuing bank) given to seller (beneficiary) at the request, and in accordance with the instructions of the buyer (applicant) to effect payment (that is, by making a payment, or accepting or negotiating bill of exchange) up to a stated sum of money, with in a prescribed time limit and against stipulated documents. The customary clauses contain in a L/C are the followings:

· A clause authorizing the beneficiary to draw bills of exchange up to certain on the opener.

· List of shipping documents, which are to accompany the bills.

· Description of the goods to be shipped.

· An undertaking by the opening bank that bills drawn in accordance with the conditions will be dully honored.

· Instructs to the negotiating banks for obtaining reimbursement of payments under the credit.

· Parties to a Letter of Credit (L/C):

1. Importer: Seller who applies for opening an L/C.

2. Issuing Bank: It is the bank which opens/issues a L/C on behalf of the importer.

3. Confirming Bank: It is the bank, which adds its confirmation to the credit and it is done at request of issuing bank. Confirming bank may or may not be the advising bank.

4. Advising/Notifying Bank: It is the bank through which the LIC is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and/or negotiating bank depending upon the condition of the credit.

5. Negotiating Bank: It is the bank that negotiates the bills and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.

6. Paying/Accepting Bank: It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank

· Bill of Lading:

A bill of leading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constituted a document that is, or may be, needed to support an insurance claim.

· The Details on the bill of Leading should include:

· A description of the goods in general terms not inconsistent with in the credit.

· Identify marks and numbers, if any.

· The name of the carrying vessel.

· Evidence that the goods have been loaded on board.

· The ports of shipment and discharge.

· The names of shipper, consignee, and name and address of the notifying party.

· Whether freight has been [paid or is payable at destination.

· The date of issuance.

A bill of lading specifically states that goods are loaded for ultimate destination specifically mentioned in the credit.

· Commercial Invoice:

A Commercial Document is the accounting document by which the sellers change the goods to the buyer. A commercial invoice normally includes the following information:

· Date.

· Name and address of the buyer and seller.

· Order of contract number, quantity and description of the goods, unit price and the total price.

· Weight of the goods, number of the package, shipping marks and numbers.

· Terms of delivery and payment.

· Shipment details.

· Certificate of Origin:

A certificate of origin is a signed statement providing evidence of the origin of the goods.

· Inspection Certificate:

This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and the L/C. The buyer who also indicates the types of inspection he wishes the company to undertake usually nominates the inspection company.

· Insurance Certificate:

The Insurance Certificate documents must –

· Be that specified in the credit.

· Cover the risks specified in the credit.

· Be consistent with the other documents in its identification of the voyage and description of the goods.

· Unless otherwise specified in the credit.

· Be a document issued and / or signed by an insurance company or its agent, or by underwriters.

· Be dated on or before the date of the date of shipment as evidenced by the shipping documents.

· Be for an amount at least equal to the CIF value of the goods and in the currency of credit.

4.5 Import Practice of ABBL

Importation is foreign goods and services purchased by customer, firms and Governments in Bangladesh.

An importer must have import registration certificate (IRC) given by chief controller of import and exports (CCI & E) to import any thing from other country. To obtain import registration certificate (IRC) the following certificates are required:

· Trade License.

· Income Tax clearance certificate.

· Nationality certificate.

· Banks solvency certificate.

· Asset certificate.

· Registration partnership deed (if any).

· Memorandum and Article of association.

· Certificate of incorporation (if any)

· Rent receipt of the business premises.

· L/C Opening Process:

In foreign exchange banking Letter of credit (L/C) opening is an important part. L/C opening is a set of procedure which every importer needs to follow to import their products. At first importer need to contact with Exporter and with their mutual understanding exporter prepare Pro-forma Invoice and sent it to the importer.

After received the Pro-forma invoice importer present it to their bank that is known as issuing bank that prepare L/C on behalf of importer. After preparing L/C proposal need to

send Head office of issuing bank for approval. After approval, issuing bank open L/C on behalf of Importer, signed it by proper authority of bank officer, and send it their authorized export county bank for authentication. The process is done through SWIFT. The bank that provides authentication then it called advising bank. After given the authentication seal-advising bank send it to the exporter bank as per requirement of invoice

· Import Procedure:

To import through AB Bank Limited, a customer/client requires –

· Bank Account.

· Import registration certificate.

· Tax paying identification number.

· Pro-forma Invoice/Indent.

· Membership Certificate.

· L/C application form duly attested.

· One set of IMP Form.

· Insurance Cover Note with money receipt.

· L/C AF (Foreign L/C)

· Import Mechanism:

To import, a person should be competent to be an importer. According to import and Export control Act, 1950, the office of chief controller of Import and Export provides the registration certificate (IRC) to the importer. After obtaining this person has to secure a letter of credit authorization (LCA) from Bangladesh Bank and then a person becomes a qualified importer.

He is the person who requests or instructs the opening bank to open an L/C. He is also called opener, applicant, or the credit.

Importer’s application for L/C limit / margin:

To have an import L/C limit, an importer submits an application to the department of (ABBL) furnishing the following information:

· Full particulars of bank account.

· Nature of business.

· Required amount of limit.

· Payment terms and conditions.

· Goods to be imported.

· Offered security.

· Repayment schedule.

A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the head office credit committee (HOCC). The committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

· Opening of Letter of Credit (L/C) by Bank:

Opening of L/C means, at the request of the applicant (importer) issuance of a L/C in favor of the beneficiary (Exporter) by a bank. The bank, which open or issue L/C is called L/C opening bank or issuing bank.

On receipt of the importer’s L/C application supported by the firm contract (Indent / Pro-forma Invoice) and Insurance Cover Note the bank scrutinize the same thoroughly and fix up a margin on the basic of banker – customer relationship.

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

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

· Indent / Pro-forma Invoice signed by the importer and Indenter / supplier.

· Ensure that the relevant particulars of L/C application correspond with those stipulated in Indenter / Pro-forma Invoice.

· Validity of LCA entitlement of goods, amount etc. conforms to the L/C application.

· Conversion and rate of exchange correctly applied.

· Charges like commission, FCC, Postage, Telex charge, SWIFT charge, if any recovered.

· Insurance Cover Note – in the name of issuing bank – A/c importer covering required risks and voyage route.

· Incorporation of instruction for Negotiating Bank as per banks existing arrangement.

· Reimbursement instructions for reimbursing bank.

· If foreign bank confirmation is required, necessary permission should be obtained and accordingly advising bank is advised as per banks existing arrangement.

· If add confirmation is required on account of the applicant charges should be recovered from the applicant.

· In case of askance L/C, mention interest rate clearly in the letter of credit.

Fig-L/C opening process

Charges of L/C Opening:

· L/C Margin

· Postage/Swift Charge

· Commission

· Vat

· Liability of Issuing Bank:

As per Article 9(a) of UCPDC 600, An Irrevocable Credit constitutes a definite undertaking of the issuing Bank, provided that the stipulated documents comply with the terms and conditions of the credit.

· Advising of Letter of Credit:

Advising means forwarding of a Documentary Letter of Credit received from the issuing bank to the beneficiary (Exporter).

Before advising a L/C the advising Bank must verify the following:

· Signature of Issuing Bank officials on the L/C verified with the specimen signatures book of the said bank when L/C received.

· If the export L/C is intended to be an operative cable L/C Test Code on the L/C invariably be agreed and authenticated by two authorized officers.

· L/C scrutinized thoroughly complying with the requisites of concerned UCPDC provisions.

· Entry made in the L/C Advising Register.

L/C advised to the Beneficiary (Exporter) promptly and advising charges recovered.

· Adding Confirmation:

The confirming bank does adding Confirmation. Confirming bank is a bank that adds its confirmation to the credit and it is done at the request of the issuing bank. The advising bank usually does not do it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him.

· Issue L/C and request to add confirmation.

· Review the L/C terms.

· Provide reimbursement.

· Drafts to be drawn on L/C opening bank.

· Availability of credit facilities.

· Line allocation from the business and ownership units in the importer’s country.

· Confirm and advise L/C.

· Amendments to Letter of Credit:

After issuance and advising of a L/C, it may be felt necessary to delete, add or alter some of the clauses of the credit. All these modifications are communicated to the beneficiary through the same advising bank of the credit. Such modifications to a credit are termed as amendment to a letter of credit.

ABBL transmits the amendment by tested SWIFT to the advising bank. In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment & without prior notice to the beneficiary. But in case of irrevocable L/C, it can neither be amended nor cancelled without the agreement of the issuing bank, the advising bank & the beneficiary. All the amendment forms an integral part of the original credit. If the L/C is amended, service & SWIFT charge is debited from the party account.

The following clauses of L/C are generally amended:

· Increase/decrease value of L/C and increase/decrease of quality of goods.

· Extension of shipment/negotiated period.

· Terms of delivery i.e. FOB, CFR, and CIF etc.

· Mode of shipment.

· Inspection Clause

· Name and address of the supplier.

· Name of the reimbursing bank.

· Name of the shipping line etc.

Settlement of Letter of Credit:

Settlement means fulfillment of issuing bank in regard to affecting payment subject to satisfying the credit terms. Settlement to may be done under three separate arrangements as stipulated in the credit.

· Settlement by Payment:

Here the seller presents the documents to the nominated bank and the bank scrutinizes the documents. If satisfied, the nominated bank makes payment to the beneficiary.

· Settlement by Acceptance:

Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank (nominated by the issuing bank for acceptance) accompanied by draft down on the bank at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.

· Settlement by Negotiation:

This settlement procedure starts with the submission of documents by the seller to the negotiating bank. After scrutinizing the documents the negotiating bank sends the documents to the issuing bank as usual; reimbursement will be obtained in the pre-agreed manner.

Payment procedure of the Import Documents:

This is the most sensitive task of the import department. The officials have to be very much careful while making payment.

· Date of Payment: Usually payment is made within 5 days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.

· Preparing Sale Memo: A sale memo is made at BC rate to the customer. As the TT & DD rate is paid to the ID, the difference between these two rates is

· Exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

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

4.6 Export Practice of ABBL

Practically by the term Export we mean out carrying of anything from one country to another. As banker we define export as sending of visible things outside the country for sale. Export Trade plays a vital role in the development process of an economy. With the caring we meet out import bills.

Although export trade is always encouraged, anybody cannot export anything to any place. Like importer the exporters are also required to get them registered before entering into export trade. Export registration certificate (ERC) given by CCI & E is required for this purpose. The required documents to obtain ERC are also same as IRC.

When a bank (Authorized dealer) receives a L/C (cable or original) it ascertains the correctness of the test number and the authorized signature. Then the bank sends the original copy of the L/C to the beneficiary.

The exporter presents the relative documents to the negotiating bank after the shipment of the goods. The L/C issuing bank undertakes to honor is obligation only if the beneficiary fulfills the conditions stipulated in the L/C, may namely, the submission of stipulated documents with in the stipulated time. Even a slide deviation of the documents from these specified in the L/C may give an excuse to the negotiating bank. So the negotiating bank must be careful, promote, systematic and bias-free while scrutinizing the tender documents after careful and through examination of the documents, the banker has to list out the discrepancies which may be classified as major or minor, irremovable or removable. The removable discrepancies can be corrected by the tendered or future losses, which may arise due to non-repatriation of proceeds.

The following types of discrepancies may be noted while the negotiating bank examines the documents:

· L/C expired.

· Late shipment.

· Amount drawn in excess of the L/C.

· Bill of exchange not properly drawn.

· Descriptions of goods differ.

· Bill of Lading or Airway Bill state.

· Bill of Lading classed.

· Insurance Cover Note as per terms L/C.

· Insurance Cover obtained after the Bill of Lading or Airway Bill date.

· Enough number of copies not submitted as required by L/C.

· Negotiation under L/C restricted.

· Packing List and certificate of analysis not as per the L/C.

· Documents not properly endorsed in favor of the bank.

· Full shipment not effective and part shipment prohibited.

· Gross Weight and Net Weight shown in different documents differ.

· Same of the documents required by L/C not submitted and

· Documents inadequately stamped.

Documents with major discrepancies, which could not be negotiated, should be sent on collection basis with the permission of the exporter.

· Export Procedure:

The Export and Importer trade in our country are regulated by imports and exports (control) Act, 1950. Under the Export Policy of Bangladesh the exporter has to get the valid Export Registration Certificate (ERC) from chief controller of Import & Export (CCI & E). The ERC is required to renew every year. The ERC number is to be incorporated on EXP Forms and other papers connected with exports.

· Registration of Exporters:

For obtaining ERC indenting Bangladeshi exporters are required to apply to the Controller of import & export in the prescribed Form along with the following documents:

· Nationality and assets certificate.

· Memorandum and Articles of Association and certificate of Incorporation in case of limited company.

· Bank certificate.