FOREIGN TRADE ACTIVITIES OF HSBC, DHAKA MAIN OFFICE
The choice of a trade and supply chain provider is vital in a world where both speed and attention to detail are crucial and where we need a partner who can seamlessly combine local service excellence with global reach. At HSBC, they make it their business to know our business, intimately and thoroughly. With over 130 years of experience supporting importers globally, HSBC is well positioned to fulfill the client’s requirements of foreign trade. A full range of import services handled by experienced staff is available, ensuring that the client’s import documents are processed without delay. The report titled “FOREIGN TRADE ACTIVITIES OF HSBC, DHAKA MAIN OFFICE” is prepared with a view to provide recommendation and the remedial majors for the improvement of Import L/C services by HSBC. The broad objective of the study is to apprize the HSBC with special references to Trade Services activities. The specific focuses of the study are trade volume analysis, identify the annual growth rate, the reasons behind the growth and exploring the opportunities and competitive advantages that can be exploited by HSBC. Both primary and secondary sources of data have been used to gather the necessary information for the analyses of the study. The primary information is collected by interviewing Trade & Supply Chain Manager, assistant managers and officers of HSBC. Primary data were mostly derived from the discussion with the manager.
In the findings and analysis part an elaborated description has given on the assigned department i.e. Trade Services. A literature review is given to remind the items of the related field of study. Then a description of the procedures for opening a LC is stated with a Rich Picture of Current LC System. Besides, the charges applicable for LC opening and other services are stated. The documents required to open a LC is also mentioned.
In the Trade volume analysis part, it is observed that the import LC volume has increased by the two years in accordance with the export LC volume. The total import volume in the year 2006 was just BDT 59.79 billion, whereas in 2008 it has increased by BDT 92.31 billion. Over the course of 2 periods the import LC volume grew from $59.79 to $92.31, its compound annual growth rate, or its overall return, is 24.25%.This outstanding outcome is certainly backed by some reasons. The reasons are outlined thoroughly followed by some recommendations and finally a conclusion is drawn to complete the overall study.
CHAPTER: 1 INTRODUCTION
Banks are the pillars of modern economic activities in any country. Developed and organized baking system is a prerequisite of every kinds of economy. The private sector banking has to perform as center of all the economic activities of the country. Marketing of bank services rendered by the bankers that extend economic activities by attracting more customers through quality and quick services, earn goodwill, discover the customers need and then satisfy them. The bank is one of essential service oriented industries and deal with the – mobilizing deposit services, deploying credit services, offering financial services & extending agency services.
The Hong Kong and Shanghai Banking Corporation Limited (HSBC) is one of the largest banking groups in the world which have vast network all around the world. HSBC also made a significant impact in our banking sector. Because it posses a lot of diversified, modern, technology oriented and most customer friendly product. It can be said that HSBC is the pioneer in modern technology based banking service in Bangladesh.
Being one of the most renowned in the banking industry, HSBC believes in creating a good image in the minds of its customer by providing high quality services, through its global network. HSBC’s more than 1, 80,000 employees representing in 81 countries and territories makes it possible for the group to deliver its standardized service to its customers all over.
HSBC providing a lot of facilities and fast service in trade sector around the world through its large network and 136 year’s experience. HSBC also won various awards like Best Trade Finance Bank and Best Trade Documentation Bank in recent years for its responsible contribution in the trade service sector around the world. Through its global expertise and local knowledge HSBC gaining market shares in Bangladesh faster. Though HSBC facing significant competition from its multinational peers.
It is necessary for HSBC to find out the room to explore themselves eliminating all its drawbacks and weak points. Because HSBC raising their target in every year to gain the highest market share in trade sector of Bangladesh beating their multinational peers.
1.2. Origin of the Report:
This report on “FOREIGN TRADE ACTIVITIES OF DHAKA MAIN OFFICE OF HSBC” is a collaborated outcome of the three months long internship program at HSBC, DHAKA
MAIN OFFICE, which is a partial requirement of the Bachelor of Business Administration (BBA) program of the Northern University, Bangladesh.
1.3. Objectives of the Study:
Internship topic mainly focuses on the FOREIGN TRADE ACTIVITIES OF HSBC, DHAKA MAIN OFFICE. The major objective of this study is to learn practical knowledge and experience on foreign exchange dealings, i.e. on trade procedure.
- To know the foreign exchange operation in a world class commercial bank.
- To know the methods of trading
- To understand the documentation procedure of a foreign bank
- To get some knowledge about correspondent banking.
- To know about Letters of Credit.
1.4. Scopes of the Study:
HSBC introduced gradually development in banking system particularly, commercial banks and private banks. Main emphasis of the report is “FOREIGN TRADE ACTIVITIES OF HSBC, DHAKA MAIN OFFICE” not micro but corporate banking concept on global focus. This study covers the methods of trading, financial & commercial documents, amendments & withdrawals, letters of Credit.
This report has been prepared on the basis of experience gather during the period of internship. Both primary and secondary sources were used to collect data. For preparing this report also have the information from various personnel and website of the HSBC group have presented my experience and findings by using different figures and table in the analysis part.
The study will be conducted on the customer satisfaction level of trade and supply chain department of HSBC, main office, Dhaka. Therefore for the purpose of the study total customer of HSBC, Dhaka main office would be the constraints of the population of the study.
Sample of the study:
40 customers here considered as sample of the study. We assume that these 40 customers will represent the total customers of trade and supply chain department of HSBC, main office, Dhaka.
Each customer of trade and supply chain department of HSBC, Main office, Dhaka.
is a sample unit of the study.
Procedure of collection information:
· Primary sources:
i. Interviewing customers with structured questionnaires.
ii. Conversation with the officers of the Trade and Supply Department of HSBC, Dhaka Main office.
· Secondary sources:
Data analysis and reporting:
Data have been analyzed through proper quantitative and qualitative techniques. have made the questionnaires for the survey and reported time to time to the concerned authority.
1.6 Limitations of the Study:
The author has tried to present the paper with a very cautious approach. To prepare the report I had to gather different relevant, books, brochures, journals of the concerned banks. To prepare this paper I had to face the following constraints:
- It is hard to do the office job and prepare the report at the same time. used to work in the office from 8.45 AM to 7:30PM. Therefore, it was very tough to arrange the time for report writing.
- Bank officials are very strict regarding their flow of information to the external environment. If sufficient data could have been availed, then the study would have been more informative and useful.
- The study was done only for the HSBC, Dhaka main branch. But in some cases they are more dependent on Dhaka branch. As a result of this the implication of the findings of the report will be applicable only within Dhaka
- The study was solely completed by the writer. So there is a chance of misinterpretation of the facts related to the report.
- Information was not available for conducting full-fledged research as the writer was not allowed to study upon the sensitive data regarding the bank
CHAPTER: 2 ORGANIZATIONAL OVERVIEW
In Bangladesh, the HSBC Group’s history dates back to 1996 when The Hongkong and Shanghai Banking Corporation Limited opened its first branch. Today, the HSBC Group offers a comprehensive range of financial services in Bangladesh including corporate banking, commercial banking, consumer banking, global payments and cash management, trade services, treasury, and custody and clearing. The HSBC Asia Pacific group represents HSBC in Bangladesh. HSBC opened its first branch in Dhaka in 17th December 1996.
The Bank was awarded ISO9002 accreditation for its personal and business banking services, which cover trade services, securities and safe custody, corporate banking, Hexagon and all personal banking. This ISO9002 designation is the first of its kind for a bank in Bangladesh. The Hong Kong and Shanghai Banking Corporation Bangladesh Ltd. primarily limited its operations to help garments industry and to commercial banking. Latter, it extended its operations to pharmaceuticals, jute and consumer products. Other services include cash management, treasury, securities, and custodial service.
Realizing the huge potential and growth in personal banking industry in Bangladesh, HSBC extended its operation to the personal banking sector in Bangladesh and within a very short span of time it was able to build up a huge client base. Extending its operation further, HSBC opened a branch at Chittagong, two branch offices at Dhaka (Gulshan and Motijheel) and an offshore banking unit on November’1998. Another branch has been opened at Dhanmondi on 1st of March 2003. Eyeing the demand of pious people of the country HSBC recently opened AmanhBranch at Dhaka which offers only Islamic banking services. At present HSBC have 8 branches in the country.
HSBC Bangladesh is under the strict supervision of HSBC Asia Pacific Group, Hong Kong. The Chief Executive Officer of HSBC Bangladesh manages the whole banking operation of HSBC in Bangladesh. Under the CEO there are heads of departments who manage specific banking functions e.g. Personal banking, corporate banking, etc.
Currently HSBC Bangladesh is providing a wide range of services both to individual and corporate level customers. In 2000 the bank launched a wide array of personal banking products designed for all kinds of (middle and higher middle income) individual customers. Some such products were personal loans, car loans, etc. In the year 2003 the bank launched three of its personal banking products – Tax loan, Personal secured loan & Automated Tele Banking (ATB) service. These products are designed to meet the diverse customer needs more completely.
HSBC Bangladesh has acquired licensing to provide off-shore banking services to qualified Export Processing Zone clients. Off-shore banking clients, in applicable zones in Bangladesh, may conduct banking transactions and avail credit facilities in foreign currency subject to applicable rules and regulations. Being one of the largest offshore banking facility providers in the Export Processing zones, HSBC has the experience and capabilities to assist and fulfill the banking needs of the investors. With recent establishment of Business Development office at Adamzi EPZ the bank has now presence in 5 EPZs of Bangladesh.
2.1 HSBC Bangladesh at a glance:
Name of the Organization : The Hong Kong and Shanghai Banking
Year of Establishment : 1996
Head Office : Anchor Tower, 1/1-B Sonargaon Road
Dhaka 1205, Bangladesh
Nature of the Organization : Multinational Company
Shareholders : HSBC group shareholders
Products : Savings & deposit services
Corporate and Institutional services
Number of Branches : 8 (In three metropolitan cities- Dhaka,
Number of Employees : 842 (approx.)
Technology : Offers full online banking from branch to
Service Coverage & Customers : Serves individual and corporate customers.
2.2 HSBC BANGLADESH (MISSION, VISION AND GOALS)
To generate greater return than the average return of the peer group financial institution and increase shareholder value significantly.
To satisfy customers with high quality services that reflects the global image as the top financial brand.
To provide innovative and justified products supported by the quality of delivary and excellent customer services, to train motivate and empower employees to work in a socially responsible manner. By combining regional strengths and with group network the aim is to the leading bank in the industry. The key target is to achieve sustained earnings growth and to enhance share holder value on a continuous basis.
2.3 Management of HSBC Bangladesh
HSBC, Bangladesh is one such company that has to overcome a lot of hurdles to reach the position it now holds. It is recognized for strong brand image, supreme professionalism and efficient banking services. The management has been contributing immensely to make the bank hugely successful in the competitive banking sectors in Bangladesh. At present, Mr. Sanjay Prakash is the CEO; Mr. Mahbub-ur-Rahman is the Head of Corporate Banking; Mr. Arjun R Fernando is the COO, Mr. Mustafa Alim Aolad is the CFO, Mr. Shafquat Hossain is the Head of Personal Financial Services, Mr. Syed Akhtar Hossain is the Head of Human Resource and Mr. Mustafizur R Khan is the Head of Marketing at HSBC Bangladesh. They are the core management team members of HSBC Bangladesh.
The Managerial Team Members of HSBC Bangladesh
Mr. Sanjay Prakash
Chief Executive Officer
Mr. Arjun R Fernando
Chief Operational Officer
Mr. Mustafa Alim Aolad
Chief Financial Officer –
Head of Corporate Banking
Mr. Shafquat Hossain
Head of Personal Financial Services
Mr. Syed Akhtar Hossain
Head of Human Resources
Mr. Mustafizur R Khan
Head of Marketing
2.4 Organizational Structure of HSBC, Bangladesh:
HSBC follows a 4-layer management philosophy in Bangladesh. An organizational hierarchy is shown bellow:
Table 1: Organizational Hierarchy Chart of HSBC, Bangladesh
The organizational structure of HSBC Bangladesh is designed according to the various service and functional departments. The Chief Executive Officer (CEO) heads the chief executive committee, which decides on all the strategic aspect of HSBC. The CEO is the person who supervises the heads of all the departments and also is the ultimate authority of HSBC Bangladesh and responsible for all kinds of activities of HSBC Bangladesh and all its consequences. He admires all the functional departments and communicates with the department heads for smooth functioning of the organization. The HSBC Chief Executive Committee is formed with the heads of all departments along with the CEO. The structure of this top-most authority is shown in the following
Figure 1: Executive committee of HSBC, Bangladesh
HSBC Bangladesh carries out all traditional functions, which a commercial Bank performs such as Mobilization of deposit, disbursement of loan, investment of funds, financing export & import business, trade & commerce and so on. Besides it also offers some specialized services to its customers. Products and services offered by HSBC can be categorized according to the customers they serve. Thus two major groups can be seen, they are individual customers or consumers and corporate customers or organizations
Each and every employee of HSBC takes pride of being an employee at HSBC and his or her pride comes from the freedom of direct communication with the top management. The management of HSBC is supportive in the sense that the top management deliberately supports the suggestions, values, ideas, innovation and hard work of the employees and officer. Again high amount of employee participation is encountered in the management process. There are also systems for awards, incentives, and status for innovative ideas and hard works.
2.5 Structure of TSC department:
Figure 2: Structure of TSC department
2.6 Industry Competitive Analysis
Strategic Group Map of Banking Industry
Generally in terms of profit per employee, foreign commercial banks rank top followed by private commercial banks. Profit per employee positions of nationalized commercial banks are not up to the mark. And profit per employee positions of specialized banks is very alarming. Infrastructure development and modern facilities for local banks especially for nationalized banks are required.
Local banks are relatively inefficient compared to foreign banks in respect of use of technology-qualified manpower and also modern facilities. Geographical location is also important. Remote branches of different banks should be relocated. They should get modern facilities. Innovative banking should be preferred. Scheduled banks credit program are of high cost, anti rural biased and bank staffs are unwilling to serve in the rural areas. As such a new system may be introduced to meet the credit needs of small and marginal farmers, distressed women, landless labors etc.
The customer/client often prefers qualitative services of the bank at the lowest price of the products. Banks should be careful to recognize the empowerment of the client, and they should be cautiously determined price of the product. Both borrowers and depositors of the bank should deal with friendly and secret terms. The bank management should study the needs of customers and improve the quality of services to that extent. Continuous research on customer demand should be analyzed.
Agrani, Janata, Sonali and Rupali are the four nationalized commercial banks of Bangladesh. If strategic group map were done then these nationalized commercial banks would fall in a place with highest geographical coverage, however with low image or brand name, mainly due to bureaucracy in the organization and poor customer services. On the contrary if foreign banks such as SCB, HSBC, Citi NA are plotted then these banks will fall under a position where the brand name or image of the bank is high but geographical coverage is between low to medium. The reason behind their high image is their customized and high quality customer services. Banks like Dhaka, Jamuna and Premier would fall in a position where both image and geographical coverage are low.
Figure 3: Strategic Group Map of Banking Industry
Among the local private banks BRAC, DBBL and IFIC would fall in a position where image is a little higher than medium due to their good quality and vast range of services however the geographical coverage is medium. EBL, The City Bank, Prime Bank and Bank Asia would fall in a position where image is medium and geographical coverage is below medium. Lastly IBBL has quite a high image due to its Sharia banking (known as Mudaraba) with quite a high geographical coverage.
Major Competitions in the market:
From its inception HSBC has been positioned itself in the corporate banking segment. Though recently it focuses on the SME and other institutional segments, still corporate clients are the major part of its accounts. In this context, there are tow major competitors exist in Bangladesh, Standard Chartered Bank and City Bank NA. Both are multinational companies equipped with modern banking technologies, efficient and prompt banking services and immense financial strength.
Among the three competitors SCB is the market leader with its large coverage and wide range of operations and banking services. It captures 33 percent share of the market, HSBC and City Bank NA capture 26 and 14 percent of share respectively. But the local banks are also becoming good competitors aggregately for HSBC specially Eastern Bank, Brae Bank, Prime Bank etc. by adopting advanced technology and introducing cost effective services which able them to capture some corporate entities. The market share of private commercial banks (PCBs) increased by 3.7 percentage points while that of the foreign commercial banks (FCBs) dropped by 3.6 percentage points in 2007, the central bank annual report said. So that’s an alarming bell for not only HSBC but also other two foreign banks.
CHAPTER: 3 INTERNSHIP POSITION AND DUTIES
3.1 INTERNSHIP POSITION
The choice of a trade and supply chain provider is vital in a world where both speed and attention to detail are crucial and where we need a partner who can seamlessly combine local service excellence with global reach. At HSBC, they make it their business to know our business, intimately and thoroughly.
As one of the largest trade and supply chain organizations in the world, HSBC has local trade experts available to support us wherever we do our business. They can help to control operations and assist to streamline the trade processes with advanced technology. HSBC aims to ensure that import and export transactions are managed effortlessly and effectively, providing business with the best possible opportunities to grow. HSBC has the reputation as leaders in international trade. Time and again, HSBC has been singled out for recognition by prestigious industry titles.
HSBC has played a key role in international trade since 1865, when Hongkong Bank, the founding member of the HSBC Group, was established to finance and facilitate the growing trade between China, Europe and the USA.
With extensive experience in international trade, HSBC is ideally placed to support the longterm growth of business. HSBC combines local service excellence with global reach, supplemented by advanced technology. HSBC has an extensive network of over 10,000 offices in 82 countries and territories. Thus, wherever in the world may be, there are teams of specialists to rely on and to help to achieve business objective.
Headquartered in London, HSBC is considered as one of the largest banking and financial services organization in the world. In Bangladesh it has made its place as the fastest growing bank. Being able to work in this world-renowned organization I find myself lucky. I got the opportunity to work in one of the most vital department of HSBC- TRADE AND SUPPLY CHAIN (TSC).
The import trade process in HSBC is a prolonged process. It involves intense file Work. The import trade department of HSBC Dhaka Main office consists of many Officials, including department Head. As an intern assisted each of them in their work. Being an intern had limited authority regarding financing and other delicate activities. But my responsibilities are given bellow
· Lodgment of L/Cs
· Issuing L/Cs
· Reporting to Bangladesh Bank
· Issuing and sending PSI (Pre-Shipment Investigation) letter
· Filing huge number of L/C related documents etc were my routine work
· Most of my knowledge was gathered through observing activities of officers
· Face to face conversation with the bank officers, appointment with the top officials of the Bank
· Interviewing L/C customers at HSBC Dhaka Main office
CHAPTER 4: FOREIGN TRADE ACTIVITIES OF HSBC, DHAKA MAIN OFFICE:
HSBC FOREIGN TRADE
HSBC is the leading provider of trade finance and related services to importers and exporters in Asia. Trade is considered a core business of the group. HSBC facilitate trade through its trade and supply chain department which was formerly known as HSBC Trade Services. Along with providing financing mechanisms to exporters and importers the concentration is now not only financing the trade but also providing supply chain solutions through unique financing products and services.
The group’s presence in 81 countries of the world gives a good opportunity to control both ends of a trade transaction and keep the business within the Group. The various awards it has won from the leading publications of the world acknowledge HSBC’s excellence in trade.
The trade and supply chain department is functionally divided into three subdivision who work together to provide the complete export import solution. These are- Export, Import and Business development units.
The export and import division provides the financial support and products for international trade solution. The export and import divisions mainly process all the work behind granting financial support to the customer. The business development unit is responsible for maintain customer relationship and development of the business portfolio.
The business development unit is a subsidiary of the Commercial Banking Division of the bank. Trade and supply chain continuously work with commercial banking division and the credit administration for providing the customers the complete export import solution.
Credit Administration department basically deals with all the documentation, processing, administration and disbursement of the import-export services provided to corporate clients. This department manages all the trade tools and facilities provided by HSBC Corporate Banking. Some important aspects of this department are LC advising, documentation, OD facilities, guarantees, etc.
For convenient service to the customers Trade and supply chain has to keep continuous communication with the treasury so that all the dealings go smoothly.
4.1 HSBC IMPORT SERVICES
To provide support to the importers of the country HSBC has a portfolio of instruments available to the importers. These products are geared in a way so that they are convenient and the importers don’t have to worry about financing their merchandise anymore. For import solutions HSBC offers the following products-
· Documentary credits
· Import Collections
· Import Finance
· Shipping Guarantee
4.1.1 DOCUMENTORY CREDITS
For the importer HSBC offers Documentary letter of credit. HSBC issues the DCs for the importers. The convenience of the customer is increased as the bank mutinously scrutinizes all the documents and only after that disburse payments. The importer can make payments only after all the merchandise is received and in the right manner and perfect condition.
HSBC also offers deferred payment credit – which allows the nomination of a bank to or the issuing bank to effect payment against stipulated documents at a maturity date as specified or determinable from wording of the credit. So by using this facility the importers can receive the goods sell them to acquire funds and later make payments to the bank. So import is much more convenient with use of deferred payment DC.
Operations of Documentary Letter of Credit:
The following five major steps are involved in operation of a documentary letter of credit:
- Amendment (if necessary)
- Presentation and
Issuing a Letter of Credit:
Before issuing and L/C, the buyer and seller located in different countries, concludes a ‘sales contract’ providing for payment by documentary credit. As per requirements of the seller, the buyer then instructs the bank-the issuing bank – to issue a credit in favor of seller (beneficiary). Instruction/Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application, which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the ‘necessary conditions’ contained in the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a credit, the opening bank then proceeds for opening the credit to be addressed to the beneficiary.
Advising a Letter of Credit:
Advising through a bank is a proof an apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to ht beneficiary to whom it is addressed. Before forwarding, the advising bank has to very the signatures(s) of the offer(s) of the opening bank and ensure that the terms and conditions of the credit are not in violation of the existing exchange control regulation and other regulations relating to export. In such act of advising bank does not undertake any liability.
Amendment of Credit:
Parties involved in an L/C, particularly the seller and the buyer connote always satisfy the terms and conditions in full expected due to some obvious and genuine reasons. In such a situation the credit should be amended. In case of irrevocable credit, it can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (bank) and the beneficiary.
Presentation of Documents:
The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documentsevidencing 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 then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and it they are found as per credit requirements.
Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. These are:
· Settlement by Payment: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied, the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then sends the documents to the issuing bank. If the issuing bank is satisfied with the requirements, the paying bank from the issuing bank obtains payment.
· Settlement by Acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if is is a bank other than the issuing bank, then sends the documents to the issuing bank stating that is has accepted the draft and at maturity the reimbursement will 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 accompanied by a draft drawn on the buyer or any other drawer, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the document the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner.
4.1.2 IMPORT COLLECTION
HSBC import collection offer a simple and low cost alternative to settlement of import transactions by documentary credit. With documentary collections the importer does not make payment until the documents of title are received through the banking system. This retains control of the goods until payment is received. HSBC offers both DP and DA bills for its valued customers
DOCUMENTS AGAINST PAYMENT:
Documents against payment bills are payable when presented to the importer, to whom the documents are released when payment is made. This arrangement ensures that the exporter retains control of the goods until payment is received.
DOCUMENTS AGAINST ACCEPTANCE:
The document against acceptance allows the documents to be released to the importer against their acceptance of a term bill. The importer’s acceptance, written on the face of the bill, signifies acceptance of the terms and agreement to settle the bill on its maturity date. However, it does not represent a guarantee to the exporter that the bill will be paid.
4.1.3: IMPORT FINANCING
Along with providing various tools for settlement of international trade payments HSBC also provides import financing. HSBC offers import loans and trust receipt for the importer to make payments for import bills.
USUANCE DOCUMENTARY CREDITS
Usuance documentary credits (DCs) provide importers with working capital in that they are payable after a fixed period of time- either after shipment or after documents are received. While the issuing bank is not financing the imports directly, it is a guarantee of payment to the exporter, who can then approach its bank for post-shipment export finance. This is an attractive way for exporters to extend finance to buyers.
LOANS AGAINST IMPORTS
This is a form of import finance for collection and DCs where the import loan is secured by a trust receipt, in which the importer assigns the goods to its bank.
CLEAN IMPORT LOANS
A clean import loan is not secured by the goods in question. However, other security will, most likely, be required to establish such facilities.
Customer’s import finance facilities are carefully constructed around customer’s trading cycle and the business customer do by HSBC’s Corporate Relationship Manager, allowing customer to enjoy lower interest rates while ensuring that finance will be available to cover shipments.
HSBC provides the importer with the flexibility to take a period of extend credit that is undisclosed to the seller whilst optimizing payment terms. We understand that seasonal peaks, long transit times and lengthy credit terms all place additional demands on the importer.
4.1.4 SHIPPING GURANTEE
For greater convenience and ease of business HSBC offers shipping guarantee for the importers.
Often the scenario can occur when the shipment may arrive before the shipment documents. In this scenario HSBC comes to the rescue with its shipping guaranty which enables the importer to take control of the merchandise from the shipping company without the bills of lading. The bank provides guarantee for the importer so that the importer can smoothly run the business process without waiting for the documents to arrive.
Shipping guarantees are only valuable if they are provided in time and fast. HSBC offers fast issuance of such guaranty in many cases as soon as the application is made and the importer is able to make his move with the merchandise.
The global presence and the unprecedented financial strength of HSBC have made it the biggest financial brand in the world. So shipping guaranty buy HSBC is accepted by all the major shipping line across the world. So the customer doesn’t have to worry about the acceptability of the guarantee. The customer is assured of getting the merchandise always in time.
4.2 HSBC EXPORT SERVICES
HSBC is geared for providing the best export financing solution for its customers. Not only the bank can facilitate collection it can help the customers by faster preparing and processing the documents and by also providing working capital loans.
HSBC‘s export services include-
· Documentary Credit Advising
· Pre-shipment Finance
· Post-shipment Finance
4.2.1 DOCUMENTARY CREDIT ADVISING
For the exporters of the nation HSBC offers fast and reliable DC advising service. The documentary credits are advised fast so the customer don’t have to wait long to get the export process going. The bank offers competitive charge for these services and fast performance is guaranteed.
For the convenience of the exporters’ HSBC offers Electronic DC advising. By using electronic DC advising the customer can receive all the documents – Export Documentary credits, amendments and export transaction via email. The benefit is providing without any extra cost. This helps the customers with better logistics management, quicker freight booking and collection of other necessary documents required under the DC. This also results in enhanced accuracy in preparation of other documents as the DC and amendments are available in electronic form. The DC can be easily sent to the shippers and other parties faster. This ensures that the DC will always reach the proper destination in time.
By signing for the DC safe custody devices the customer is able to reduce the expenses for collecting the DC from counters.
4.2.2 PRE SHIPMENT
If after checking the documents are found in order HSBC can negotiate and pay the exporter discounted value of the invoice. The funds can be provided at the same day of receipt of documents if they are not found discrepant. If documents are found to be discrepant, it may be possible to negotiate under reserve. This depends on a number of factors and is available to the discretion of the respective corporate relationship manager handling the dealings with that specific customer. In such cases a letter of indemnity is required by the bank. Alternatives to the above include cabling the DC issuing bank for authorization to negotiate despite the listed discrepancies and sending the documents to the issuing bank for approval and payment.
4.2.3 PRO SHIPMENT FINANCING
To assist the Customer cash-flow when manufacturing or packing goods, HSBC can arrange pre-shipment finance facilities for you. Pre-shipment finance provided by HSBC is generally termed ‘loans against exports’. Loans must be supported by original irrevocable documentary credits (Dcs). Advances may also be made against confirmed orders by specified reputable buyers of international standing. The types of pre-shipment finance offered include packing credits, manufacturing advances and red clause credits.
Packing credits provide an exporter with finance after goods have been manufactured but before they are shipped. This smoothes the exporter’s cash flow while the goods are being packed and waiting for shipment. The advance is repaid when the goods are shipped, if the documents were negotiated with the exporter’s bank. Acquiring a Packing credit is easy from HSBC for the exporter as all he has to do is to go to any branch of HSBC and make an appointment with any of the corporate relationship managers.
Manufacturing advances are provided to exporters to meet manufacturing costs, such as the purchase of raw materials.
RED CLAUSE CREDIT
A red clause credit is a DC which contains a clause from the issuing bank authorizing the advising bank to grant an advance to the exporter before documents are presented. Facilities are not required for this type of pre-shipment finance, as the advising bank is relying on the issuing for reimbursement rather than the customer.
4.3 Methods of trading:
Four common methods of conducting international trade are-
· Open account
· Advance payment
· Documentary collections
· Letters of credit
4.3.1 Open account: In open account trading, the exporter ships the goods and awaits payment. When the goods have been received, the importer pays for the consignment. In the HSBC, Chittagong Branch, T/T is practiced as open account trading. If the seller and buyer have been trading successfully for a long time, then open account trading is appropriate.
4.3.2 Advance payment: The name suggests that, it is the system where the importer pays first, and then the exporter dispatches the goods. Advance payment is often used when the buyer is not known to the seller.
4.3.3 Documentary collections: In that trading method, the seller dispatches the goods to the buyers by sea or any other transports. The goods are loaded onto a ship at seller’s port. The ship sails to importers port. The carrier (shipping company) gives the exporter a bill of lading. This serves as a receipt for the goods, and is also a document of title. The buyer must have this document of title (B/L) in order to claim the goods at their destination.
After the goods are dispatched, the seller sends to its bank:
- A request for payment (a B/E)
- The Bill of Lading (receipt & document of title)
- All the other documents relating to the transaction.
Other documents typically include- invoice, insurance certificate, packing list, etc. These are all sent to the exporter’s bank along with the request for payment and instructions to the bank. The bank sends the Bill of Exchange (request for payment) and all the documents to the importer’s bank. The importer’s bank presents the Bill of Exchange to the importer. Bills of Exchange can be drawn payable upon presentation (Sight bill); or if the exporter wishes to extend credit to the importer, the bill may be payable at a later date (Usance bill / Term bill). In this case, the exporter wants the buyer to pay for the goods immediately. Once the buyer has paid for the goods, the overseas bank releases the documents (including the B/L). So, the importer now has the Bill of Lading and so has control over the goods. So, they can claim the goods.
The overseas bank will only release the document of title (in this case a bill of lading) only when the importer has paid for the consignment (or has agreed to pay by accepting a term bill). So, in a documentary collection, the exporter instructs the overseas bank to –obtain payment from the importer (or for a term bill, an agreement to pay),then release the documents.
In this way the exporter retains constructive control over the goods.
4.3.4 Letters of Credit: The Letters of credit is a payment undertaking given by a bank on behalf of an importer. Obviously, banks don’t issue letters of credit unless they are sure of their customers’ creditworthiness. The importer’s bank sends the letter of credit to the exporter’s bank. The goods are dispatched and the carrier gives the exporter a B/L. The ship departs for importers port. The exporter puts together the documents specified by the letter of credit. These will include the bill of lading. The exporter’s bank checks the documents against the terms of the letter of the credit & pays the exporter. The documents are sent to the importer’s bank. The importer’s bank checks the documents against the terms of the letters of credit. Provided documents are presented in accordance with the terms of the letters of credit, the seller is not dependent on the buyer to make payment. Usually the seller’s own bank is authorized to make payment.
Reasons for using letters of credit
Where there is customer risk, a L/C provides security for the seller, because a bank has given a prior undertaking to pay.
Some parts of the world are politically or economically unstable. Exporting to such places carries a degree of risk; for such transactions, a letter of credit is recommended. For protection against sovereign risk, a L/C must be confirmed, (usually by the exporter’s bank). The confirming bank undertakes to pay if the issuing bank will not. Some governments insist that a L/C is used to pay for imported goods.
The L/C offers the advantages are
Cash flow benefit- the importer only pays on presentation of the documents.
The documents provide proof of shipment.
Could ask for an inspection certificate from an independent organization; this would satisfy concerns about quality.
Different types of L/C:
Letter of credit is an important instrument in the business world. Usually the different types of L/C procedure are seen in the HSBC, Chittagong Branch:
- Irrevocable credit (on the basis of revocability): The irrevocable credit is a commonly used type of documentary credit. The credit, which can’t be revoked, varied or changed/amended without the consent of all parties-seller, Issuing bank and Confirming bank (incase of confirmed L/C). As per article 9(a) of UCPDC 500, an irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions or the credit are complied with. Irrevocable credit gives the seller great assurance of payments but he remains dependent on an undertaking of a foreign bank.
- Back-to-back credit (on the basis of special documentary credit): One credit backs another. It may so happen that the beneficiary of an L/C is unable to supply the goods direct as specified in the credit as a result of which he needs to purchase the same and make payment to another supplier by opening a second letter of credit. In this case, the second credit called a ‘Back to Back Credit’. It is opened in conformity to the terms and conditions as stipulated in mother credit except the price of the goods, shipment period and validity of L/C. in Back to Back Credit the negotiated price is quoted. The shipment period and validity of Back to Back Credit are given earlier than the original validity as stipulated in the mother L/C which helps the seller of the first credit to substitute his drafts, commercial invoices and other documents, if any, with that drawn by the seller of Back to Back Credit.
- Sight Payment L/C (on the basis of payment criteria): This type of L/C is based upon payment on presentation of documents. When the L/C bears a clause of payment at sight then the L/C is called at sight. It is settle by sight bill – a bill which is payable on demand or at sight or on presentation and when no time for payment is specified in it. Sight bill is also called D/P, i.e. Document against Payment.
- Usuance Payment L/C (on the basis of payment criteria): When the payment of L/C is to be made after a specified period of time of shipment then the L/C is called Usance L/C. a clause of payment, e.g. payment at 120 days sight, must be included on L/C. it is also term as D/A bill, i.e. Document against acceptance.
Parties to a Letter of Credit:
There are a number of parties involved in an L/C and the rights and obligations of different involved parties also differ from each.
The involved parties can be named below:
· Importer/Buyer: is the person who requests/instructs the opening bank to open an L/C. He is also called Opener or applicant of the credit.
· Opening/Issuing Bank: is the bank which opens/issues an L/C on behalf of the importer. It is also called the importer’s/buyer’s bank.
· Exporter/Seller/Beneficiary: is the party in whose favor the L/C is established.
· Advising/Notifying Bank: is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank or a correspondent bank. It may also assume the role of confirming and/or negotiation bank. It may also assume the role of confirming and/or negotiation bank depending upon the conditions of the credit.
· Confirming Bank: is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank.
· Negotiating Bank: is the bank, which negotiates the bill and pays the amount to the beneficiary. It has to carefully scrutinize the documentary credit before negotiation in order to see wheatear the documents apparently are in order or not. The advising bank and the negotiating bank may or may not be one and the same. Sometimes it can also be the confirming bank.
· Paying/Reimbursing Bank: is the bank or whom the bill will be drawn (as per conditions of the credit). It is nominated in the credit to make payments against stipulated documents complying with the terms of the credit. It may be or may not be the issuing bank.
Opening of Letter of Credit:
Opening of letter of credit means, as the request of the Applicant (importer) issuance of an 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.
· Required Information:
Issuing Bank required following information:
- Full particulars of the bank account of having same bank.
- Name of business (proprietorship, partnership or limited company, in case of limited company the name of directors and balance sheet of last three years are required).
- Historical background of the individual of institution.
- Amount of limit required.
- Modes of payment.
- Statement of assets and liabilities.
- Balance of fund in bank account.
- Trade License and import registration number with renewal date.
- Proforma Invoice/Indent.
- TIN, VAT.
- Insurance cover note.
- Sales agreement.
o Documents/Papers Supplied by Bank:
Bank supply the following documents/papers:
- Letter of credit /documentary credit application form.
- Letter of credit authorization form.
- Continuation of documentary credit application.
- Undertaking for waiver of non-delivery clauses in the insurance cover note.
- Undertaking for waiver of non-delivery clause in the insurance cover note.
- Undertaking for war.
- Import form
- Charge documents paper
- Promissory note.
- Letter of arrangement.
- Letter of disbursement of loan.
- Letter of revival.
- Letter of continuity.
- General letter TR.
- Letter of guarantee.
- Letter of supplementary agreement.
o Application Checking:
Before opening and L/C Issuing Bank must check the followings:
- L/C Application properly stamped, signature verified and margin approved and properly retained.
- Indent/Proforma invoice signed by the importer and Indenter/supplier.
- Ensure that the relevant particulars of L/C application correspond with those stipulated in Indent/Proforma Invoices.
- Validity of LCA entitlement of goods amount etc. conforms to the L/C application.
- Conversion and rate of exchange correctly applied.
- Charges like commission, postage, telex, swift charge etc.
With the above essentials bank does the followings:
· Landed cost analysis.
· Present market position of the goods to be imported.
· Credit Information Bureau report from Bangladesh Bank.
· Send credit proposal to head office.
· Collect credit report about beneficiary.
o Contents of a Letter of Credit:
A Letter of Credit generally contains the followings:
· Date of Issue.
· Letter of Credit No.
· Amount (generally in USD)
· Name of Issuing Bank.
· Name of Advising Bank.
· Name and Address of Application.
· Name and Address of Beneficiary.
· Last Date of Shipment
· Date of Expire.
· Name of the port of Shipment.
· Country of Origin.
· Description of Merchandise.
· Terms and Conditions.
· Additional Terms and Conditions.
o Copies Required of a Letter of Credit:
- Letter of Credit is an important document to all related party and authority. So issuing bank required generating sever copies of a foreign L/C and five copies of a local L/C. these are the followings:
- Copy for advising Bank.
- Copy for Beneficiary.
- Copy for Applicant.
- Copy for Head Office.
- Copy for PSI (Pre-Shipment Inspection Company)
- Copy for CCI&E (Chief Controller of Import & Export).
- Copy for own record.
o Advising Letter of Credit:
Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding the advising bank has to verify the signature of the officer of the opening bank and ensure that the terms and conditions of the credit are to in violation of the existing exchange control regulations and other regulations relating to export. In such act of a advising bank does not undertake any liability.
o Amendments to Letter of Credit:
After issuance and advising a Letter of Credit, it may be felt necessary to delete, add or after some of the clauses of the Credit. All these modifications are communicated to the Beneficiary thorough the same Advising Bank of the Credit. Such modifications to a Credit are termed as amendment to a letter of credit.
L/C amendments are to be communicated by telex SWIFT or mail. If there is more than one amendment to a credit, all the amendment must bear the consecutive serial number so that the missing of any amendment can be identified by the advising bank or by the beneficiary.
o Amendments Procedure:
The Issuing Bank has to obtain written