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Foreign Trade Operation of AB Bank Ltd
OVER VIEW OF THE BANK AND BRANCH
1.1 Introduction of ABBL
AB Bank is the First private bank in Bangladesh. Government permitted private banks to enter in to banking because of sustained poor performance by the banks of nationalized sector. AB Bank limited (ABBL) is sailed as the leading private commercial bank in the baking suture from its journey on April 12, 1982 with opening of its first branch at Karwan Bazar in Dhaka. It was the brainchild of group dynamic entrepreneurs of Bangladesh.
1.2 CORPORATE INFORMATION AT A GLANCE:
(INFORMATION AS PER LAST ANNUAL REPORT 2009)
Name of the bank : AB Bank Of Bangladesh Limited
Status : Public Limited Company
Nature of Business : Private Commercial Bank
Date of Incorporation : 31st December, 1981
Commencement of Business : 27th February 1982
Inauguration of the Jubilee Road Branch: 26th July, 1994,
Head Office, BCIC Bhaban, 30-31,
Dilkusha Commercial Area, Dhaka.
Registration No : C281461 (1992)/95
Chairman : Mr. M. Wahidul Haque
Managing Director : Kaiser A. Chowdhury
Authorized Capital : TK. 800 Million
Paid up Capital : TK. 519.76 Million
Directors : 8
Number of branches : 81
Deposit : TK. 27,361.44 Million
Loan : TK. 21,384.63 Million
Number of Employees : 1525
Telephone : (+8802)9560312
Telefax : (+8802)956-4122-23
SWIFT Code : ABBLBDDH
E-mail : email@example.com
Web Site : www.abbank.com.bd
1.3 Vision & Mission:
“To be the trendsetter for innovative banking with excellence & perfection”
“To be the best performing bank in the country”
Goal of the Bank
To exceed customer expectations through innovative financial products & services and establish a strong presence to recognize shareholders expectations and optimize there rewards through dedicated workforce.
Long term Goal: Keeping ahead of other competitors in productivity and profitability.
Short Term Goal: To attain budgetary targets fixed in each areas of business.
1.4 Change of Name:
AB Bank believes in modernization. The bank took a conscious decision to rejuvenate its past identity – an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14, 2007 vide Bangladesh Bank BPRD circular letter no.-10 dated 22 November 2007. Prior to that shareholders of the bank approved the change of name in the Extra-Ordinary General Meeting held on 4 September 2007.
1.5 Birth of Logo:
The coat of arms of the new logo is inspired by traditional “shital Pati” or sleeping mat”. The knit and the pattern of interlace in the new logo that echoes the intricate weave of Shital Pati symbolizes bonding. This bonding reflects the new spirit of AB Bank.
1.6 Management & Organizational Structure of ABBL
AB Bank Limited, the first private sector bank under Joint Venture with Dubai Bank Limited, UAE incorporated in Bangladesh incorporated on 31st December 1981, under the Companies Act (Act VII) of 1913 as a limited company having its Head Office in Dhaka. The Bank started functioning from 12th April 1982 with the approval of Bangladesh Bank under the guidelines, rules and regulations given for scheduled commercial banks operating in Bangladesh. It was initially a Joint Venture Commercial Bank between Bangladeshi sponsors and Dubai Bank Limited, Dubai (U.A.E).
1.7 Composition of the Board of Directors
Board of directors consists of Chairman, Vice Chairman, Directors and President & Managing Director and Company Secretary.
|Chairman||M. Wahidul Haque|
|Vice- Chairman||Salim Ahmed|
|Director||M. A. Awal|
|Director||Shishir Ranjan Bose FCA|
|Director||Syed Afzal Hasan Uddin|
|Director||Md Salah Uddin|
|Director||Md Mesbahul Hoque|
|Director||Md. Anwar Jamil Siddiqui|
|Director||Dr. M. Imtiaz Hossain|
|Director||Runa Zakia Shahrood Khan|
|President & Managing Director||Kaiser A. Chowdhury|
1.8 Capital Structure of ABBL
The authorized share capital of AB Bank Ltd. Was Tk. 282.34 million, divided into 2.82 million ordinary shares of Tk. 100 each. The paid-up capital of the bank was Tk.85 million, out of which, Tk.80 million was provided by the sponsor directors. The government of the Peoples Republic of Bangladesh subscribed Tk. 5 million in the share capital of the Bank and has since nominated one director in the board as per Article 95 of the Memorandum and Article of Association in 1983. During 1984, issuing Public shares of Tk. 15 million raised the paid-up capital. The authorized capital has been raised to Tk.200 crore and paid up capital 74.32 crore as on 31.12.2007.
In the past paid up capital AB Bank, Dubai Bank Limited had the major share comprising 60% of total share holdings. Dubai Bank Ltd. Was the joint sponsor with the local four entrepreneurs. In 1986, Dubai Bank Ltd. Merged with the Union Bank of Middle East (UBME) and subsequently Union Bank of Middle East (UBME) inherited the shares. They continued as shareholders till early part of 1987 when they decided to off-load their investment in Bangladesh. In terms of Article 23 (a) and 23 (b) of the Articles of association of the company and with necessary approvals of the relevant authorities including the Bangladesh Bank, the shares held by them in the company have been transferred to Group “A” shareholders.
1.9 Milestones in the Development of the Organization
AB Bank reached 28 years of its journey, which started with a single Branch operation at Karwan Bazar, Dhaka way back in 1982. AB Bank being the pioneer in private sector banking in Bangladesh will be the first to achieve this milestone. Over the years, AB Bank has contributed in many ways towards development of the private sector banking in the country. AB thrived on customer service and relationship banking, which brought new dimensions to this particular service sector and many more new entrants to banking sector, followed AB.
Table 2.1: Corporate event of A B Bank Ltd.
|Commencement of Business:||February27 1982|
|First meeting of the Board of Directors:||February 5, 1982|
|Opening of the first Branch (Karwan Bazar Branch):||April 12, 1982|
|Listing with Dhaka stock Exchange (DSE):||December 28,1983|
|Publication of prospectus for IPO:||May 5.1984|
|Opening of principal Branch||January 16,1986|
|Opening of ABIFL-Subsidiary of Hong Kong||November 1995|
|Listing with the Chittagong Stock Exchange||January, 1996|
|First Foreign Branch at Mumbai, India||April 1996|
|Launching of ATM||April 12,2002|
|Operating of Merchant Banking Wing (MBW)||November 2 2002|
|Incorporate of AB Bank Foundation||November 3 2003|
|Launching of VISA Card||December 23,2004|
|Operating of Islamic Banking Branch||December 23,2004|
|Online Share Transaction in CDS||May 7 ,2006|
|Obtained permission as a Security Custodian from Securities and Exchange Commission||January 22 ,2007|
|Arab Bangladesh Bank Ltd. Changed its name to AB Bank Limited (ABBL)||November 14, 2007|
|Raise the Authorized Capital Tk.600, 00, 00,000/- divided into 6, 00, 00,000 ordinary shares of Tk.100/- each||January 29, 2009|
1.10 Customer services
Like some bank AB Bank Limited (LTD) has also provide different types of services with his potential customers. The services of AB Bank Limited are:
- Corporate Service
- Floating of public Issue
- Loan syndication
- Personal banking Services
· Deposit account
Short Term Deposit
· Foreign Exchange Transaction
· Customer Credit Scheme
· E-cash 24 Hour Banking
· Branch Banking
· ATM and Credit Card
· Personal and Car Loan
· Safe Deposit Locker
· Utility Bill Payment
· Opening Student File
- International Trade and Foreign Exchange
- Lease financing
- Capital market Service
BOARD OF DIRECTOR
MANAGING DIRECTOR & PRESIDENT
SEVP SEVP SEVP SEVP
EVP EVP EVP EVP
SVP SVP SVP SVP
VP VP VP VP
SAVP SAVP SAVP SAVP
AVP AVP AVP AVP
SPO SPO SPO SPO
PO PO PO PO
SO SO SO SO
O O O O
1.12 Introducing the branch
AB Bank Ltd. Karwan Bazar Branch is one of the largest branches of ABBL is located in BSEC Bhaban, Karwan Bazar C/A. It started its function in the year 1986. Presently there are 56 employees in this branch as of 31st March,2011 which includes One VP, two SAVP, Six AVPs, 4 Senior Principal Officers, 5 Principal Officers, 5 Senior Officers, 18 Officers, three Management Trainee Officer, One assistant and others are messengers, tellers, typist and security guards.
1.13 Flow Chart of Internship Organogram in AB Bank Ltd of Karwan Bazar Branch
KARWAN BAZAR BRANCH
G.B CREDIT FOREIGN EXCHANGE ACCOUNTS
IMPORT EXPORT FOREIGN REMITTANCE
Source: Department Information, ABBl, Karwan Bazar Branch, 2011
1.14 Flow Chart of AB Bank Ltd. Karwan Bazar Branch:
1.15 PERFORMANCE OF AB BANK
1.15.1 Analysis of Capital Structure:
|Year||Authorized Capital(TK in Million)||Paid Up Capital(TK in Million)|
Figure 01: Authorized & Paid up Capital of AB Bank
1.15.2 Reserve fund:
|year||Amount(TK in Million)|
Figure: Reserve fund
1.15.3 Deposit mix
1.15.4 Deposit position of a bank
|YEAR||Amount of deposit(TK in Million)|
1.15.5 Investment (General)
|YEAR||Amount(TK in Million)|
1.15.6 Investment in share & securities
|YEAR||Amount(TK in Million)|
INTRODUCTION OF THE STUDY
It is necessary for all BBA (Bachelors of Business Students) to prepare an internship report at the end of this program. On the other hand internship is a course which is related to our course curriculum. As a student of BBA in American International University-Bangladesh (AIUB) my intention is to capture some theoretical concept and to know how implement this theoretical concept in our real life solution. Students are applying this concept in different organizations.
AB bank limited has started its business with all the features of a corporate Bank and the products of both corporate and retail banking system; to facilitate the daily clientele requirements. ABBL is always try to improve their service in every sectors but in today’s comprehensive business world AB banks need to offer additional concentration to the clients requirement in order to stay in the top.
In addition of all short of traditional banking activities, AB bank provides on-line banking service and a comprehensive range of financial service national and multinational companies in the country. It also undertakes the share and debentures, works as issue manager, and participates in other operations in MONAY MARKET and CAPITAL MARKAT. As a member of Dhaka stock exchange and Chittagong stock exchange.
Today is the time of competition. As a business student I am very interested to know the business world. On the other hand foreign trade is one of the parts of business. Foreign trade is divided in three categories like Import, Export and Remittance. Import and export both are related to letter of credit (L/C).
Letter of Credit is one kind of commitment or assurance or bank guarantee. The commitment is behalf of importer to exporter. If exporter will present his performance as far terms and condition and provide the asked documents, accordingly bank will make payment against the performance. There are different reason importers and exporters are involved in Letter of credit (L/C) like: Lack of trust between importers and exporters contracts.Safe mode of transaction; Lack of confident to provide the payment in due date; Effective payment of shipping goods and services.
2.2 Rationale of the study
Foreign exchange transaction plays a vital role in the economic development of a nation. Foreign exchange transaction comprises both international trade & remittance. There are various rules and restrictions in international trade that means import and export transactions. To export or import any items the exporters or importers need financial support. The commercial banks of Bangladesh play an important role by providing them financial support through loan, various incentives and advising letter of credit. This paper empirically discuss with the rules, restrictions and procedures of foreign exchange transactions comprising LC advise, negotiation of documentary bills, repatriation of proceeds and its impact on profits. An easy and simple procedure of such transactions may help the exporters and importers to increase their business in future.
2.3 Scope of the report
The scope of the organizational part covers the organizational structure, background, vision, mission, objective, functions and rules, restrictions, procedures of foreign exchange transactions of the organization.
2.4 Objective of the study
To prepare the report I have acquainted with day-to-day foreign exchange functions of ABBL, know the progress of foreign exchange and foreign trade of ABBL, to gain in-depth knowledge of export, import and remittance of ABBL highlighting the foreign exchange activities of this bank. The primary & secondary objectives of this report are-
- Primary Objective
The main objective is to know the significant relation that exists between import-export and branch performance in this sector. On the other hand the significant relation that exists between import-export and business world.
- Secondary objective
To know and focus the whole import-export mechanisms.
To know and focus the remittances activates.
To know and focus the rules and regulation of import-export mechanisms.
Identify some problems and also make some recommendations.
To observe the working environment in commercial banks.
To apply theoretical knowledge in the practical field.
2.5 Methodology of the Report
· Direct observation
· Face-to-face discussion with employees of different departments
· Study of files, circulars and practical work.
· Annual Report of 2009 etc.
This study includes both quantitative and qualitative data. However, this report is basically qualitative in nature. In all the cases depending on the requirements data have been collected from different sources.
· Source of Data
This report is based on both primary & secondary sources of information that has been collected from the various sources like different publications, library sources, books, articles, etc. For collecting primary data, I ask the respective officer(s). Others are like –
· Exposure on different desk of the bank;
· File study.
· Getting information from face to face dealing with the client
· Personal interview with branch officials or executives
The secondary sources are –
· Annual Report of AB Bank Bangladesh Ltd,
· Web site of ABBL
· Periodicals published by the Bangladesh Bank;
· Different publications regarding banking functions, foreign exchange operation, and export-import policies.
· Time preference
The time preference of the study relates to the period covering the years 2005 to 2009. And also shown some analysis from 2008 to 2010 as a per month analysis & evaluation. All these years has been taken for different analysis purposes.
· Data processing and analysis
Data processing has been done manually after checking and editing. For analyzing excel is used.
2.6 Limitation of the study
AB Bank Ltd. is a large financial institution; therefore it is not possible to find out the true pictures within a short period. To prepare the report I faced some problems & limitations. Those limitations are unavoidable for me. That may causes reduction in the quality of my report. Some of the major problems are pointed below-
Difficulties to communication and collect data.
Difficulties to gather data in a specific way.
In many cases, up to date information is not published.
Time constraints are one of the major problems/limitations to know the information.
Foreign Trade & Foreign Exchange Transactions
3.1 Foreign Exchange
Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.
Foreign Exchange Act. 1947 defines foreign exchange as “Foreign currency and includes deposits, credits, and balances payable in foreign currency as well as drafts, travelers cheques, letter of credit, bills of exchange drawn in local currency but , payable in foreign currency”.
According to Dr. Paul Einzig, “Foreign exchange is the system or process of converting one national currency into another and transferring money from thecountry to another.” Foreign exchange deals with foreign trade and foreign currency.
3.2 Foreign Trade
No country is self-sufficient in all the goods. Some countries have special advantage to produce some items. Bangladesh can manufacture readymade garments easily due to lower cost of labor. So Bangladesh is exporting readymade garments to USA where as USA is exporting machinery to Bangladesh due to their favorable transaction to that item. These kinds of cross border transaction or exchange of goods are called foreign trade.
3.3 Foreign Exchange and Foreign Trade
ABBL undertakes spot purchase and sales foreign currencies by deploying its own fund.
Foreign exchange and foreign trades of a country are conducted according to the law of that country. AB Bank Ltd. performs all its banking operations including foreign exchange activities according to that law.AB banks conduct their foreign exchange businesses mainly into two ways:
a) Bank provides service as an agent for the transaction and earns service charge, commission etc.
b) Bank invests its fund for the purchase of foreign currencies and sale of such currencies on the basis of present transaction and may earn profit thereof.
3.4 Foreign Exchange Transactions
Conversion of currencies or exchanges is known as foreign exchange transactions. The conversion may arise for atransaction between a bank and its customers or between a bank and another bank at home or abroad. The transaction involves at least two currencies. For a bank in Bangladesh, the process of conversion frequently involves conversion of Bangladeshi taka into foreign currencies or vice- versa.
For instance, one of the customers of your bank wishes to send an amount of $1000 to his son in USA. Assuming that this remittance is permissible or that permission from the exchange control authority has been obtained, you will issue a draft in favour of the beneficiary for $1000 drawn on your USA correspondent or a branch of yours, if any, in favour of your customer’s son and ask your customer to pay the equivalent amount in Taka. The transaction involves two things: payment of $ 1000 from your dollar account – your Nostro account maintained with your USA branch or correspondent and recovery of its taka equivalent at the ruling ready (spot) rate of exchange between taka and dollar. In another instance, your customer may ask you to buy a draft for Tk.10000 drawn on a bank in Iran towards the value of jute bags supplied to the Iranian buyer against a letter of credit open by a bank of Iran. If you are satisfied that the documents accompanying the drafts are in order, you will pay the taka amount and ask that bank of Iran to pay you equivalent amount in dollar or Iranian Real.
In the illustration given above, remittance of $1000 to USA would involve conversion of local currency into a foreign currency and in the later case the transaction would involve conversion of a foreign currency- dollar or Iranian Rial into local currency.
3.5 Wings of Foreign Exchange
A Bank’s Foreign exchange department has three definite wings through which foreign exchange transactions are conducted.
Import Section ExportSection Remittance Section
The achievement of AB Bank in the above three areas of foreign exchange business has been quite phenomenal. The Bank has been providing services to import and export trade and for repatriation of hard-earned foreign exchange of Bangladeshis living and working abroad and has, by now, consolidated its position in these areas. The following chapters will discuss about these areas in details.
Wings of Foreign Exchange: Import
Import trade of Bangladesh is controlled under the Import & Export control Act (IEC) 1950. Authorized Dealer Banks will import the goods into Bangladesh following import policy, public notice, F, E circular & other instructions from competent authorities from time to time.
Definition on Import:
Buying of goods & services form foreign countries for sales is considered as import. The person or organization who import the goods & services form foreign countries is known Importer and from which goods & services are imported is known as Exporter. In case of Import, the importers are asked by their Exporters to open a Letter of Credit (L/C). So that there payment against goods & services is ensured.
4.2 General Provision for Import
Regulation of Import – Import of goods under this order shall be regulated as under:
· Banned list: Banned goods are not allowed to import through the foreign exchange transaction. Such as Live Swine, Eggs of shrimps and prawns etc.
· Restricted list: Any item, which is restricted by the “Import Policy Order 1997-2002” in Annexure –1(b) shall be importable only on fulfillment of the conditions (b) specified therein against the item.
· Free Importable Items: The items which are not included either in the Banned list or Restricted list shall be freely importable:
· In addition to the conditions mentioned inthe Restricted and Banned Lists the conditions restrictions and procedures for import of various items mentioned in the test portion of this Order, shall as usual apply in case of import of those items.
4.3 General conditions of Import Goods
1) Import Trade Control Schedule Numbers-For import purpose use of new ITC Numbers with at least six digits corresponding to the classification of goods as given in the Import Trade Control Schedule 1998, based on the Harmonized Commodity Description and Coding System shall be mandatory.
2) NOC on the basis of ROR (Right of Refusal): No objection Certificate on the basis of right of Refusal form any authority shall not be required for import of any freely importable item by any Public Sector Agency. However, in cases where a public sector agency is required to import banned or restricted items included in the control list prior permission of the Ministry of Commerce shall have to be obtained on the basis of ROR issued by the ministry of Industries or by the Sponsoring Ministry/Division or by both as the case may be.
3) Restriction regarding source of procurement of goods:
(a) Goods from Israel or goods originating form that country shall not be importable. Goods shall also not be importable in the flag vessels of that country.
(b) All kinds of import from and export to Serbia and Montenegro, fragments of former Socialist Republic of Yugoslavia shall be banned.
4) Pre- Shipment Inspection: Unless otherwise specified pre-shipment inspection of imported goods shall not be obligatory in case of import be the private sector importers.
5) Shipment of Bangladesh Flag Vessels: Subject to waiver specified below shipment of goods shall normally be made on Bangladesh flag vessels.
4.4 Types of Importer
Goods are imported for personal use, commercial or industrial purpose. So there are three kinds of importer such as:
- Personal Importer.
- Commercial Importer.
- Industrial Importer.
4.5 Authorized Dealers
Authorized Dealer means a Bank, Authorized by Bangladesh Bank to deal in Foreign Exchange under the Foreign Exchange Regulation (FER) Act 1947. But there are some persons or firms, authorized by Bangladesh Bank to deal in Foreign Exchange with limited scope are called Authorized Money Changers. To get a license for authorization a bank will apply the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka complying the subsequent conditions:
i. The Bank must have adequate manpower trained in Foreign Exchange.
ii. Prospect to attract reasonable volume of Foreign Exchange business in the desired location.
iii. The bank meticulously complies with the instruction of Bangladesh Bank.
iv. The bank will commit to deal in Foreign Exchange within the limit & will submit periodical returns as instructed by Bangladesh Bank.
4.5.1 Functions of Authorized Dealer
Authorized Dealer can handle all kinds of Foreign Exchange transaction as per Foreign Exchange Regulation (FER) Act 1947 under the instruction of Bangladesh Bank. Following are the main function of an Authorized Dealer:
i. Exchange of Foreign Currencies.
ii. To make arrangement with Foreign Correspondent.
iii. Buying & Selling Foreign currencies.
iv. Handling of Inward & Outward Remittance
v. Opening of L/C & Settlement of Payment.
vi. Investment in Foreign Trade.
vii. Opening & Maintenance of Accounts with Foreign Banks under intimation to Bangladesh Bank.
viii. Export Documents handling.
4.6 Letter of Credit (L/C)
Letter of Credit (L/C) is a payment guarantee to the seller by the issuing bank on behalf of the importer. In other words, it is a letter of the Issuing Bank to the beneficiary undertaking to effect payment under some agreed conditions. L/C is called documentary Letter of Credit, because the undertaking of the Issuing Bank is subject to presentation of some specified documents. Through the L/C Buyers & Sellers enter into a contract for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favour of the seller. Here bank assumes fiduciary function between the buyer and seller.
4.6.1 Flowchart of L/C
Accounting treatment for opening L/C:
For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening it bank will create a contingent liability. In that case, the accounting posting will be the following-
Customer liability …….. Dr.
- While paying money but the issuing bank, issuing bank will reverse the above entry & the entry will be-
Contingent liability…….. Dr.
- Then the issuing bank will give another entry-
Payment Against Document(PAD)……….. Dr.
AB General Account…………………………….. Cr.
PAD will debit because the bank will pay the money against some documents. AB General Account is a miscellaneous account. It will be credited because by this entry ABBL creates a liability. He has to pay the money to the advising bank. & the gain made by the transaction is shown at Exchange Gain Account. All this entries are made after receiving some documents from the exporters. The above procedure is called Lodging. After giving the above entry, ABBL will inform the clients for collecting the documents from the bank.
After opening L/C, ABBL (Issuing Bank) must receive the documents for any other proceedings. These documents are-
I. Bill of Lading
III. Packing List
IV. Country of Origin
4.7 Different Parties to a Documentary Credit
Normally the subsequent parties are related to a documentary credit. Such as
1) The Issuing Bank: This is the bank who issues Documentary credit on account of it’s client.
2) The advising Bank: This is a Bank acting as Agent of the Issuing Bank, to advise the L/C to the beneficiary.
3) The confirming Bank: This Bank gives the beneficiary a double assurance of payment. This is a third Bank undertake to make payment, to the beneficiary, if the Issuing Bank fail to make Payment.
4) Negotiating Bank: This Bank provides value to the beneficiary against presentation of documents complying credit terms. Usually this is exporter’s Bank who purchases the export documents.
5) Reimbursing Bank: This is a Bank acting as Agent of the Issuing Bank Authorised to make payment or to honour reimbursing claim of the Negotiating Bank.
6) The Transferring Bank: If the L/C is transferable then the 1st beneficiary through a bank nominated by the Issuing Bank this bank is called the Transferring Bank.
7) The Applicant: Importer or buyer is the applicant of a Letter of Credit. Applicant must be the client of the Issuing Bank.
8) The beneficiary: Exporter or Seller of the goods is the Beneficiary of a Letter of Credit.
9) Notify Party: The Party / Bank to whom the arrival of shipment has to be notified or to be informed is called notify party.
4.8 Import Procedure
To import a person should be an importer. In accordance with Import & Export Control Act, 1950 the office of chief Controller of Import & Export provides the registration (TRC) to the importer. After getting this person has to secure a letter of credit authorization from Bangladesh Bank. Then he becomes a qualified importer; He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the Letter of Credit.
4.8.1 Import Registration Certificate
Import Registration Certificates are issued by the office of chief controller of imports and exports. Intending importers are to submit applications to CCI & for registration along with required documents are as follows:
II. Trade License
III. Nationality Certificate
IV. Income tax certificate along with TIN
V. Bank Certificate
VI. Membership certificate from Trade Association Certificate of incorporation, Article and Memorandum of Association. Partnership Deed for partnership firm.
4.8.2 Procedure for Registration
To obtain import registration certificate (IRC) the applicant will submit the following paper to the CCI & E through this nominated Bank.
a) Questionnaire duly filled in & signed by the applicant
b) Trade License
c) Membership certificate from chamber of commerce or any other trade Association
d) Nationality Certificate
e) Income tax registration certificate.
f) Partnership deed/certificate of registration with the register of join stock companies where applicable.
On being satisfied, the CCI & E issues IRC obtain original copy of treasury challan for payment of registration fee.
4.9 Preliminary Steps for Opening L/C
Before opening the L/C Bank will takes the subsequent steps:
1) Applicant to be Bank’s A/C Holder: Bank will open the L/C on behalf of an entity who has an account with the Bank. Unknown person will not be allowed to open L/C.
2) Registered importer: Before opening the L/C bank must confirm that the L/C applicant is a registered importer or personal user, and the IRC of the importer has been renewed for the current year.
3) Permissible item: The item to be imported must be permissible and not banned item. If the item is from conditional list, the condition must fulfill to import the same.
4) Market Report: Bank will verify the marketability of the item & market price of the goods. Some times the importer may misappropriate the Bank’s money through over invoicing.
5) Sufficient Security or margin: Price of some items fluctuates frequently. In case of those items Bank will be more careful to take sufficient cash margin or other security.
6) Business Establishment: Bank should not open an L/C on be half of a floating businessman. The importer must have business establishment, particularly he must have business network for marketing the item to be imported.
7) Restricted Country: Goods not to be imported from Israil.
8) Credit report of the beneficiary: It the amount of L/C in one item exceeds TK. 5.00 lac, suppliers credit report is mandatory. Bank will collect credit report of the beneficiary through its correspondent in abroad.
9) Application of the client to open the L/C: The client will approach to open the L/C in Bank’s prescribed form, duly stamped & signed, along with the following paper & documents: Such as
I. Indent / Performa invoice.
II. Insurance cover note with money receipt.
III. LCAF duly filled in & signed.
IV. Membership certificate form chamber of commerce / Trade Association.
V. Tax payment certificate / declaration.
VI. IMP & TM form signed by the importer
VII. Charge documents
VIII. IRC, Pass book, Trade license Membership certificate & VAT, registration certificate in case of new client.
IX. Export L/C in case of back-to-back L/C.
10) Permission From Ministry of Commerce: If the goods to be imported under CIF (cost insurance & freight), then permission form ministry of commerce to be obtained.
11) Creditability of the Client: In consideration of all the above points, if Bank become satisfied regarding the client then L/C may be ope3ned on behalf of the client. Before opening the L/C bank will issue & authenticate a set of LCAF in the name of the importer.
4.10 Presentation of the Documents
The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer. Them he has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank them checks the document against the credit. If the documents are found in order the bank will pay accept or negotiate to Bank. Then bank checks the documents. The usual documents are:
- Bill of lading
- Certificate of origin
- Packing List
- Shipping Advice
- Nor negotiable copy of bill of lading
- Bill of exchange
- Pre-shipment inspection report
- Shipment Certificate
4.11 Steps Involved in Import procedures:
- Procurement of IRC from the concerned authority
- Signing purchase contract with the seller
- Requesting the concerned bank (importer’s bank) to open an L/C on behalf of the importer favouring the exporter/seller/beneficiary.
- The issuing bank opens/issues the L/C in accordance with the instructions/request of the importer & request another bank(advising bank) located in sellers /exporter’s country to advice the L/C to the beneficiary. The issuing may also request the advising bank to confirm the credit, if necessary.
- The advising bank advises the seller that the L/C has been issued.
- As soon as the exporter /seller receives the L/C & is satisfied that he can meet L/C terms & conditions, he is in a position to make shipment of the goods.
- After making shipment of the goods in favour of the importer the exporter’s submit the documents to the negotiating bank for negotiation.
Wings of Foreign Exchange: Export
The export policy 1997-2002 has been formulated by the government to operate within imperative and opportunities of the market economy with a view to maximizing export growth and narrowing down the gap between import payment and export earning. As per existing Export Policy an Exporter can export any goods or services except the items listed as band and restricted in the said policy. Duration of present EPO-5 years effected from 1st July 1998, but valid till announcement of new policy.
Foreign Exchange Regulation Act, 1947 Clearly states that nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB. So a clear lawful procedure must be followed in case of export of goods & services.
5.2 Meaning of export
– Selling goods to foreign countries against of foreign currency.
– Export means lawfully carrying get of anything from one country to another country for sale. The import and export trade of the country is regulated by the IEC Act. 1950.
5.3 Export Policy
As per export policy order, 1997-2002 now in force an exporter can export any goods or services except the items listed as banned and restricted in the said policy.
5.3.1 Objectives of Export / Export Policy
Growth of national wealth, increase of production in export sectors, generation of employment & flow of capital and to achieve the growth of GDP target @7%.
5.3.2 Exporter Registration
An exporter must obtain Export Registration Certificate from the office of the Chief Controller of Import & Export (CCI & E). The procedure for obtaining Export Registration Certificate (ERC). Procedures for obtaining export registration certificate (ERC) from the CCI & E, the following documents are required:
1) Application as per format prescribed by CCI & E.
2) Bank Solvency Certificate.
3) Membership Certificate from a Chamber of Commerce.
4) Nationality certificate.
5) Partnership deed (Registered / Un-Registered) for partnership business concern.
6) Memorandum & Articles of Association & its incorporation certificate for public limited company.
7) Income Tax payment certificate (TIN)
8) Recent passport size photographs of the applicant.
9) Treasury chalan showing payment of fees for ERC.
5.3.3 Securing the order:
After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent. In this purpose the exporter may get help from:
- License officer
- Buyers local agent
- Export promotion organization
- Bangladesh Mission Abroad
- Chamber of Commerce(local & foreign)
- Trade fair etc
5.4 Classification of Export
i. Export under L/C: Exporters are allowed to export the commodity under irrevocable L/C, under this type of export, exporter will ship the goods as per terms of the credit and will get payment as per arrangement of the credit.
ii. A firm Contract/Consignment Basis Export:Exports are allowed against firm contract. As per contract, exporter will ship the goods and the buyer will make payment after selling the consignment.
iii. Export against Advance Payment:Sometimes exporter receives payment in advance. In that case AD should obtain a declaration from the exporter on the “Advance Receipt Voucher certifying the purpose of the remittance. Then the exporter will export the goods against the advance payment. Export section ABBL, New market Branch deals with two types of L/C that are as follows-
5.5 Back-to-back letter of credit
Back-to-back L/C is a secondary L/C (New Import L/C) opened by the seller’s bank based on the original L/C (Master L/C) to purchase the raw materials and accessories for manufacturing of the export product (s) required by the seller.
Under the ‘Back to Back’ concept, the seller as the Beneficiary of the master L/C offer it as a ‘security’ to the advising Bank for the issuance of the second L/C. The beneficiary of the Back-to-Back L/C may be located inside or outside the original beneficiary’s country. In case of a Bark-to-Back L/C, the bank takes no cash security (margin). Bank liens the Master L/C and the drawn bill is an Usance/ Time bill.
5.6 Export letter of credit
The other type of L/C facility offered by the bank is Export L/C. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and wove), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments Sector Is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its ready-made garments products to USA and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to USA.
5.6.1 Formalities Required for Export L/C
The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows –
A. EXPORT REGISTRATION CERTIFICATE (ERC):The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and other documents connected with exports.
B. THE EXP FORM:Foreign Exchange Regulation (FER) Act- 1947 prohibit export of any goods directly or indirectly to any place outside Bangladesh unless the exporter furnish a declaration to the effect that the export value of goods has been or will be repatriated into the country within a period time specified by the Bangladesh Bank. So, repatriation of export proceed is mandatory for all exported goods or services. Accordingly, before shipment of goods an exporter must declare on Export Form (Exp) prescribed by Bangladesh Bank and issued by the Authorized Dealer (Exporters Bank). The EXP Forms are numbered serially and issued in quadruplicate. For delay in repatriation of export proceeds or non-realization of export proceeds, the exporters render themselves for action under Foreign Exchange Regulation Act 1947. Authorized Dealers (AD) and their officials who certify the export forms also render themselves of such action by the Central bank. An EXP Form usually contains the following particulars –
i. Name and address of the Authorized Dealer;
ii. Particulars of the commodity to be exported with particulars and code no;
iii. Country of destination;
iv. Port of destination;
vi. L/C value in foreign currency;
vii. Terms of sale;
viii. Name and address of Importer/ Consignee;
ix. Bill of Lading/Railway Receipt/Airway Bill/Truck Receipt/Post Parcel Receipt no. and date;
x. Port of Shipment/Post Office of Dispatch;
xi Land custom post
xii. Shipment Date;
xiii. Name of the Exporter with address;
xiv. Registration number and date;
xv. Sector (public or private) under which the exporter fails.
C. SECURING THE ORDER:Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this.
D. SIGNING of THE CONTRACT:While making a contract, the following points are to be mentioned: a) Description of the goods;
b) Quantity of the commodity;
c) Price of the commodity;
d) Shipment; e) Insurance and marks;