UCBL: A Bank with a difference

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UCBL: A  Bank with a difference

1.1 Historical Background of the Bank:

UCB had sponsored by some dynamic and reputed entrepreneurs and eminent industrialists of the country. UCB started its operation in mid 1983 and has since been able to establish the large network of 84 branches as on 01 June 2008 among the first generation banks in the private sector.

With its firm commitment to the economic development of the country, the Bank has already made a distinct mark in the area of Private Sector Banking through personalized service, innovative practices, dynamic approach and efficient Management. The Bank, aiming to play a leading role in the economic activities of the country, is firmly engaged in the development of trade, commerce and industry thorough a creative credit policy.

The Bank has in its Management a combination of highly skilled and eminent bankers of the country of varied experience and expertise successfully led by Mr. M Shahjahan Bhuiyan, a dynamic banker, as its Managing Director and well educated young, energetic and dedicated officers working with eagerness for the growth and progress of the institution.

The present address of UCB register office is Federation Bhaban (4th through to 6th floor), 60, Motijheel Commercial Area, Dhaka-1000, Bangladesh, G.P.O Box: 2653, Cable: BANKOMMER and the chairman office is 59, Motijheel Commercial Area, Dhaka-1000, Bangladesh.

2.2 Registered address of UCBL:

United Commercial Bank Limited (Registered Name

Registered Head Office:

Federation Bhaban (4th through 6th floor)

60, Motijheel Commercial Area

Dhaka-1000, Bangladesh, G.P.O Box: 2653

Cable: BANKOMMER, Telex: 642733 UCBL BJ

Fax: 88-02-9560587

PABX: 88-02- 9555075-77, 88-02- 9568690-93

E-mail: info@ucbl.com

Web site: www.ucbl.com


Year of Incorporation: June 26, 1983.

Auditor: Howlader, Yunus & Co. Chartered Accountants

2.3 Vision:

To be the bank of 1st choice through maximizing value for our clients, shareholders and employees and contributing to the national economy with social commitments.

2.4 Mission:

· To become the leader in the industry attaining highest level of customer satisfaction with strong corporate culture and good governance.

· To maximize profit with steady growth ensuring major market share

· To engineer enterprise and creativity in business and industry with a commitment to social responsibility

· To introduce fully automated systems through integration of ICT.

· To maintain high moral and ethical standard and participative management

· To nurture an enabling environment where the innovativeness and performance is rewarded

· To develop and retain a quality workforce through effective HRM system

· To offer an array of products & services in the search for excellence and create an impressive economic value

2.5 Hierarchy Position of UCBL Bank:

2.6 Following are the Divisions operating in UCBL:

Audit Committee Establishment Division Information Technology Division
Administration Division Credit Division Card Division
Audit Committee International Division Legal Division
Board and Share Division Central Accounts Division Public Relation Division
Internal control and compliance Division & Recovery Division.

2.7 Key Function of UCBL:

Like other commercial banks UCBL performs all traditional banking business including introduction of a wide range of saving and credit products, retail banking and subsidiary service with the support of modern technology and professional management, but the UCBL emphasizes its function in export and import trade and financing of export oriented industries will enhance wealth, quotes more employment opportunities helps formation of capital and reduces in balance in the balance of payment in the country.

2.8 Customer Services and Automation:

To err is human and forgiveness divines” a proverb, the bank believes but the customers will not accept. Because for a service they pay for they want it 100% defect free. So improvement of the customer service should always be their motto.To operate in the globalize environment, the banks future plan is to equip all the units of the bank with the modern technology, such as online service, ATM service etc. for the service of the customer round the clock, UCB launched credit cards for their customers from April 2006.

2.9 Products & Services:

Deposit & Saving Account:

SL Name SL Name
1. Deposit:

o Demand Deposit

o Time Deposit

5. Monthly Savings Scheme

Ø Money Grower: (Monthly Savings Scheme)

2 Current Account 6. Saving Bank Account
3. Short Term Deposit (STD) 7. Fixed Deposit

Loan & Advances

SL Name SL Name SL Name
1 House Building Loan 8 Car Loan 15 PAD (Payment against document)
2 Project Loan 9 Auto Loan 16 F.B.P(foreign bill purchase)
3 Overdraft/Security overdraft 10 Transport Loan 17 L.B.P.D (local bill purchase & discount)
4 Credit Card 11 ILH (LIM)/ LTR 18 Packing Credit
5 Term Loan 12 L.B.P.D 19 Syndication Loan
6 Time Loan 13 Cash Credit 20 Any purpose Loan


SL Name The main instruments used by the UCBL of remittance of funds are
1 Inland Remittance Ø Payment order (PO).

Ø Demand Draft (DD).

Ø Telegraphic Transfer (TT).

2. Foreign Remittance


SL Name SL Name
1 Consumer Credit Scheme 5 Industrial Finance
2 Travellers Cheques 6 Working Capital Final
3 Underwriting and Bridge Financing 7 Locker Service
4 Deposit Pension Scheme Account 8 NFCD ( Non Resident Foreign Currency Deposit Account )

2.10 Financial Position of UCBL

2.10.1 Assets

The economic activities on the country as a whole wee positive and satisfactory during the year under report and the bank closed the year recording steady growth. At the end of the year 2008, total assets of the bank stood at 28812.594 million as against taka 25058.742million registering an increase of 14.98 percent.

The assets for last four (2005 to 2008) year are as below (taka in million):

Fig: 2.1: The assets for last four (2005 to 2008) years

The assets are gradually increasing, so it’s a good sign for the organization.

2.10.2 Capital and Reserves

During the year under report authorized capital of the bank remained unchanged at TK 1000 million and the paid-up capital stood at TK 230 million. The reserve fund of the bank increased by 33.46 percent to TK 1045 million against TK 783 million in the previous year. The reserves for the last five years (2004 to 2008) are as below (taka in million):

Fig-2.2: Reserves of the last five years (2004 to 2008)

2004 to 2005 changes little bit but from 2006 to 2008 over the time period degree of increases is significantly high.

2.10.3 Deposit

The deposit of the bank registered an increase of 17.115 percent in the year under review. At the close of 2008, Total deposit stood at TK 24559 million as against TK 20970 million in the previous year. Average deposit per branch stood at TK 306.9875 million in 2008 as against TK 262.125 million in the previous year. Deposits of last five years (2004 to2008) are shown below:

Fig-2.3: Deposits of last five years (2004 to2008)

Deposit of the bank is increasing significantly it good sign as well as increase liability

2.10.4 Credit

The bank continued its participation in different credit programs for financing new industrial projects, working capital, trade finance, international etc. consequently net credit rose to TK 20,211 million from Tk 15,385mollion of 2008. Average advance of per branch was 252.3675 million. Sector wise net advances during the year were as follows:-

2 DEMAND LOAN 3076.14
3 TERM LOAN (UP O 5 YEARS) 3222.64
4 TERM LOAN (OVER 5 YEAR) 1954.23
5 STAFF LOAN 250.11

Loans and advance of last five years (2004 to 2008) are given below:

Fig-2.4: Loans and advance of last five years (2004 to 2008)

2.10.5 Investment

At the close of 2005, total investment of the bank stood at TK 2877million s against TK 3020million in 2004.dividend amounting to Tk 1.48 million has been received from different companies/ institutions against investment in share during the year under report.

2.11 Company Analysis:

2.11.1 SWOT Analysis:

SWOT analysis refers to analysis of strengths, weaknesses, opportunities and threats of an organization. This facilitates the organization to make its future performance improved in comparison to its competitors. An organization can also study its current position through SWOT analysis. For all of these, SWOT analysis is considered as an important tool for making changes in the strategic management of an organization.


UCBL Bank is already well established in the banking industry of the country. It is one of the leading first generation private sector commercial banks in Bangladesh.

It has got significant image in the banking industry.

UCBL Bank has the reputation of being the provider of good quality services to its present and potential customers.

Excellent Management

High Commitment of Customer

Qualified and experienced Human Resource

Strong network.

Sophisticated Automated System

UCBL Bank has already achieved a high growth rate. Deposits as well as loans & advances are increasing rapidly.


1. Lack of motivation of work among some employees.

2. Heavily depended on Head Office for decision making.

3. Some of the job positions in the UCBL Bank have no growth or advancement path which brings job dissatisfaction among some employees.

4. The promotional activities of the Bank are not adequate to widen its market share.

5. UCBL Bank does not provide ATM card which limits its competence in the fast changing banking industry.

6. UCBL Bank has more redundant manpower compared to other banks of the same generation which increases its operational cost.


1. Increasing demand of customer finance.

2. Investment potential of Bangladesh.

3. Relationship Management.

4. A large portion of our population is middle class. Different types of retail lending products have a great appeal to this class. So, a wide variety of retail lending products has a very large and easily pregnable market. Thus, UCBL Bank can adopt variety scheme for retail lending.

5. Bank can introduce special corporate scheme for corporate customers or service holders according to the professions, such as engineers, lawyers, doctors etc.


1. Some commercial/ foreign as well as private bank.

2. Similar types of retail banking products.

3. Certain Bangladesh Bank rules and regulations.

4. Customer awareness of pricing and services.

5. Industries are becoming sick at an increasing rate and growth of industrialization is very slow in the country. Therefore, it is very likely that poor industrial growth will affect the potentiality of UCBL Bank.

2.11.2 Leverage:

Degree of operating Leverage (DOL) % changes in EBIT/ % changes in sales 0.34422/0.26075 1.32011
Financial leverage (DFL) EBIT/EBIT-I 1152/1152-150 1.149
Degree Total Leverage (DTL) DOL*DFL 1.32011*1.149 1.5168

Effect of Leverage:

Effect of operating Leverage: Since the degree of operating leverage is 1.32011 times, 26.07594937% increase in sales will result 1.32*26.075= 34.419 increases in EBIT.

Effect of Financial Leverage: since the degree of financial leverage is 1.149 times 34.419 % increase in EBIT will result in 1.149*34.419%=39.547431% increase in earning per share.

Degree of total Leverage: since the degree of total leverage is 1.5168%, 26.075% increases in sales resulted 1.149*26.075=39.547431% in earning per share.

2.11.3 Risk Analysis:

(Taka in Thousand)

2004 2005 2006 2007 2008 Average
Profit 175 154 416 626 852 4446
Standard Deviation 298.677

Comment: Risk is very low. For earning 1000 have to bear 298.6767 time risk

2.11.4 Ratio Analysis Percentage of current asset in total asset

Year 2004 2005 2006 2007 2008
Percentage of current asset in total asset 62.57% 61.50% 64.26% 66.35% 68.01%

Fig-2.5: Total assets to current assets ratio

In 2004 to 2005 ratio is decline, but from the 2005 the ratio is gradually increasing Percentage of cash in current asset

Year 2004 2005 2006 2007 2008
Percentage of cash in current asset 3.10% 6.29% 3.66% 5.02% 5.86%

Fig-2.6: Cash in current assets

In 2005 the ratio in pick but in 2006 it fall and the gradually increasing but still can not exceed 2005 ratio Percentage of advance & deposit in current asset

year 2004 2005 2006 2007 2008
Percentage of advance & deposit in current asset 20.11% 15.61% 12.25% 13.77% 14.12%

Fig-2.7: Percentage of advance & deposit in current asset

In 2004 it was 20% but after that it is decreasing up to 2006 then is stable over the time period. Percentage of trade debtor in current asset

Year 2004 2005 2006 2007 2008
Percentage of trade debtor in current asset 3.42% 2.62% 4.81% 6.43% 6.75%

Fig-2.8: Percentage of trade debtor in current asset

In 2004 to 2005 the ratio is decline but after that period it is gradually increasing over the time period. Percentage of stock in current asset

Year 2004 2005 2006 2007 2008
Percentage of stock in current asset 70.18% 78.66% 79.27% 74.42% 73.61%

Fig-2.9: Percentage of stock in current asset

In 2004 to 2006 the ratio is increasing but after then it is decline over the time period. Ratio of net working capital

Year 2004 2005 2006 2007 2008
Ratio of net working capital 1

Base year

.99 1.01 1.37 1.48

Fig2.10: Ratio of net working capital

In 2004 to 2006 the ratio is stable then it is increasing up to 2008 Current Asset ratio

Year 2004 2005 2006 2007 2008
Current ratio 1.30 1.25 1.24 1.32 1.34

Fig-2.11: Current asset ratio

Over the time period the ratio is moderately stable so it is good looking for an organization Current asset to fixed asset ratio

Year 2004 2005 2006 2007 2008
Current asset to fixed asset ratio 1.67 1.60 1.80 1.97 2.12

Fig-2.12: Current asset to fixed asset ratio

In 2004 to 2005 the ratio is slide decline but from 2005 to 2008 over the time period it is gradually increasing Return on total asset (ROA)

Year 2004 2005 2006 2007 2008
ROA 5.33% 4.70% 4.16% 4.10% 2.92%

Fig-2.13: Return on total asset (ROA)

In 2004 to 2008 over the time period the ratio is declining

2.12 Last Five year Profits

Table: 2.1 Profits Figures in million

Years 2004 2005 2006 2007 2008 Average Growth (%)
Operating Income(A) 1,040 1,027








Operating expenses(B) 537 572








Gross Profit (C) = A – B 503 454








Provisions for Loans and advances(D) 328 300








Net Profit

= C – D

175 154









Source: Annual Report, 2004–2008 & Auditor’s Report and Audited Financial Statements, 2008

From the above table it is observed that in year 2004 Operating income and gross profit is less compared to the previous year. It is also observed that bank had to make provision for a significant amount every year from 2004 – 2008 to reduce its bad loans. But it is decreasing from year 2004 which has come down to 231 million in years 2007. It has come also increase in 2005. Its present classified loan in 4.6%.

2.12.1 Income and profit:

Elements of operating income and operating expenses have been discussed earlier in the table of 4.5. Gross profit is the operating income less operating expenses. Net profit of the bank is gross profit less provisions for classified and unclassified loans & advances, diminution in the value of investment in shares and the provisions for tax.

Income, gross profit and net profit of the bank for different years are shown below:

Fig-2.14: Income, gross profit and net profit, 2004 – 2008

Over the time period the income , gross profit and net profit all are increasing so it is very good sign from the organization point of view as well as investors.

2.13 Last Five Years Position at a Glance

Table-2.2: Last Five Year Position (Figure in million)

Particulars 2004 2005 2006 2007 2008
Authorized Capital 1,000 1,000 1,000 1,000 1,000
Paid-up Capital 230 230 230 230 230
Reserve Fund 394 440 658 783 1,045
Deposits 14,246 16,417 17,413 20,970 24,559
Advances 10,942 11,826 14,396 15,385 20,211
Investments 1,962 3,962 3,022 3,020 2,877
Gross Income 1,727 1,766 2,197 2,554 3,188
Gross Expenditure 1,224 1,311 1,493 1,697 2,036
Net Profit(pre-tax) 175 155 417 626 852
Import Business 13,133 14,975 18,488 24,386 29,408
Export Business 5,309 5,621 7,492 10,470 14,785
Foreign Correspondents 193 256 295 322 329
Number of Employees 1,812 1,819 1,874 1,878 1,949
Number of Branches 79 80 80 80 80
Number of Shareholders 3,539 3,943 3,907 3,979 4,064

3.1 Definition of Foreign Exchange

Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to another country.

According to Mr. H. E. Evitt. Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country’s currency are converted into rights to wealth in terms of another country’s currency. It involved the investigation of the method by which the currency of one country is exchanged for that of another, the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchanges are effected. Foreign exchange is the rate of exchange in the both country’s currency.

3.2 Foreign Trade and Foreign Exchange

International trade refers to trade between the residents of two different countries.

Each country functions as a sovereign State with its set of regulations and currency. The difference in the national of the exporter and the importer presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising there from. Important among such problems are:

Different countries have different monetary units;

(b) Restrictions imposed by countries on import and export of goods;

(c) Restrictions imposed by nations on payment from and into their countries;

(d) Differences in legal practices in different countries.

Foreign exchange means foreign currency and includes:-

(i) All deposits, credits and balances payable in any foreign currency and any drafts,

travelers cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency;

(ii) Any instrument payable, at the option of the drawee or holder thereof or any other party thereto. Either in Indian currency or in foreign currency or partly in one and partly in the other. Thus, foreign exchange includes foreign currency; balances kept abroad and instruments payable in foreign currency.

3.3 Function of Foreign Exchange

The Bank actions as a media for the system of foreign exchange policy. For this reason, the employee who is related of the bank to foreign exchange, specially foreign business should have knowledge of these following functions :-

i) Rate of exchange.

ii) How the rate of exchange works.

iii) Forward and spot rate.

iv) Methods of quoting exchange rate.

v) Premium and discount.

vi) Risk of Exchange rate.

vii) Causes of exchange rate.

viii) Exchange control.

ix) Convertibility.

x) Exchange position.

xi) Intervention money.

xii) Foreign exchange transaction.

xiii) Foreign exchange trading.

xiv) Export and import letter of credit.

xv) Non-commercial letter of trade.

xvi) Financing of foreign trade.

xvii) Nature and function of foreign exchange market.

xviii) Rules and Regulation used in foreign trade.

xix) Exchange Arithmetic.

3.4 Area of Foreign Exchange:

Foreign exchange has three wings that are below

Ø Import

Ø Export

Ø Remittance

Description of these area are describe in details in the later chapter.

4.1 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.

The main objectives of the Import Policy:-

(a) to make the Import Policy Compatible with the changes in the world market that have occurred as a result of the introduction of market economy and signing of the GATT Agreement;

(b) to simplify the procedures for import of capital machinery and industrial raw materials with a view to promoting exports, and

(c) To ensure growth of the indigenous industry and availability of high quality goods to the consumers at a reasonable price.

4.2 Different Way of Import

Import License not required: No import license will be necessary for import primarily against cash foreign exchange.

Import against LCA Form: Unless otherwise specified, all imports transacted through a bank (L/Cs, bank drafts, remittance etc.) shall require LCA forms irrespective of the source of finance.

Import against L/C: Unless otherwise specified, import shall be made only by opening irrevocable letter of credit (L/C)

Import against LCA Form but without opening of Letter of Credit (L/C): Import against LCA Form may be allowed without opening of letters of credit in the following cases:

(a) Import of books, journals, magazines and periodicals on sight draft usance bill basis;

(b) Import of any permissible item for an amount not exceeding US Dollars Five thousand only during each financial year against remittance made from Bangladesh. However, consignment from Mayanmar shall be importable.

(c) Import under commodity aid, grant or such other loan for which there are specific procurement procedures for import of goods without opening any L/C;

(d) Import of “international chemical references” through Bank drafts by recognized pharmaceuticals (allopathic) industry on the approval of Director, Drugs Administrators for the purpose of quality control of their products.

Imports against Import and in special cases against Clearance Permit (for clearance of goods on payment of fine):

In the following cases, neither LCA Form nor opening of L/C will be necessary; but Import Permit (IP) or Clearance Permit (CP) will have to be obtained by the importer for

(a) Import of books, magazines, journals, periodicals and scientific and laboratory equipment against surrender of UNESCO Coupons;

(b) Import under Pay-As-You-Earn-Scheme in the following cases only on the basis of clearance of the Bangladesh Bank:

i. New or not exceeding twelve years old plant and machinery of permissible specification;

ii. New or not exceeding five years old motor cars;

iii. Cargo or passenger vessel of steel or wooden bodies, including refrigerated vessel of any capacity either new or not exceeding fifteen years old; but in case of ocean going ships. Old ship, not exceeding twenty years old shall be importable.

iv. Import of plant and machinery for export oriented industrial units with the clearance of the competent sanctioning authority, wherever necessary; and

v. Trawlers and other fishing vessels, either new or not exceeding twenty years old.

Import on Deferred Payment Basis or Against Supplier’s Credit: Subject to restriction and prohibitions contained in this order, import on deferred payment basis against suppliers. Credit may be allowed on the basis of procedure laid down by the Bangladesh Bank in this behalf.

Import against direct payment abroad: Only Bangladeshi national living abroad may send any importable item irrespective of value ceiling against direct payment abroad in the name of any Bangladeshi living in Bangladesh. The name and address of the consignee shall be mentioned in the import documents. For such import, no permission or import permit from the Import Control Authority shall be necessary.

Time limit for opening of L/C:Unless otherwise specified, for import under cash foreign exchange, letter of credit shall be opened by all importers within one hundred and fifty days from the date of its issue or from the date of its registration. The above time limit may be extended up to such time as deemed fit by the Chief Controller. For import under foreign aid/grant and barter/STA, L/C shall be opened within the limit as may be notified by the Chief Controller.

4.3 Procedures of Opening the Letter Of Credit (L/C):

The importer after receiving the proforma invoice from the exporter, by applying for the issue of a documentary credit, the importer request his Bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the short of commodity that can be traded on an organized market, such an arrangement would involve the bank in excessive risk outside specialist field. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount.

Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The applicant cannot prevent a bank from honoring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted.

4.4 Following step has to follow to open an L/C in the UCBL import department

4.4.1 Step one: Requirement of document before opening L/C or importer criteria

1. Open a Bank Account

To import goods & services the prospective importer requires a bank account, it may be current account or Short term deposit account (STD). Unknown person will not be allowed to open L/C.

To open a bank account following document have to submit

Trade license

Value added tax (VAT)

Tax identification number (TIN)

2. Import Registration Certificate (IRC)

3. Tax Identification Number (TIN)

4. Valid Trade License.

5. Chamber of commerce Certificate

6. National ID Card

The above document is required for applying L/C to the bank

4.4.2 Step Two: Bank will supply the following documents before opening of the L/C

i.LCAF form.

ii.Application and Agreement form.

iii.IMP form

iv.Charge documents for documentation.

The above documents / papers must be completed duly signed and filled in by the party according to the instruction of the banker.

4.4.3 Step Three: Document submit to open 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

  1. Application for opening of the L/C
  2. Indent / Performa invoice.
  3. Insurance cover note with money receipt.
  4. LCAF (letter of authorization form) duly filled in & signed.
  5. Membership certificate form chamber of commerce / Trade Association.
  6. Tax payment certificate / declaration.
  7. IMP form signed by the importer
  8. Charge documents
  9. IRC, Pass book, Trade license Membership certificate & VAT registration certificate in case of new client.

4.4.4 Step Four: Bank Verify about the Importer

Bank verifies or collects information about the importer in the following way

Credit Report: Bank collects credit report of the applicant (importer) from Credit Information Bureau (CIB) of Bangladesh bank.

Permissible item: The item to be imported must be permissible and not banned item. If the item is from conditional list, the condition must fulfil to import the same.

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.

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.

Business Establishment: Bank should not open an L/C on behalf of a floating businessman. The importer must have business establishment, particularly he must have business network for marketing the item to be imported.

Restricted Country: Goods are not to be imported from Israel.

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.

Creditability of the Client: In consideration of all the above points, if Bank becomes 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.

4.4.5 Step Five: Requirement of Head office Approval:

The AD branch upon receipt of same (document-step-4) from the applicant, sent proposal to head office for approval to open L/C. when head office give approval then AD branch can open L/C.

4.4.6 Step Six: Sent Document to Negotiating/Confirming Bank:

After getting the approval from the head office the AD branch open the L/C in favour of applicant and send it to the negotiating or confirming through SWIFT (society for world wide interbank financial telecommunication).

Authorized Dealer will scrutinize the documents and open the L/C infavour of the exporter by converting the Bangladesh Taka into foreign currency at the existing B.C selling rate of exchange. Care must be taken so that the limit of Bangladesh Taka is not exceeded in any way. The foreign currency value of the L/C must correspond the equivalent amount of Bangladesh Taka if LCA registered with Bangladesh Bank.

The Authorized Official of the Authorized Dealer will check the L/C very carefully and signed the same jointly and forward the 1st and 2nd copy to their foreign correspondent situated at the nearest place of the exporter. Thus Bank is known as Advising Bank. On receipt of the L/C the Advising Bank after verification of the duplicate copy at their end.

On getting the L/C the exporter prepares the goods and ship the same as per instruction of the L/C and obtain a Bill or Lading from the shipping Authority. The exporter will prepare bill of exchange, Invoice and other documents as specified in the L/C and submits the same along with the original copy L/C to his bank within the time mentioned in the L/C. The Bank with whom the exporter submits the documents is known as Negotiating Bank as this negotiates the documents i.e. make payment to the exporters.

The negotiating bank will scrutinize the documents with terms and conditions of the L/C very carefully. If every thing is in order the bank will make payment of the amount of L/C to exporter in their local currency by debiting to their own account. Subsequently the negotiating bank will claim the L/C with whom the Head Office of L/C opening bank maintained foreign currency amount.

This is known as Reimbursing Bank. Reimbursing Bank will make payment to the negotiating bank by debit to L/C opening Bank’s Head Office A/C. Simultaneously the negotiating bank will forward all the documents submitted by the exporter to the L/C opening bank as per instruction of the L/C. The date of forwarding letter of negotiating bank should be date of negotiation of documents.

On receipt of the shipping documents from the negotiating bank, the L/C opening bank will carefully scrutinize the documents with terms and conditions of the relative L/C. If there is no discrepancy, the documents will be lodged. Lodgment of documents means the entry of the particulars of the documents in the Register and preparation of vouchers by converting the foreign currency amount into Bangladesh Taka as the exchange rate prevailing on that date. This amount is due to the importer. The importer will be asked to take delivery documents by making payment of the bill amount excluding the margin deposited at the time of opening L/C. Payment of bill amount and to take delivery of documents by the importers is known as Retirement of Import Bills.

After taking delivery of documents from the L/C opening bank, the importer will clear the goods which has already been arrived or due to arrive from the customs authority on submission of these documents along with the custom purpose copy of LCA From.

4.5 Documentary Letter Of Credit (Import/Export Documentation)

Documentary letter of credit is such kinds of commercial letter which a Bank issue on behalf of foreign seller (exporter) according to the direction of the (importers) purchasers. The documents shown under are known as export documents form the importer’s side. These are:-

The exporter submits the following papers/documents to the Negotiating bank:

i) Bill of exchange / Draft.

ii) Bill of lading.

iii) Airway bill / Railway receipt.

iv) Commercial Invoice.

v) Insurance policy.

vi) Certificate of Origin.

vii) Packing list.

viii) Weightment & measurement list.

(i) Bill Of Exchange: The bill of exchange is that particular instrument through which payment is effected in trade deals internal and international. The payment for the goods is received by the seller through the medium of a bill of exchange drawn on the buyer for the amount depending on the contract. It is a negotiable instrument. There are five main parties involved in a bill of exchange. They are:

(a) Drawer (b) Drawee (c) Payee (d) Endorser (e) Endorsee

(ii) Bill of lading: A bill lading is a document of title to goods entitling the holder to receive the goods as beneficiary or endorsee and it is with the help of this document on receipt from the exporter that the importer takes possession of the goods from the carrying vessel at the port of destination.

(iii) Airway bill / Railway receipt: When goods to be transported are small in bulk or requiring speedy delivery or those are perishable in nature on the deal is in between the neighboring countries then mode of transports other than shipping may be resorted to far the carriage of the goods Airways bill / Railway receipt take place of Bill of lading depending on the nature of the carrier.

(iv) Commercial Invoice: It is the seller’s bill for the merchandise. It contains a description of goods, the price per unit at a particular location, total value of the goods, packing specifications, terms of sale, letter of credit, bill of lading number etc. There is no standard form far a commercial invoice. Each exporter designs his own commercial invoice form. The invoice is made out by the seller under his signature in the name of the buyer and must be submitted in a set of at least 3 copies. Its main purpose is to check whether the appropriate goods have been shipped and also that their unit price, total value, marking on the package etc. are consistent with those given in other documents.

(v) Insurance Policy: In the international trade insurance policy is a must to cover the risk of loss on consignments while they are on seas, roads, airways. The insurance is the responsibility of the buyers (consignee) under FAS, FOB and C&F contracts and of the seller (consignor) under CIF contract. The policy must be of the type as specified in the relative contract / credit. The policy would be for the value of CIF price plus 10 (ten) percent to cover the expenses and that is required to be obtained in the same currency as that of the credit and dated not later than the date of shipment with claims* being payable at the destination. It must be properly stamped. Like a bill lading it must be negotiable and be endorsed where it is payable to order.

(vi) Certificate of Origin: This is a certificate issued by a recognized authority in exporting country certifying the country of origin of the goods. It is usually by the Chambers of commerce. Some times, it is certified by local consul or Trade Representative of the importing country as per terms of the credit.

(vii) Packing list: The exporter must prepare an accurate packing list showing item by item, the contents of the consignment to enable the receiver of the shipment to check the contents of the goods, number and marks of the package, quality, per package net weight, gross weight, measurement etc.

(viii) Weightment and Measurement: Issued by recognized authority (like chambers of commerce and industry) in exporting country certifying correct weightment and measurement of the goods exported.

(ix) Bill of entry: A bill of entry is documents which contain the particulars of the imported goods as well as the amount of customs duty payable.

The negotiating bank after received the above documents / papers then this bank scrutiny the documents. The negotiating bank sends the original shipping documents to the L/C opening bank and keeping the second copy with the negotiating bank.

4.6 Letter of Credits how it operates

In the aforementioned discussion it is quite clear that documentation of a LC is very important as the banks don’t deal with the physical commodity rather they deal with some particular documents. Throughout the transaction period bank deals with these documents. Hence maintain documents in a proper manner is must increase of international trade.

The graph below can give us an overall picture of a Letter of Credit process (Both Import and Export LC)

As my concerning bank is United Commercial Bank Limited here I am going to discuss the L/C operation from the viewpoint of United Commercial Bank Limited. International shipping isn’t as simple as putting something in a box and affixing a stamp on it. For million-dollar freights that affect the fortunes of businesses worldwide, a number of logistical procedures via letters of credit (LC) provide a sense of security and safety.

5.1 Desk Work of UCBL Officer In Case Of Import:

Ø One debit voucher to be passed.

Ø Corresponding credit voucher to be passed (Margin, commission, postage, stamp, SWIFT and others).

Ø Liability voucher to be passed.

When Open L/C, Following Accounting Treatment Are Require

Accounting treatment:

L/C Applicants A/C or Customer’s A/C Dr.
Margin A/C Cr.
Commission A/C Cr.
Postage A/C Cr.
Stamp A/C Cr.
SWIFT charge A/C Cr.
Other A/C Cr.
Customer’s liability A/C Dr.
Banker’s liability A/C Cr.

Ø Commission: 15% of the L/C value

Ø VAT: commission*15%

Ø SWIFT: Determine by head office, normally 3000tk in UCBL.

Ø LCAF fees 300tk

5.2 Lodgements and Retirement of Import Bills

5.2.1 Lodgement Of Import Bill:

The documentary letter of credit (L/C) constitutes of the important methods of financing trade. Because of the phenomenal growth in world trade and commodity wise diversification of trade its importance has significantly increased.

On receipt of the documents from the negotiating Bank, the L/C opening bank will make entry the particulars of the documents into Inward Foreign Bill Register and prepare the voucher by converting the foreign currency into Bangladesh Taka. This stage is known as lodgment of import bills.

The full sets of documents which are submitted by the exporter to his bank as per terms and conditions of the L/C are known as shipping documents. The L/C opening bank may receive these shipping documents from his foreign correspondent (Bank) in two ways.

i) Documents on collections basis.

ii) Negotiated Documents.

i) Documents on collection Basis: The shipping documents which are not negotiable by the exporter’s bank due to some discrepancies will be sent to L/C opening bank on collection basis. The collection bank (exporter’s bank) will mention the discrepancies on their forwarding schedule.

On receiving the documents the L/C opening bank will further scrutinize the documents with the L/C and inform the importer regarding discrepancies found in the documents. If these are acceptable to the importer and or permissible with the existing exchange control Regulation, the documents will be lodged and L/C opening bank will send the payment instruction to the collecting bank.

ii) Negotiated Documents: The documents which have already been negotiated i.e. the exporter’s bank (this bank is known as negotiating bank) has made payment to the exporter against the documents submitted by him may be termed as negotiated documents. Generally these documents are free from discrepancies. Though these documents are supp