Loan in related to letter of credit (foreign exchange department)
Advances allowed for retirement of shipping document and release of goods imported through L/C taking effective control over the goods by the pledge in go down under banks lock and key fall under this type of advance. This is also temporary advance connected with import that is known post-import finance falls under the category ‘commercial lending’.
Advances allowed for retirement of shipping documents and release of goods imported through L/C without effective control over goods delivered to the customers fall under this head. The goods are handed over the import under trust with the arrangement that sales proceed should be deposited to liquidate to liquidate the advances within a given period. This is also temporary advance connected with import that is known post-import finance and falls under the category ‘commercial lending’.
Payment made through purchase of inland bills/cheques to meet urgent requirements of the customer’ falls under this type of credit facility. This temporary advance is adjustable from the proceed of bill/cheques purchase for collection. Its falls under the category ‘commercial lending’.
Payment made to party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of the negotiable shipping/export documents. It falls under the category ‘Export Credit’.
Payment made to a party through purchase of local documentary bills fall under this head. This temporary liability is adjustable from proceeds of the bill.
Inland/foreign Bill Purchase
The bank authority sanctions loan against cheeks or bill of exchange etc. if the client needs money immediately but the receivable date of the securities requires to be delayed at the moment, client can loan from the bank by showing the securities. The margin of the loan depends on maturity of security.
The exporter pays the payment of the imported goods on behalf of the importer through a bank guarantee. If the importer fails to make the fulfill payment at the moment the bank will remain liable to the exporter until and unless the importer pays the money of the imported goods. This type of guarantee also is needed to attend in any tender. The interest rate of this kind of guarantee is 15% quarterly.
Loan against Trust Receive
Two different types of LTR is issued to cover the following area of credit lines
- Letter of trust receive (for release of shipping documents)
- Letter of trust receive (for pre-shipment finance)
Overview of the Industry
Overview Of The Industry
Banking Sector of Bangladesh
The march 1971 Bangladesh was a part of Pakistan knows as East Pakistan. A nine- month liberation war results in the creation of Bangladesh on 16 December 1971. At the end of the liberation war, the banking sector of Bangladesh was in total disarray. With the exception of two local banks incorporated in the East Pakistan, all the bigger local banks became in operational. Liberation war left these banks divided and without any corporate offices to guide them as their Head Offices was located outside Bangladesh territory. The overseas banking relationships of these banks were also shattered under such situation. Two local banks and a few branches of the then Pakistani banks were functioning in the country. Starting with such a humble and chaotic condition, the Banking Sector of Bangladesh has grown to a great extent.
List of above 49 Banks & 28 non-bank financial institutions is given in Annexure-A.
Major Indicators of the Banking Sector of Bangladesh as on 31.12.2004
Amount in Million Taka (USD$1=58.80)
|Indicators||All Banks||Islamic Banks||Share of IslamicBanks (%)|
|Number of Banking Branches||6,228||265||4.25|
|Deposits( Excluding inert-bank)|
|a) Total Deposits:||1,000,026||88,194||8.82|
|b) Number of Accounts:||31,002,627||2,059,213||6.64|
|Advances (Excluding inter-bank)|
|b) Number of Accounts||7,599,515||221,012||2.90|
Deposits of Islamic Banks stood at TK. 132,170 Million and Credit (Investment) rose to TK. 104,294 million as on 31.12.
Islamic Banking System of Bangladesh
The banking system of Bangladesh is composed of a variety of banks working as Nationalized Commercial Banks (NCBs), Private Banks, Foreign Banks, Specialized Banks and Development Banks. However, 28 out of 50 banks in Bangladesh are private, of which only 5, namely Islamic Bank Bangladesh Limited, ICB Islamic Bank Bangladesh Limited, Standard Bank Bangladesh ltd, Al-Arafah Islami Bank Limited, Social Investment Bank Limited have been operating as Islamic bank. Bangladesh inherited an interest based banking system right from the British Council period and employment of the Muslims in banks was more or less restricted. During the period 1947-1971 when country was a part of Pakistan, banking of course came under Muslim control but the system did not changed (M.A.Haque, 1994). Though Pakistan was created in the name of Islam, the rulers did not take any practical attempt to establish economic system based on Islamic Principles. Since independence, Bangladesh saw a new trend in banking both at home and abroad. Islamic banking successfully operated in Egypt. After the Mit Ghamar Model, Naser Social Bank was in the process of establishment. During the seventies, Islamic Development Bank (IDB) at the international level and a number of Islamic banks at national levels were established in the Muslim world. At home, some entrepreneurs were actively
Working for introduction of Islamic banking. Two professional bodies “Islamic Economics Research Bureau” (IERB) and “Bangladesh Islamic Bankers Association” (BIBA) were taking practical steps for imparting training on Islamic Economics and banking to a group of bankers and arranged some national and international seminars/workshops to mobilize local and foreign people investors. Their professional and right-thought activities were streamlined by a number of enthusiastic businessmen in Bangladesh. They concentrated mainly in mobilizing equity capital for the prospective Islamic bank. Due to continuous and dedicated work of the above groups and individuals and active support from the Government, Islamic banking could be established in early eighties.
Monetary Policy and Islamic Banking in Bangladesh
The central bank has the sole authority to issue currency and manage the liquidity of the economy. Among others, the objective of the monetary policy is to ensure stability of the value of Taka and regulate the banking system prudently. As a central bank, Bangladesh Bank was not aloof from the ongoing changes in the world financial system. Bangladesh Bank had issued license in 1983 for establishment of the first Islamic bank in Bangladesh. The Bangladesh Government had participated in establishing the Bank, by subscribing five per-cent shares in the paid up capital. Considering lack of Islamic financial markets and instruments or products in the country, Bangladesh Bank had granted some preferential provisions for smooth development of Islamic banking in Bangladesh. Among the preferential provisions, the following are important.
- Islamic banks in Bangladesh have been allowed to maintain their Statutory Liquidity Requirement (SLR) at10% of the total deposit liabilities while it is 20% for the conventional banks. This provision had facilitated the Islamic banks to hold more liquid funds for more investment and thereby generate more profit.
- Under indirect monetary policy regime, Islamic banks were allowed to fix up their profit-sharing ratios and mark-ups independently commensurate with their own policy and banking environment. This freedom in fixing PLS ratios and Mark-up rates had provided scope for the Islamic banks to follow the Shariah principles independently for realizing goals of Islamic Shariah.
Industry analysis builds on customer & competitor analyses to make more strategic judgment about a market & its dynamics. One primary objective of industry analysis is to determine the attractiveness of a market to current & potential participants. A second objective of a market analysis is to understand the dynamics of the market.
The need is to identify the key emerging factors, trends & threats, opportunities & strategic uncertainties that can guide information gathering & analysis.
Porter’s approach can be applied to an industry, but it can also be applied to a market or sub-market within the industry. The basic idea is that the attractiveness of an industry or market as measured by the long-term return investment of the average firm depends largely on five factors.
A complete understanding of the competitive area helps to guide strategy design & implementation.
Porter’s Five Forces at Standard Bank:
Rivalry among existing competitors
The rivalry among the competitors and the growth in the industry depends upon the intensity of competition. A high amount of competition is observed in the banking sector of Bangladesh. There are more than 50 commercial banks in Bangladesh that fight for there own share of the market. The national banks have the highest banking network in Bangladesh. They compete against the banks with their low cost of operation and government support. Again, Standard Chartered bank is the largest multinational banking network in Bangladesh that has its network in many metropolitans of Bangladesh. There are other international banks that also take part in the competition and are aggressive in nature. This high intensity of competition makes companies difficult to sustain in the long run.
Threat of new entrants
The next force highlights the possibility of new competitors entering the market. Existing firms may try to discourage new competition by aggressive expansion & other types of entry barriers. The banking sector of Bangladesh seriously faces the threat of new entrants. However the threat comes from two directions. The first threat comes with the arrival of the multinational banks and her branch expansion particularly due to the booming energy sector. Secondly, the continuous entry of local banks with lower cost structure also poses a severe threat to this industry.
In the context of STANDARD BANK the various new & upcoming Banks pose a significant threat, being new entrants in the banking sector of Bangladesh. But STANDARD BANK is aware of these potential competitors and is trying to expand countrywide to make the sector unattractive & to create entry barrier.
Threat of substitute products
This force considers the potential impact of substitutes. New products that satisfy the same customer needs are important sources of competition including alternative products in the definition of product market structure identify substitute forms of competition.
STANDARD BANK continuously faces the threat of various substitute products launched by its strong competitors in the market place. For example, the launch hajj prokalpa of IBBL poses a strong threat on STANDARD BANK’s premium customer group and STANDARD BANK is at a condition where it should launch an even better product. More over the various consumer credit schemes offered by various local banks with lower interest rates and cost also pose a strong threat on the STANDARD BANK personal banking products. Again the lower service charge at national banks also discourages a wide group of customers to hold account in STANDARD BANK. These are some of the threats posed by substitute products in the market place.
Bargaining power of suppliers
The fourth force is the power of suppliers that may have impact on the producers in an industry. Companies may pursue vertical integration strategies to reduce the bargaining power of suppliers.
In the context of STANDARD BANK, suppliers are those customers and organizations that provide financing to the firm via depository schemes. If the cost of financing rises, then STANDARD BANK will have to increase the interest rate that it charges to its customer in order to remain in the business. This may result in severe customer dissatisfaction & as a result poor profitability. STANDARD BANK is aware of this devastating situation.
Bargaining power of buyers
Finally, buyers may use their purchasing power to influence the producers or service providers. Understanding which organizations have power & influence in the distribution channel provides important insight into the structure of competition.
In the banking sector of Bangladesh, customers have a strong bargaining power since there a large number of commercial banks providing similar services. Customers have a wide range of options in deciding where to bank. They can either go for the Multinationals or turn to new local banks for getting quality service. Others may also consider the national banks for large credit facilities. Therefore banks have to pursue the customers with attractive interest rates and provide them with tailor made customized services in order to attract the customer or hunt depositors.
In the context of STANDARD BANK, the firm is more or less free from the scope of the bargaining power of the buyers. STANDARD BANK has its own policies to carry out its operations & employees follow those rules to deal with the customers. But too much rigidity of the prevailing policies when to deal with the clients may under cut its client base as well as profitability. To overcome this worst scenario – a positive & personalized approach to the needs of customer – has become STANDARD BANK’S motto.
SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.
- Standard Bank Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector.
- Standard Bank has provided its banking service with a top leadership and management position. The Board of Directors headed by its Chairman Mr. Kazi Akram Uddin Ahamed is a skilled person in business world. Mr. Kamal Mostafa Chowdhury as the Managing Director of the bank management team. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank.
- Standard Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in from 2004-2007. The number of deposits and the loans and advances are also increasing rapidly.
- Standard Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees.
- Standard Bank has the reputation of being the provider of good quality services to its, potential customers.
- The bank failed to provide a strong quality-recruitment policy in the lower level position. As a result executives have to face some problems. And it has also become a de-motivating factor for the officers.
- Some of the job in Standard Bank has no growth or advancement path. Therefore, lack of motivation exists in persons filling those positions.
- In terms of promotional sector, Standard Bank has to more emphasize on that. They have to follow aggressive marketing campaign. Standard Bank does not have a specified sales team. The sales of the products are based on the officers’ activity. Like every officer of Panthapath branch has to sale at least three credit cards within December, 2008.
- Another weakness of Standard Bank is its online banking system. Standard Bank is steel using PC BANK for its online service. It is a back dated software. There are many options that cannot be done with this software. A big financial organization like Standard Bank’s every branch should be under online service and every account should be online account like multinational banks but it is not like that.
- Banking sector is steel a growing sector so there are lots of opportunities waiting for a bank like Standard Bank. Standard Bank has already taken one step for getting the opportunity of merchant banking section.
- There is only 6 Shariah Based Bank in Bangladesh. And of those Standard Bank has done very good and it is obvious that Shariah based banking system is getting popularity day by day.
- Opportunity in retail banking lies in the fact that the country has increased population is gradually learning to adopt consumer finance. The bulk of our population is middle class. Different types of retail lending products have great appeal to this class. So a wide variety of retail lending products has a very large and easily pregnable market.
- All sustain multinational banks and upcoming foreign, private banks posse’s enormous threats to Standard Bank Limited. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slough of foreign the banks.
- The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. Because, default risk leads the organization towards bankrupt. Standard Bank has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.
- The low compensation package of the employees from mid level to lower level position threats the employee motivation. As a result, good quality employees leave the organization and it effects the organization as a whole.
Problems of Standard Bank:
General Banking department
- In general banking department they follow the traditional banking system. The entire general banking procedure is not fully computerized.
- Though they are using Data Base Networking in Information Technology (IT) Department and transferring data from branch to head office via internet but for back-up they are using floppy disks, which is not up-do-date. Because a floppy disk costs 20 taka and it can be used highest for 15 days. That means floppy disk cost about 600 taka per year but if they use a flash drive that will cut the cost and a flash drive can be used for years after years.
- According to some clients, opinion introducer is one of the problems to open an account. If a person who is new of the city wants to open account, it is a problem for him/her to arrange an introducer of SB or CD accounts holder.
Loans and Advances Department:
- CIB report is not readily available from Bangladesh Bank.
- Standard Bank doesn’t give their attention on advertisement. As a competition market, it is too much important for any organization to increasing their advertisements procedure.
- Standard Bank does not have any specified sales team.
Human Resource Department:
- The salary structure is not so lucrative compare to other local banks of same standard. That can de-motivate employees.
- There is a huge problem in the lower part of the chain of command in Standard Bank, which also de-motivates the mid level employees.
Upcoming Operations & Operation
Rather then Banking
Operations: Rather than Banking
Standard Bank Foundation & Social Contribution
The Bank has established a foundation named “Standard Bank Foundation”, which is a charitable organization, solely dedicated to the welfare of the helpless and downtrodden people of the society. A certain portion of the operating profit of the Bank is usually provided in the foundation. The bank has actively participated in social, humanitarian activities for wel being of distress people at home and abroad through this foundation. The welfare activities of Standard Bank Foundation are as follows:
- Income generating Programs
- Education Health and
- Medicare Programs
- Humanitarian Help Programs
- Assistance for Natural Calamities
- Affected people and
However, since its inception, the bank has extended its helping hands towards social responsibilities to meet the demand of the society in so far from time to time. The Bank continues its sponsorship in various social, cultural & sports programmes, which include Handbal tournament, AUB Debate Competition & other extracurricular activities of various educational institutions. We have donated funds to AhsaniaMissionCancerHospital, Tornado torn people of Netrokona district, Tsunami victims & earth quake affected people of Kashmir and distribution of blankets among the cold affected people of northern districts. Besides, the bank has already taken necessary initiatives to establish hospital, educational & cultural institutions in days coming ahead.
Human Resources and Training:
Amongst all the factors that combine to contribute towards the success of an organization, none counts as much as people. Export Import Bank of Bangladesh Limited believes it in later and spirit. As such in order to select right type of people the bank is maintaining a very transparent and neutral modus operandi as regards recruitments. Recruitments are usually done through open invitation of applications by advertisement in the national dailies. Candidates are required to go through stringent examinations and tests some of which are conducted by the Institute of Business Administration of Dhaka University. Doors of appointment are kept open for the graduates/postgraduates of all disciplines from all kinds of universities Public, Private and NationalUniversities. As such all eligible boys and girls from all discipline and education institutions are getting equal opportunity to have a job in our bank resulting which composition of employees are from all parts of the country and from diversified disciplines, which is a great strength of Standard Bank.
An organization functions well when it simply harnesses the capabilities of its workforce, but it functions better when it ventures to give birth what its workforce potential y is and then goes for realizing its progress. With this view Export Import Bank of Bangladesh Ltd. established its own training centre named Standard Bank Training Institute at Eskaton on 1 November 2003. By 31 December 2005 the institute imparted useful training to 220 personnel in different training programs and workshops where eminent bankers, economists, academicians, researchers and other resource persons were invited to deliver lectures. Besides, our personnel are sent to Bangladesh Bank Training Academy, Bangladesh Institute of Bank Management, Bangladesh Foreign Exchange Dealers Association, and the Central Shariah Board for Islamic Banks of Bangladesh for training on regular basis. In 2005 a total number of 279 personnel were trained in different institutes at home whereas 16 personnel were sent abroad to at end overseas training programs on a wide array of subjects.
A good organization makes sure that it itself and the people who work for it succeed together, and the Human Resources Division’s Exim concern is the success of the people who work for the organization. Exim Human Resources Division is in constant pursuit of providing for the optimum benefits and career support to its personnel through scores of mechanisms it has fashioned Standard Bank Recreation and Welfare Centre, Standard Bank Foundation, the Library at the Training Institute, Best Performance Awards and so on. This year sixty-five executives and officers have been awarded gold medals in recognition to their extraordinary performance during the year 2005. Exim Bank believes that it is the human resources that underlie all success of the organization and it will reach still higher goals capitalizing the prowess of its human resources.
5.2 Merchant Banking
Having been licensed by the Securities and Exchange Commission, the Bank is going ahead to expand its product horizon by offering Merchant Banking Service to the Customers. The Bank has come out with a diverse range of portfolio investment products, suiting customer investment needs and providing prompt advices & solutions to capital Market business problems. The whole process is meant for the customers’ benefit mostly. Simultaneously this will accelerate the business growth in the country’s Capital Market and boost up the profitability of the Bank.
The Bank has introduced cobranded local MasterCard credit card with Standard Bank. It gives freedom to its holders to pay for goods and services without the hassle of carrying cash. The card is accepted at shops, restaurants, well reputed hotels, airlines and travel agents, department stores, hospitals and diagnostic centers, practical y any outlet in Bangladesh displaying the MasterCard logo. The Card holders can withdraw cash from any of the branches of Exim Bank during working hours and/or at any ATMs in Bangladesh displaying the MasterCard logo round the clock. Any bona fide citizen of Bangladesh can enjoy benefit of this card by meeting some convenient terms and conditions set for the customers. However, introduction of Visa Card both local & international is under process.
Automation in Standard Bank
In today’s global business scenario, particularly in banking sector, technology plays a vital role in executing all sorts of customer friendly banking operations with cost efficient services. Technology has become an aide of necessity rather than option in financial institution(s).
Keeping this in view, the bank has already computerized all of its Branches from day one of its opening. However, under a comprehensive strategy of 3 phase state of the art automation program, the Bank, in its first phase, has connected all the branches in a Wide Area Network using VSAT and optical fiber connections for providing any branch banking services to its valued customers and the customers are enjoying any branch banking facility.
In second phase, procurement of a centralized Shariah based Islamic banking software is going on which is expected to be completed by this year and the tenure of the 2nd phase is scheduled to be completed within the year 2007.
In 3rd phase, incorporation of different electronic delivery channels like ATM, POS, Internet banking, mobile banking etc. will be done in the year 2008. After completion of the 3rd phase, the bank is expected to become a paperless banking organization centralizing its information collection, processing, storage and dissemination with a Exim objective to provide cost effective banking service for maximizing the customers’ satisfaction through state of the art technology.
The Project Part Retail Banking & Foreign Exchange Mechanism of Standard Bank
Performance Evaluation of
Foreign Exchange mechanism
Of Standard Bank
Foreign Exchange Department of Standard Bank:
Foreign exchange is an important department of Standard Bank Limited, which deals with import export and foreign remittances. Foreign Exchange is an International Department of the Bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. This department mainly deals in foreign currency. That’s why it is called foreign exchange department.
This department is playing an important role in enhancing export earning, which aids economic growth and in turn it helps for the economic development. On the other hand, it also helps to meet those goods and service, which are most demandable and not adequate in our country.
Functions of Foreign Exchange Department (Flow charts)
The bank, which is authorized by Bangladesh bank for dealing foreign exchange business on transaction under the FER Act, 1947 is called Authorized Dealership. In Standard Bank- limited foreign exchange is divided in to three parts according to the major activities:
• Import oriented foreign exchange activities.
• Export oriented foreign exchange activities.
• Foreign Remittance Operation.
The function of this section is mainly to deal with various components such as:
• Letter of Credit (L/C)
• Payment against Document (PAD)
• Payment against Trust Receipt (PATR)
• Loan against Imported Merchandise (LIM)
There arc a number of formalities, which on Importer has to fulfill before import goods. These formalities are explained bellow –
Import Registration Certificate (IRC):
The first thing one need to carry on a business of import is called Import Registration Certificate. But registration is not required for import goods, which do not involved remittance of foreign exchange like medicine; reading materials etc. can be imported without registration by the users within monetary limit. Documents to be required for Import Registration Certificate are as follows:
• Income Registration Certificate
• Nationality Certificate
• Certificate from Chambers of Commerce and Industry Registered “Trade
• Bank Solvency Certificate
• Copy of Trade License
• Requisite fees
On receiving application, the respective CCI&E officer will scrutinize the documents and conduct physical verification and issue demand note to the prospective importers to furnish the following papers through their nominated Bank
|v Original copy of treasury deposited as IRC feesv Assets Certificatev Rent receipt|
v Affidavit from 1st class Magistrate Two passport size photograph
|v Partnership deed in case of partnership firmsv Certificate of Registration, Memorandum and Articles of Association in ease of Limited Company.|
After scrutinizing and verifying, the nominated Bank mill forward the CCI&E office with forwarding schedule in duplicate through Banks representative. CCI&E then, Issue Import Registration Certificate to the Applicant.
Function of Import Section
The form IMF contains the followings-
• Name and address of the Authorized dealers.
• Amount of remittance to be permitted (I e. /C amount)
• LCA form no. Date and value in Taka.
• Description of goods.
• Invoice value in foreign currency, (I e. /C amount)
• Country of origin.
• Port of shipment.
• Name of steamer / Airline
• Port of importation.
• Indenter’s name and address.
• Indenter s registration number with CCI & E and Bangladesh Bank.
• Full name and address of the applicant.
• Registration number of the applicant with CCI & E.
• Type of LCAF
The procedures, which follows at the time of Import arc as follow –
- The buyer and the seller conclude a sale contract provided for payment by documentary credit.
- The buyer instructs his Bank (the issuing Bank) to issue a credit in favor of the seller / Exporter / Beneficiary.
- The Issuing Bank then send message to another Bank (Advising Bank/Confirming Bank) usually situated in the country of seller, advice or confirms the Credit Issue.
- The Advising / confirming Bank then informs the seller through his Bank that the Credit has been issued.
- As soon as the seller receives the credit, if the credits satisfy him the he can reply that, he can meet its terms and conditions, he is in position to load the goods and dispatch them.
- The seller then sends the documents evidencing the shipment to the „! Bank where the Credit is available (nominated Bank). This can be the ‘” issuing Bank or Confirming Bank: Bank named in the Credit as the paying, accepting and Negotiating Bank.
- The Bank then checks the documents against the credit. If the documents meet the requirements of the credit, the Bank then pay accept or negotiate according to the terms of credit. In the case of credit available by negotiation. Issuing Bank will negotiate with recourse. The Bank, if other then the issuing bank, sends the documents to the issuing Bank.
- The issuing Bank checks the document and if they found that the document has meet the credit requirements, they realize to the buyer upon payment of the amount due or other terms agreed between him and the issuing Bank.
- The buyer sends transport documents to the carrier who will then proceed to deliver the goods.
An importer is required to have the followings to import through the bank;
- A bank account in the bank.
- Import Registration certificate
- Tax paying identification number. S Performa invoice Indent
- Membership certificate
- LCA (Letter of credit application) form duly attested.
- One set of IMP form.
To import, a person should be competent to be an importer. According to import and export control act, 1950, the officer of the chief controller of import and export provides the registration (IRC) to the importer. After obtaining this, this person has to secure a letter of credit authorization (LCA) from Bangladesh Bank and then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. he is also called opener or applicant of the credit.
Step-l: Proposal for Opening of LIC:
In case of an L/C of a small amount only the prescribed application form i.e. the LCA (Letter of credit application) form is enough to open an L/C. but when the L/C amount is reasonably high, and then the importer is asked to submit a proposal to the bank authority to have a limit of L/C amount. This proposal should be approved in the meeting of the executive committee of the bank.
The sufficient features of a proposal are –
• Full particulars of bank account.
• Nature of business.
• Required amount of limit.
• Payment terms and conditions.
• Goods to be imported.
• Offered security.
• Repayment schedule.
A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head office Credit Committee (HOCC). The committee, if satisfied- sanctions the limits and returns back to the branch. Thus the importer is entitled for the limit.
Step-2: L/C Application:
BDI provides a printed form for opening of L/C to the importer. This form is known as credit application form. A special adhesive stamp is affixed on the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin percentage. The importer gives the following information –
|v Full name and address of the Importerv Full name and address of the Beneficiary.v Availability of the credit by sight payment acceptance / negotiation / differed payment.|
v Time bar within which the document should be presented.
v Sales type (Cff/FOB/C&F)
v Brief specification of commodities price, and quantity, indent no, etc.
v Country of origin
v Import license/ LCAF No.
|v Account Numberv Import Registration Certificate Numberv Insurance cover note/ Policy number, date, amount.|
v Name and address of the insurance Company.
v Weather the partial shipment is allowed or not.
v Weather the Trans shipment is allowed or not.
v Last date of shipment
v Last date of negotiation.
v Other terms and condition if any.
Letter of Credit Authorized (LCA) from
The LCA from contains the followings
- Name and the address of the importer.
- I RC No and year of renewal.
- Amount of L/C applied for.
- Description of items/to is imported.
- ITC number (s)/HS code.
- Stamp and signature of the importer with seal,
Step-3: Securitization of L/C Application:
The bank officials scrutinizes the application in the following manners-
- The terms and condition of the L/C must be complied with control & import trade regulation.
- Eligibility of goods to be imported.
- The L/C must not be opened in favoring of the importer, Radioactivity report in case of food item.
- Survey reports or certificate in case of machinery.
- Caving vessel is not of Israel or Serbia- Montenegro.
- Certificate declaring that the item is in operation not more than 5 years in case of car.
On scrutiny, if the application is found fit then the L/C is opened and particulars of the same are recorded in the L/C register. Then the transmission of L/C is done through tested Telex or Fax to advise the L/C to beneficiary. If the amount exceeds US$ 10,000 the bank takes the credit report of the beneficiary (CIB report) to ensure the worthiness of the supplying goods.
Amendment of L/C:
Parties involved in L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the Credit should be amended. The bank transmits the amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But incase of irrevocable letter of credit, it neither be amended nor cancelled without the agreement of issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge are debited from the party account accordingly.
Step-4: Presentation of the 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 he has to present the documents evidencing dispatching of goods to the negotiating bank on or before stipulated expiry date of the credit. After receiving all 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 bank. The usual documents are -
|v Invoicev Bill of ladingv Shipping advice|
v Packing list
v Certificate of origin
|v Non negotiable copy of bill of Ladingv Bill of exchangev Pre-shipment inspection report.|
v Shipment certificate,
Step-5; Examination Documents:
Export Import Bank of Bangladesh Limited (EXIM) officials check weather these documents has any discrepancy or not. Here discrepancy means the dissimilarity of any documents with the terms and conditions of L/C.
Check lists of find our discrepancy;
Whether the presentation date is latter than the date of L/C expire date
- Commercial invoice-How man
- Packing list-How many
- Delivery Challan date is greater than the last shipment date
- Export L/C is written in all the document
- Amount is correct
- Whether the shipment is partial check in the L/C
- Bill of Exchange is dully presented
- In delivery Challan there is counter signature by the proprietor of Importer
- If the L/C is for cotton Yarn than check whether they have submitted mushok-11 BTMA certificate of production and country of origin etc.
Step-6: Retirement of Shipping Documents:
On security if it is found that the documents drawn are in order EXIM, lodges the documents in PAD and few vouchers are passed.
Retirement or Import Bills:
Importer will deposit the claim amount
Banker will prepare and pass Retirement Vouchers
Passing of Vouchers
Entry in the Register
Endorsement in the B/E and transport document i.e.B/L AWB, TR etc.
At the end of the total procedure, taking the retirement of Import Bills/Clearing Certificate from the Bank, the Importer will clear the goods from the port through the Clearing Agent and Forwarding Agent.
On the other hand, completing the above all steps in the issuing Bank will prepare “Foreign Exchange Transaction Schedule” and send one copy to international division of Head Office and another one copy to recommendation.
Payment Procedure of the Import Documents:
This is the most sensitive task of the import department. The officials have to be very much careful while making payment. The task constitute the followings-
- Date of payment- Usually payment is made within seven days after the documents have been received. If the payment is become differed, the negotiating bank may claim interest for making delay
- Preparing sale memo- a sale memo is made at B.C rate to the customer. As the TT & 0.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally an inter branch exchange trading credit advice is sent to ID.
- Requisition for foreign currency- for arranging necessary fund for payment a requisition is sent to the ID,
- Transmission of telex- a telex is transmitted to the correspondent bank ensuring the payment is being made.
Loan against Imported Merchandise (LIM):
If the importer does not come to negotiate the shipping documents from the issuing bank then it creates LIM through the bank clears the goods from the port and holds the goods in its warehouse beside the above as soon as the imported goods come to the port the party may fall into financial crisis and request the bank to clear the goods from the port making payment to the exporter in this case the party later may take the goods partly or fully from the banks by making required payment (if he/she takes the goods time to time payment will be adjusted simultaneously).
By the term Export, we mean that carrying of anything from one country to another. On the other hand Banker’s define Export as sending of visible things outside the county for dale. Export Trade plays a vital role in the development process of an Economy. With the Export earning we meet our Import Bills.
The export trade of the country is regulated by the Import and Export (Control) Act, 1950. There are some formalities, which an exporter has to fulfill before and after shipment of goods. No exporter is allowed to export any commodity from Bangladesh unless he/she is registered with Chief Controller of Export & Import (CCI&E) and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year and this task is generally done by the bank. As per instruction by Bangladesh Bank, the bank has to report respective department of Bangladesh bank by mentioning latest payment.
Export Registration Certificate (ERC):
Similar to any other business, exporters are required to obtain ERC from the offices of the Chief Controller of Import and Export (CCI&E). No person is allowed to export any goods from Bangladesh without obtaining such ERC. For Registration, prospective Exporters required to submit the following documents –
| Application FormFees paid treasury ChallanAsset certificate|
Income Tax Clearance
Valid Trade License
Bank’s Solvency Certificate
| Registered Partnership DeedMemorandum & Articles of Association and Incorporation Certificate.Copy of rent receipt of business firm|
Copy of rent receipt of the business premises.
On receipt of the above documents to the office of CCI&E, the applicant is required to deposit required registration fee to the treasury office and receipted Challan should be sent to CCI&E office for enabling there to issue ERC. Every year registered exporters are to make payment of prescribed fee towards renewal of ERC.
Some are parts: