Foreign Exchange Operation of Jomuna Bank Limited

Foreign Exchange 

Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. Foreign Exchange Department (FED) is the international department Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers.  If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign countries.

Foreign exchange means foreign currency and includes:-

            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;

      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.

Activities of Foreign Exchange:

In any international trade the buyers and sellers are of different countries.  None of the know each other about their business integrity and credit worthiness. Various regulations prevailing in their respective countries about foreign trade are also unknown to them. Thus the buyer wants to be assuring of goods and the sellers to be assured of payments. In such association commercial banks assure these things simultaneously by opening letter of credit guaranteeing payments to sellers and good to the buyers.

By opening letter of credit on behalf of a buyer and in favor of a seller, commercial banks undertake to made payment to a seller subject to submission of documents drawn in strict compliance with the terms of the letter of credit giving title to goods to the buyer. Under foreign exchange operation bank facilitates import. Export and foreign remittance business.

Foreign Exchange Market allows currencies to be exchanged to facilitate international trade and financial transactions. Evolution of the market in Bangladesh is closely linked with the exchange rate regime of the country. The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. Foreign exchange can be in the form of cash, funds available on credit and debit cards, traveler’s cards, traveler’s checks, bank deposits or other short term claims. The foreign exchange market is made up of many different players. Some players buy and sell foreign exchange because they are exporters and importers of goods and services. Other players buy and sell foreign exchange because of foreign direct investments. And others are portfolio investors because they buy foreign stocks, bonds and mutual funds and hoping to sell them at a more profitable exchange later.

Different Foreign Exchange Market Operations:

      Arbitrage:

                               It refers to the purchasing of foreign currency where its price is low and selling it where the price is high. Arbitrage may be due to interest rate differences in two financial centers.

      Swap:

                              Simultaneously sale and purchase of identical amounts of one currency against another, for different maturity. A swap could be against forward to forward against forward.

      Hedging:

                             Foreign Exchange risks can be avoided or covered by hedging. The usually involves an agreement today to buy or sell a certain amount of foreign currency at some future date at a rate agreed upon today.

      Speculation:

                            It is opposite of hedging. While a hedger seeks to avoid or cover a foreign exchange risk for fear of loss, the speculator accepts or even seeks a foreign exchange risk in the hope of making profit. Speculation usually occurs in the forward exchange market.

      Covered Interest Arbitrage:

                            It refers to the transfer of liquid funds from one monetary center and currency to another to take advantage of higher rate of return and at the same time the resulting foreign exchange risk is covered or hedged by a forward sale of the foreign currency to coincide with the maturity of the foreign investment.

Different Types of Foreign Exchange Market:

      Spot Market:

                                        For spot transaction.

      Forward Market:

                                        For forward transaction

      Future Market:

                                There is an important distinction between “Forward” transaction and “Future” contracts. The former are individual agreement between two parties. The letter is a contract traded on an organized market of a standard size and settlement date.

      Option Market:

                                An option is a contract specifying the right to buy or sell a standard amount of foreign exchange within a specified period or at a specific date at a certain price.

The following principles are involved in Foreign exchange:

      The entire system

      The media used

       The monetary unit.

Foreign Exchange Reserve is the stock of foreign currencies a country holds to buffer out imbalances between foreign receipts and payments. Bangladesh bank, the central bank of the country, holds the stock of convertible foreign exchange reserve of the country in the form of liquid assets. In the first 2-3 years after liberation, the foreign exchange reserve of the country was composed mainly of aid/grants and export earnings. Subsequently, Bangladesh diversified export products and expanded its export base. It could also geographically diversify the direction of the export trade by exploring new areas. The export earnings gradually emerged as the main source of the country’s foreign exchange reserves.

The foreign exchange reserves of Bangladesh has been largely inadequate compared to its needs for financing imports, meeting debt service liabilities, and paying for factor earnings of the foreign nationals. A growing demand for foreign exchange emanated from people traveling abroad for education, training and medical service outside the country.

The Bank acts as a media for the system of foreign exchange policy. For this reason, the employee who is assigned to foreign exchange, especially foreign business, should have knowledge of these following functions:

      Rate of exchange works.

      How the rate of exchange works.

      Forward and spot rate.

      Methods of quoting exchange rate.

      Premium and discount.

      Risk of exchange rate.

      Causes of exchange rate.

      Exchange control.

      Convertibility.

      Exchange position.

      Intervention money.

      Foreign exchange transaction.

      Foreign exchange trading.

      Export and import letter of credit.

      Non-commercial letter of credit.

      Financing of foreign trade.

      Exchange Arithmetic.

      Activities of Foreign Exchange

      Rate of exchange

      Facilities for avoiding FEX risk and hedging.

Bangladesh Taka is fully convertible for settlement of trade related transactions. Import license is not required for import of items not in the control list. An importer has automatic access to foreign exchange for import of all items outside the control list, and also for import of council list items as per general or specific authorization of the office of the Chief Controller of Imports and Exports.

 Exchange Position is the status of total holding of foreign currency by the Authorized Dealer bank on a particular point of time. This position is prepared on a prescribed format given by the Central Bank. This format or statement is called the Exchange Position Statement. All sorts of regular transactions involving spot and forward transactions are taken into considerations while preparing the statement.

Status of Exchange Position:

         It can assume three statuses, as follows-

      Overbought Position:

                                                  Total purchases exceed the total sales.

      Oversold Position:

                                                   Total sales exceed the total purchase.

      Square Position:

                                                   Total purchase equals the total sales.

This is the rate at which two national currencies are exchanged. The Exchange Rate is determined by the intersection of the market demand curve and supply curve of foreign currency. The demand for FEX arises primarily in the course of importing goods and services from abroad and making foreign investments and loans. The supply of FEX arises in the course of exporting goods and services and receiving foreign investment and loans.

Exchange Rate Quotation:

      Direct Quotation:

 If the Exchange Rate is expressed in variable units of domestic currency for a fixed units of foreign currency. It is also called Pence Rate.

Indirect Quotation:

If the Exchange Rate is expressed in variable unit of foreign currency per fixed units of domestic currency. It is also called Currency Rate.

Table: 6

Currency

Buying

Selling

15th July, 2009
A. USD/BDT Rates (based on interbank transaction)

USD

69.06

69.06

B. Cross Rate

SEK

8.73

8.74

JPY

0.74

0.74

GBP

112.47

112.51

EUR

96.32

96.34

CAD

60.77

60.79

AUD

54.56

54.58

Table: 7

CUR.BANK NAMECITYSWIFT
USDStandard Chartered BankNew YorkSCBLUS33
USDMashreq Bank PSCNew YorkMSHQUS33
USDCitibank NANew YorkCITIUS33
USDHabib American BankNew YorkHANYUS33
USDAmerican Express Bank Ltd.New YorkAEIBUS33
USDHSBCNew YorkMRMDUS33
EUROHypo Vereins BankMuenchenHYVEDEMM
GBPStandard Chartered BankLondonSCBLGB2L
CHFHabib Bank AG,ZurichZurichHBZUCHZZ
ACUDAmerican Express Bank Ltd.KolkataAEIBINDXCAL
ACUDStandard Chartered BankKolkataSCBLINBB
ACUDAXIS Bank LimitedKolkataAXISINBB005
ACUDStandard Chartered BankKarachiSCBLPKKX
ACUDNepal Bangladesh Bank Ltd.KathmanduNPBBNPKA
ACUDBank of BhutanPhuntsholingBHUBBTBT
ACUDICICI Bank LtdMumbaiICICINBBNRI
ACUDMashreq Bank PSCMumbaiMSHQINBB
ACUDAB Bank Ltd.MumbaiABBLINBB

 Correspondent Address means establishment of correspondent relationship between two separate financial institutions situated in two different countries or within the country. Correspondent arrangement is established in order to channels foreign exchange transactions of the two financial institutions under the arrangement, with ultimate goal to ease and promote the business of the financial institution.

Factors to be considered for Correspondent arrangement:

      Selection of Bank from different publication (Mainly Bankers Almanac)

      Identify world rank & status, country rank & status of the bank.

      Analysis of latest financial (last 3 years)-Audit report, Balance sheet, Prospectus.

      Credit Report-Rating Agency, Embassy/High Commission abroad, other correspondent.

      Analysis of Country Risk:

      Economic Risk

      Political Risk

      Foreign Currency Account:

      Nostro Account:

The accounts which a bank maintains with overseas banks/branches are called Nostro or “our” accounts.

      Vostro Account:

 Account maintained by an overseas branch or correspondent with the bank at home is called Vostro or “Your” account.

      Loro Account:

Loro accounts are current accounts which the banks maintain with banks abroad on behalf of their clients. For example, Jamuna Bank Limited, Dhaka may remit American Express Bank’s Lanka for the credit to the account of AB Bank Ltd. Maintained with them.

Reconciliation of NOSTRO and VOSTRO Account:

 For the purpose of Book-Keeping and reconciliation of accounts of the banks maintaining NOSTRO Account abroad, it is required to maintain Pro-forma account in the General Ledger under the heading of each foreign correspondent. The Pro-forma account is also termed as Shadow account or MIRROR account, as the entries made in the books of the foreign correspondent are reflected in the Pro-forma account of the bank.

Reconciliation is necessary for the following:

      Each transaction correctly passed

      Double Debit/Credit

      Wrong Debit/Credit

      Debit/Credit with proper value date.

Provision requirement for unreconcilled Debit Entries in NOSTRO Accounts:

 Table: 8

SL No.Duration of Unrecognized Debit Entries in NOSTRO AccountRequired Provision
01Up to 03 months
02More than 03 months but less than 06 months10%
0306 month and above but less than 09 months20%
0409 month and above but less than 12 months50%
0512 month and above100%

Formalities for opening foreign currency (FC) Account:

The AD may without prior approval of the Bangladesh Bank open Foreign Currency (FC) account in the name of:

      Bangladesh national residing abroad.

      Foreign nationals residing abroad/ in Bangladesh and also foreign firms

      Registered abroad and operating in Bangladesh and abstract foreign missions and their expatriate employees.

      Resident of Bangladesh nationals working with the foreign / international organization operating in Bangladesh provided their salary in paid in foreign currency.

      Papers required:

      Application duly billed in and signed.

      Photograph (two copies).

      Passport photocopy.

      Work permit from board investment. (In case of foreign nationals).

      Rate of exchange:

           It means the price of one currency expressed in terms of another currency. Rate of exchange is the rate by which the relation among different foreign currencies is established in terms of local currency of that country.

      Spot rate:

            It is quoted for transaction where the foreign currency bought or sold is to be received or delivered immediately. The current rate of exchange quoted in the foreign exchange market.

      Forward rate:

             When a rate is applied to a future date it is called forward rate at which foreign exchange can be sold or bought for delivery at a future time.

      Cross rate:

             The rate of exchange quoted expressing the quotation for any two currencies in term of a third.

YearJBL
2004333
2005390
2006643
2007715
2008715

 

Table: 9                                                            

         SWIFT is the industry-owned co-operative supplying secure, standardized messaging services and interface software to nearly 8,100 financial institutions in 207 countries and territories, SWIFT members include banks, broker-dealers and investment managers. The broader SWIFT community also encompasses corporate as well as market infrastructures in payment, securities, treasury and trade. Over the past ten years, SWIFT message prices have been reduced over 80% and reliability 99.999% of uptime.

 SWIFT Stands for:

         S=SOCEITYY

           W=WORLDWIDE

              I=INTERBANK

                F=FINANCIAL

                  T=TELECOMMUNICATION.

Jamuna Bank Limited is the member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication). SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

SWIFT is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network.

The Bank made its Treasury Opertaion.In money market the bank played active role in local and foreign currency transactions.Besides,it has been carrying on the operation as a a primary dealer (PD) with a view to activating the secondary market of the Govt.Treasury Bills and Bonds. In terms of secondary turnover(total sales and purchase),JBL secured first position in the market of the Pads in the Financial Year 2008-2009.It would not be out of place to mention that Jamuna Bank Limited was the only third generation bank which was selected as Primary Dealer by Bangladesh Bank owing to its excellent performance in money market. Treasury operation has been identified as one of the best sources for earning by the Bank through effective participation in money market. Treasury Operation has been identified as one of the best sources for earning by the Bank through effective participation.JBL’s dealing room is well equipped with modern and updated equipments like voice recorder, refuter 3000xtra, CDBL electronic system etc.The activities of FX and local money market have been synchronized with complete segregation of activities of front and meetings to review the asset liability position and interest rates, and takes important decisions thereon.

Foreign exchange risk is the potential change in earnings due to unfavorable movement in exchange rates. Generally, the bank is less exposed to foreign exchange risk as all the transactions are carried out on behalf of the customers against LC commitments and other remittance requirements. The bank has undertaken policy guidelines to minimize the foreign exchange risk for exposure in currency movement. The back office of Treasury Department is totally segregated from the front office and is responsible for currency transactions, deal verification and limit monitoring and settlement of transactions separately. The bank continuously revalues all foreign exchange positions at market rate as per the guidelines of Bangladesh Bank. All outstanding entries in nostro Accounts are reviews on a regular basis and are timely reconciled.

All financial activities involve a certain degree of risk and particularly, the financial institutions of the modern era engaged in various complex financial activities requiring them to put proper attention to every detail.

The Key risk areas of a financial institution can be broadly categorized into:

      Credit Risk:

Interest Risk:

Interest risk arises from movements in interest rates in the market.

Liquidity Risk:

Liquidity Risk arises from an organization’s inability to meet its obligation when due. The liquidity exposure is created by the maturity mismatches of the assets and liabilities of the organization.

Price Risk:

 Price Risk arises from changes in the value of trading positions in the interest rate, foreign exchange, equity and commodities martkets.This arises due to changes in the various market rates or market factors.

Compliance Risk:

 Compliance Risk arises from violations of or non-conformance with laws, rules, regulations, prescribed practices, or ethical standards.

  Strategic Risk:

Strategic Risk arises from adverse business decisions or improper implementation of them.

Reputation Risk:

 Reputation Risk arises from negative public opinion.

Market Risk:

 Market risk is defined as the potential change in the current economic value of a position due to changes in the associated underlying market risk factors.

Operational Risk

 Operational risk involve in foreign exchange transaction-

      The year of 1993 saw a significant shift in the country’s foreign exchange regulatory policies and the BD Taka (BDT) was declared convertible in the current account.

      So, in order to reduce foreign exchange operational risk, the AD bank should follow the instructions of the BB thoroughly.

International Trade forms the major business activity undertaken by Jamuna Bank Ltd. The Bank with its worldwide correspondent network and close relationships with key financial institutions provides an extensive trade services network to handle your transactions efficiently. Our key branches in Dhaka, Chittagong, Sylhet and Naogaon are staffed by personnel experienced in International Trade Finance. These offices are the focal point for processing import and Export transactions for both small and large corporate customers. We offer a complete range of Trade Finance services. Our professionals will work with you to develop solutions tailored to meet your requirements, through mobilizing our full range of trade services locally, and drawing on our global resources. We can offer you professional advice on all aspects of International Trade requirements, namely:

      Issuing, advising and confirming of Documentary Credits.

      Pre-shipment and post-shipment finance.

      Negotiation and purchase of Export Bills.

      Discounting of Bills of Exchange.

      Collection of Bills. Assist customers to insure all risks.

      Foreign Currency Dealing etc.

The considerations come forward in International Trade:

      Seller

      Buyer

      An agreed product or services

      A sales contract

      Shipping & Delivery details

      Term of Payment

      Required Documents

      Insurance Cover

Cash in advance:

The seller receives cash from the buyer prior to shipment. This is advantageous to seller because-

 Goods may be shipped when convenient.

      Seller may use buyer’s fund. On the other hand there is no advantageous to buyer under Cash in Advance Method.

      No control over the goods

      Use of the funds is lost.

Open Account:

Goods are shipped to the buyer and payment is made through an arrangement negotiated in advance with the seller.

On Consignment:

The seller ships goods to the buyer, but retains ownership. Payment is made if and when the buyer sells the goods.

Collection:

The goods are shipped to the buyer. The seller’s draft and documents covering the shipment are presented through the buyer’s bank for payment.

Letter of Credit:

 Letter of credit has been used for centuries to facilitate the worldwide exchange of goods and services. They have played a significant role in the expansion of trade. Letter of credit remains an important banking service and an important tool for meeting the needs of importers and exporters.

In today’s complex, interdependent marketplace, financing is a key factor in reducing cost while maximizing profit.

Letter of credit reduces payment risk by providing an efficient method for arranging settlement for goods and services purchased or sold. A letter of credit is an instrument issued by a bank at the request if its customer (buyer/applicant) in favour of a beneficiary (seller) .Letters of credit applies both to domestic and international trade.

      Sales contact between a buyer and seller.

      L/C application between applicant (buyer) and its bank.

      L/C between the bank and beneficiary (seller).L/C assures payment to beneficiary if its terms & conditions are fulfilled through presentation of conforming document.                                                               

Import:

Import is the purchase of foreign goods or services from abroad by Consumers, forms, Companies, Government, Semi-Government organization in Bangladesh .It is an international Trade.

In terms of the importers, Exporters & Indentor’s (Registration) order, 1981 no person can import goods into Bangladesh unless he is registered with CCI&E or exempted from the provisions of the said order.

Ads (Authorized Dealer in Foreign Exchange) should ensure the following:

      Known customer (maintaining accounts) having a place of business in Bangladesh, easily traceable should any occasion arise.

      Valid IRC

      TIN, VAT registration certificate

      Request letter from the customer

      Indent/Pro-forma invoice

      Insurance cover note

      Membership of recognized chamber of commerce & industry /Trade Association.

      Other documents from different regulatory body (if required)

Importer:

The person who deals in import business obtaining Import Registration Certificate (IRC) in terms of Importers, Exporters and Indentors (Registration) order-1981 from the CCI&E submitting the following papers is treated as Importer.

      Valid Trade License

      Nationality Certificate

      Asset Certificate

      TIN Certificate

      Bank Solvency Certificate

      Memorandum & Articles of Association and Certificate Incorporation (incase of company)

There are two types of Importers:

      Commercial

      Industrial

Every importer is issued CategoryPass book by the CCI & E.The nominated bank of the importer should maintain IRC & Pass book register.

Important objective of Import Policy Order:

      To make the Import Policy Order further liberalized to keep pace with the gradual development of globalization and free market economy under the W.T.O.

      To provide facility for import of technology for widespread expansion of modern technology.

      To provide  facility for easy import for the export support industries for the purpose of placing export industries on a sound base and with this end in view, co-ordinate the Import Policy of the country with the industrial Policy, Export Policy and other development programs.

      To make easier the availability of industrial raw material for increasing competition and efficiency by gradual removal of restrictions on import of finished goods.

Business quota for importers and manufactures producing for domestic markets:

            Subject to an annual upper limit of US $ 5000, importers are entitled to business travel quotas @1% of their importers settled during the previous financial year.

            Subject to an annual upper limit of US $ 5000, non-exporting produces are entitled business travel quotas @ 1% of their turnover of the preceding financial year as declined in their tax returns.

The same business organization engaged in imports as well as production shall, however, draw business travel entitlement only on one account.

Regulations for Import:

Import of goods or services and payment there against are mainly regulated by Bangladesh Bank under the purview of following rules & regulations:

      Foreign Exchange Regulation Act-1947

      Import & Export (Controls) Act-1950

      Importers, Exporters and Indentors (Registration) order-1981

      UCPDC-600, ICC Publication (2007 Revision)

      Import Policy Order 2006-2009 issued by the Ministry of Commerce

      Public Notices issued time to time by the office of the CCI&E.

Import Policy:

               Under the Imports and Export (Control) Act, 1950 the Government of Bangladesh formulates the Import Policy through Ministry of Commerce. The existing Import Policy Order has come into effect from March 13,2004 .It will remain in force after the expiry of the validity mentioned above until the new Import Policy is issued. If required Government may review this order once in every year and may take decision as deemed fit.

Importers go for Import:

   The Contract to buy and sell goods is the starting point of import. A sales purchase contract comes into being when one party (the exporter) makes an offer and the other (the importer) accepts it. It comes into effect while importer signs Pro-forma invoice (PI) issued by the exporter or indent issued by the local agent of the exporter stationed at importer’s Country.

Import Procedure:

             Import shall be made as per the following procedure:

      Import against LCA Form

      Import through L/C

      Import against LCA Form but without opening L/C

      Import against indent and pro-forma Invoice

      Import against import permits and Clearance Permit.

      Import on Deferred Payment Basis or Against Supplier’s Credit

      Import against direct payment abroad

      Time limit for opening of L/C-150 days from the date of issuance of LCAF.

      Validity of LCA for shipment seventeen months in case of machinery and spare parts and nine months in case of all other items.

Required Documents:

      LCA form

      Import Registration Certificate (IRC)

      TIN, VAT Registration Certificate

      Request letter from the party

      Indent/Proforma Invoice

      Insurance Cover Note

      Other documents from different regulatory body if required.

      Compulsory membership of recognized Chamber of Commerce & Industry/Trade Association.

Fees regarding imports:

Registered commercial importers and industrial consumers have been classified into 6 categories on the basis of their value ceiling of overall annual import. Their Registration (IRC) and renewal fees have been re-fixed considering the value ceiling of annual import.

Table: 10

Up-to Annual ImportRegistration Fees

(Payable through Treasury Chalan)

Renewal Fees

(Payable Through Treasury Chalan)

Tk.1,00,000.00Tk. 1,500.00Tk. 1,500.00
Tk.5,00,000.00Tk. 2500.00Tk. 2000.00
Tk. 1500000.00Tk.4000.00Tk.3000.00
Tk.50,00,000.00Tk.8000.00Tk.6000.00
Tk. 1,00,00,000.00Tk.15000.00Tk.10000.00
Above Tk. 1,00,00,000.00Tk.20,000.00Tk.15000.00
For IndentorTk.25,000.00Tk.12000.00
For ExporterTk.3000.00Tk.2000.00

 Sources of Financing Import:

      Cash

      Cash foreign exchange Resources of the country (foreign currency balance available with Bangladesh Bank.

      Foreign Currency accounts maintained by Bangladeshi nationals working/living abroad.

                                                      External Economic Aid (Commodity Aid, loan or credit, Grant)

                                                      Commodity Exchange

      Barter

      Special Trading Arrangement (STA).

Financing of Imports by the Banks may broadly be classified as under:

      Pre-Import Finance:

              The finance which is extended prior to the arrival of the imported merchandise is termed as “Pre-Import Finance”.Pre-Import Finance is allowed in the form of-

      Letter of Credit:

                                   L/C (Letter of Credit) is a very important issue of foreign exchange management because without L/C import and export cannot be possible. Importer and Exporter do not know each other. For this reason settlement of payment cannot be possible without the arrangement of Bank particularly in foreign trade. Therefore import/Export also cannot be possible if no L/C can be made through Bank. So L/C is a very important issue in foreign trade.

L/C is a guarantee of a bank (Issuing Bank) on behalf of the importer in a trade in favor of the exporter to pay a certain sum of money under some specific terms and conditions.

So, an L/C is a negotiable instrument (A form of documentary credit) that carries a promise of payment with the fulfillment of certain conditions. An L/C can be used in foreign trade as well as for local payments.

The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as:

“An arrangement, however named or described, whereby bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf:

Is to make a payment to or to the order third party (the beneficiary) or is to accept bills of exchange (drafts) drawn by the beneficiary.

Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller.

Types of Letter of Credit:

             All L/Cs are issued in either a “revocable” or an “irrevocable” form and are either “confirmed” or “unconfirmed”.

      Revocable:

                                May be amended or cancelled by the issuing bank at any time with or without prior notice of the beneficiary.

      Irrevocable:

                                 Irrevocable L/C cannot be amended or cancelled without the arrangement of all parties concerned. In irrevocable L/C, it is the obligation & commitment of the issuing bank to reimburse the paying if it is in accordance with the terms & conditions of the L/C.

      Confirmed:

                                  Under confirmed L/C, the advising bank is merely acting as an agent of the issuing bank-not as a party to the irrevocable commitment. A confirming bank is the bank which, under instruction in the letter of credit, adds its own irrevocable undertaking to that of the issuing bank. Before adding its confirmation ,the confirming bank must be satisfied that the issuing bank’s credit worthiness justifies confirmation of its irrevocable L/C.Failure of the issuing bank to fulfill its irrevocable obligation will not relieve the confirming bank of its irrevocable obligation to pay the beneficiary.

L/C Special types:

      Revolving Letter of Credit:

                                    If a buyer and a seller agree to ship goods on a continuing basis, it may be more efficient & cost effective if the buyer establishes one L/C for all shipments/C for handling multiple shipments, renewable over an extended period of time is a “revolving letter of credit”

      Transferable Letter of Credit:

                                     Transferable L/C may be transferred either in whole or in part to second beneficiaries (Transferees).Transferable L/C may be transferred only once.

      Red Clause L/C:

                                      “Red Clause” in a L/C authorizes the bank to make a cash advance (Loan).The clause is sometimes printed or typed in red ink. The specified bank charges interest to the seller at the local rate. If the seller fails to pay the interest or principle advanced, it becomes the obligation of the issuing bank, which will look to the applicant for reimbursement .A “red Clause” is typically used when there is a close business relationship between the applicant and the beneficiary.

Parties to the L/C:

Letter of Credit  L/c also known as Documentary Credit is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request. Buyer also provides the necessary instructions in preparing the document.

Parties to the L/C:

ImporterWho applies for L/C
Issuing BankIt is the bank which opens/issues a L/C on behalf of the importer.
Confirming BankIt is the bank, which adds its confirmation to the credit and it, is done at the request of issuing bank. Confirming bank may or may not be advising bank.
Advising or Notifying BankIt is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit.
Negotiating BankIt is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.
Accepting BankIt is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
Reimbursing BankIt is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.

 Objectives of the parties to an L/C operation:

      Buyer’s objectives:

      Contract fulfillment

      Credit

      Convenience

      Seller’s objectives:

      Contract fulfillment

      Prompt Payment

      Convenience

Operational steps those takes place in a Documentary L/C:

      L/C number & date

      Supplier’s name & address

      Applicant’s name & address

      Advising Bank’s name & address

      Amount in figure & word

      Shipment date

      Expiry date & place of expiry

      Trade term (Inco-terms)

      Description of goods

      Shipment clause

      Delivery clause

      Country of origin clause

      Insurance clause

      Bill negotiation clause’

      Payment clause

      B.L clause

      PSI clause

      Reimbursement clause

      Other clause as required as per Import Policy Order and as per contract executed in between buyer and seller.

Amendment of L/C:

              After opening of L/C some time’s alteration to the original terms and conditions become necessary. These amendments involve changes in

      Unit price

      Extension of validity o the L/C

      Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

Process of Letter of Credit:

International commercial trade begins with a buyer and a seller. The two parties agree on the product to be shipped, the price of the product and the method of payment. In many cases the buyer is not familiar with the seller and visa-versa. This lack of knowledge creates a risk for both the buyer and the seller. Both parties desire to do business but cannot fully trust that the other party will uphold their end of the deal. The buyer would prefer to receive the product and then send payment, while the seller would prefer to receive payment and then ship the product. Small businesses are particularly vulnerable since cash flow is of the highest importance. One resolution to this impasse is a commercial L/C.

Commercial Letter of Credit Flow:

Applicant approaches Issuing/ Opening Bank with LC application form duly filled and requests Issuing Bank to issue a Letter of Credit in favour of Beneficiary.

Issuing Bank issues a Letter of Credit as per the application submitted by an Applicant and send it to the Advising Bank, which is located in Beneficiary’s country, to formally advise the LC to the beneficiary.

Settlements under a Letter of Credit:

All commercial letters of credit must clearly indicate whether they are payable by sight payment, by deferred payment, by acceptance, or by negotiation. These are noted as formal demands under the terms of the commercial letter of credit.

      Sight payment:

In a sight payment, the commercial letter of credit is payable when the beneficiary presents the complying documents and if the presentation takes place on or before the expiration of the commercial letter of credit.

Deferred payment:

In a deferred payment, the commercial letter of credit is payable on a specified future date. The beneficiary may present the complying documents at an earlier date, but the commercial letter of credit is payable only on the specified future date.

Acceptance:

An acceptance is a time draft drawn on, and accepted by, a banking institution, which promises to honor the draft at a specified future date. The act of acceptance is without recourse as it is a commitment to pay the face amount of the accepted draft.

Negotiating bank:

Under negotiation, the negotiating bank, a third party negotiator, expedites payment to the beneficiary upon the beneficiary’s presentation of the complying documents to the negotiating bank. The bank pays the beneficiary, normally at a discount of the face amount of the value of the documents, and then presents the complying documents, including a sight or time draft, to the issuing bank to receive full payment at sight or at a specified future date.

Required Documents:

      Prescribed application for L/C signed by the importer.

      LCA form duly filled in & signed by the importer

      IMP form duly signed by the importer

      Pro-forma invoice/indent duly accepted by the importer.

   Marine insurance cover note along with original money receipt in case of import under FOB/CFR

   Valid membership Certificate from a registered local chamber of commerce & industries or any registered association where the respective import represents.

      IRC evidencing payment offer for currency year i.e. duly renewed.

      Tax identification number (TIN)

      Vat registration number

      PSI related papers (where PSI required)

   Special papers /documents for import of some special items under Banned or conditional list as required as per required as per import policy under order 1997-2002.

   Letter of authority to recover bank’s charge and margin from import’s account.

      Necessary charge documents duly signed

Other Regulations are to be followed to open L/C:

          Import from Israel as well as goods produced in Israel even carried by Israel flag. Vessels are prohibited.

          Unless other wise stated Pre-shipment Inspection of Goods imported in the private sector is compulsory now.

          Goods weighting up to 20 MT for import by individual importers and up to 100 MT import by group importers can be shipped on a non Bangladeshi Vessel. While exceeding said quantity shipment to be made on Bangladeshi vessel, otherwise gear waiver from the Director General, Shipping Directorate to be obtained.

          The country of origin must be clearly written on the package, crates or boxes. A certificate from the importer/Approved Authority must be submitted to the Custom Authority along with other documents for clearance of the goods. However this condition with regard to Country of origin will not apply for import of Coal, Cotton, and the Country of origin must be mentioned in the Phyto-sanitary Certificate.

Time limit to open L/C:

Unless other wise stated, L/C should issued within 150 days from the date of issue or registration of LCAF

Advantages of Letter of Credit:

      The beneficiary is assured of payment as long as it complies with the terms and conditions of the letter of credit. The letter of credit identifies which documents must be presented and the data content of those documents. The credit risk is transferred from the applicant to the issuing bank.

      The beneficiary can enjoy the advantage of mitigating the issuing bank’s country risk by requiring that a bank in its own country confirm the letter of credit. That bank then takes on the country and commercial risk of the issuing bank and protects the beneficiary.

      The beneficiary minimizes collection time as the letter of credit accelerates payment of the receivables.

      The beneficiary’s foreign exchange risk is eliminated with a letter of credit issued in the currency of the beneficiary’s country.

 Some of the Documents Called for under a LC

      Financial Documents:

Bill of exchange, Co-accepted Draft

 Commercial Documents:

Invoice, packing list

Shipping Documents:

 Transport Document, Insurance Certificate, Commercial, Official or Legal Documents

 Official Documents:

License, Embassy legalization, Origin Certificate, Inspection Cert, Phyto-sanitary Certificate

Transport Documents:

 Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, CMC Other than Mate Receipt, Forwarder Cargo Receipt, Deliver Challan…etc

Insurance Documents:

 Insurance policy, or Certificate but not a cover note.

Special Condition:

L/C shall be opened against valid IRC and Trade License.

Price of the goods quoted in the Indent/Proforma Invoice to be verified suitably to ensure that there is no over-invoicing and under invoicing.

Validity of the Pro-forma Invoice /Indent must be expired.

 L/C must contain Pre-shipment inspection clause as required under Government rules.

     Competitiveness of import price as well as comparison of landed cont with domestic wholesale price must be made by as before opening of the L/C.

      TIN certificate has to be provided before opening of the L/C.

     All rules of Bangladesh Bank, NBR and CCI&E shall be maintained.

     All formalities in connection with L/Cs shall be observed as per current import policy.

     Exchange control copy of Bill of expiry to be submitted after clearance of the consignment to match the IMP.

      Credit report on supplier has to be provided before opening of L/C.

      Any fluctuation in exchange rate to be on the importer’s A/C.

     Insurance policy must be submitted covering all risks to safeguard the interest of the bank.

      L/C will be opened only on satisfactory CIB report.

Other Condition:

      Valid Trade license has to be provided.

      Excess drawing over the limit is strictly prohibited.

       Proposal for renewal of the limit, if required must be submitted with justification related papers at least 2 months before the expiry of the limit.

       The sanction limit shall be treated as cancelled if you fails to give the acceptance on sanction terms within 30 days and fails to avoil the loan within 90 days from the date of sanction.

       All documentation formalities shall be completed before disbursement of the facilities.

Scrutinization of Shipping Documents:

                 On receipt of shipping (Import) Documents, it is a primary responsibility of a bank to scrutinize/Examine the documents as to whether the documents are prepared and submitted complying with the terms of the L/C and other internationally accepted/agreed rules.

Examination of Documents generally includes the following points-

      Completeness of the Documents

      Consistency of the Documents with each other

      Compliance with UCPDC

      Conformity with the L/C terms

Lodgment:

                Lodgment is nothing but payment of Import Bills at BC selling Rate after scrutinization of shipping documents received against concerned L/C by the L/C issuing Bank.

Retirement:

               Release of shipping documents to the Importer after recovery of concerned PAD outstanding together with accrued interest of PAD A/C from the Importer.

Reasons of Letter of Credit Fails:

      Time Lines:

            The letter of credit should have an expiration date that gives sufficient time to the seller to get all the tasks specified and the documents required in the LC. If the letter of credit expires, the seller is left with no protection. Most LC s fails because Sellers/Exporters/Beneficiaries were unable to perform within the specified time frame in

the LC. Three dates are of importance in an LC:

      The date by when shipment should have occurred. The date on the Bill of Lading.

      The date by when documents have to be presented to the Bank

      The expiry date of the LC itself.

      Discrepancy within the Letter of Credit:

               Letters of credit could also have discrepancies. Even a discrepancy as small as a missing period or comma can render the document invalid. Thus, the earlier in the process the letter of credit is examined, the more time is available to identify and fix the problem. This is another common reason why LCs fails.

      Compliance with the Documents and Conditions within the Letter of Credit:

               Letters of credit are about documents and not facts; the inability to produce a given document at the right time will nullify the letter of credit. As a Seller/Exporter/Beneficiary you should try and run the compliance issues with the various department or individuals involved within your organization to see if compliance would be a problem. And if so, have the LC amended before shipping the goods.

Various Charges for L/C:

ItemNature of Charges

Rate/Commission/Charges

L/C opening commission under cash1st quarter

 

For subsequent quarters or part thereof

 

Minimum

@0.40%

 

@0.25%

 

 

 

Tk 500

L/C opening commission under cash(opened against 100% margin)1st quarter

 

For subsequent quarters or part thereof

 

Minimum

@0.25%

 

@0.25%

 

 

 

Tk 500

L/C opening commission under

AID/Loan/Credit/Barter etc

1st quarter

 

For subsequent quarters or part thereof

 

Minimum

@0.50%

 

@0.30%

 

 

 

Tk 500

L/C opening commission for back to back L/C

 

1st quarter

 

For subsequent quarters or part thereof

 

Minimum

@0.50%

 

@0.30%

 

 

 

Tk 500

L/Cs transmitted by SWIFT SAARC Countries: At actual(i.e. Tk 2800)

Other than SAARC Countries: At actual (i.e. 2800)

Post –Import Finance:

 The Finance extended after arrival of the goods is termed as “Post-Import” finance which may be in the form of-

      Loan Against Imported Merchandise(LIM):

                             LIM is created under two circumstances.Firstly, if there is an arrangement with the importer the commercial bank provides finance against imported merchandise with usual margin, Secondly, when the importer fails to retire the documents the bank is compelled to create LIM to avoid demurrage/pil-ferage/damage etc. and also to safeguard the interest of the bank which is called “Forced LIM”.

 The set of charge documents usually obtained are-

      Demand Promissory Note

      Letter of Arrangement

      Letter of Pledge

      Comprehensive Insurance Policy covering all risks along with Bank Mortgage Clause.

      Letter of disclaimer from the owner of godown in case of rented godown.

Cash Credit (C.C) Account:

In some cases of industrial imports with prior arrangement with the importer documents are retired through financing from Cash Credit account of the party.

The following charge documents are obtained:

      Demand Promissory Note

      Letter of Arrangement

      Letter of Continuity

      Letter of Pledge

      Letter from the borrower handing over physical possession of the goods.

      Letter of disclaimer from the land-lord in case of rented godown.

      Letter of owner of rented godown acknowledging prior lien on the goods stored.

Loan Against Trust Receipt(LTR Loan):

  The bank handover the shipping documents to the importer for taking delivery of the goods from the port without receiving payment there-against but by taking a Trust receipt from him. In the Trust Receipt the importer specifies the goods and agrees that he is holding the goods not as their own but as an agent for the bank. It is usually allowed for a period of 30 days to 90 days. In addition to the Trust Receipt the following charge documents are obtained:

      Demand Promissory Note

      Letter of Arrangement

      Letter of Disbursement

Import Operations under L/C:

The Import Letter of Credit guarantees an exporter payment for goods or services, provided the terms of the letter of credit have been met.

A bank issue an import letter of credit on the behalf of an importer or buyer under the following Circumstances-

      When an importer is importing goods within its own country.

      When a trader is buying good from his own country and sells it to another country for the purpose of merchandizing trade.

      When an Indian exporter who is executing a contract outside his own country requires importing goods from a third country to the country where he is executing the contract.

The first category of the most common in the day to day banking-

Fees and Reimbursements:

              The different charges/fees payable under import L/C is briefly as follows-

      The issuing bank charges the applicant fees for opening the letter of credit. The fee charged depends on the credit of the applicant, and primarily comprises of:

      Opening Charges:

                                    This would comprise commitment charges and usance charged to be charged upfront for the period of the L/C.  The fee charged by the L/C opening bank during the commitment period is referred to as commitment fees. Commitment period is the period from the opening of the letter of credit until the last date of negotiation of documents under the L/C or the expiry of the L/C, whichever is later.

Usance is the credit period agreed between the buyer and the seller under the letter of credit. This may vary from 7 days usance (sight) to 90/180 days. The fee charged by bank for the usance period is referred to as usance charges.

Retirement Charges:

This would be payable at the time of retirement of LCs. LC opening bank scrutinizes the bills under the LCs according to UCPDC guidelines , and levies charges based on value of goods.

æThe advising bank charges an advising fee to the beneficiary unless stated otherwise the fees could vary depending on the country of the beneficiary. The advising bank charges may be eventually borne by the issuing bank or reimbursed from the applicant.

æThe applicant is bounded and liable to indemnify banks against all obligations and responsibilities imposed by foreign laws and usage.

æThe confirming bank’s fee depends on the credit of the issuing bank and would be borne by the beneficiary or the issuing bank (applicant eventually) depending on the terms of contract.

æThe reimbursing bank charges are to the account of the issuing bank.

Miscellaneous provisions:

Any importer may apply in writing to the Import & Export Control Authority requesting to register him/her as a registered importer under any one of the above six categories. He/She will submit the original copy of Treasury Challan & other required papers.

      Import on joint basis (commercial importer/industrial importer).

      Import by actual user (Import of own consumption)

      Import by Bangladesh professionals abroad.

      Import of samples, Advertising, Materials and gifts.

      Temporary importation with conditions of re-exports (Entry-part)

      Import into and Export from the Export Processing Zone (EPZ)

If any imported item is re-processed locally & its size or qualitative change takes place, 10% vat will be added with the import value & such item if exported will be treated as “re-export”.

Limit for shipment:

                 17 months for import of capital Machinery and 9 months for import of other goods from the date of issuance/registration of LCAF.But import under Foreign Aid, Shipment to be made as per specific terms of credit/grant.

Import Business of JBL:

               The total import business handled by the Bank in 2008 was Tk. 30311.71 million compared to Tk. 22191.84 million in the preceding year registering a rise of Tk. 8119.87 million being 36.59 percent. A sizeable L/C’s were also opened by the Bank in the year under review. The import items included industrial raw materials, machinery, consumer goods, fabric, accessories etc.

Handling the amount of Import Business:

Table: 11

YearJBL
20047923.90
200512151.90
200615457.66
200722191.84
200830311.71

Source: Annual Report from 2004-2008.

Handling Of Import Business in JBL:

From the above table and figure we can clearly understand that the volume of import is increasing gradually. This growth rate indicates the curiosity of customer towards the JBL.

Advantages to the Importers:

      Ability:

 The letter of credit enables the importer of purchase materials (particularly in sellers market) without making full advance payment.

Assurance:

If the importer task certain safe guards, like calling for packing list, invoice ate, the quality and quantity of the goods consigned is assured.

Without Payment:

Prided the buyer has buying credit with the Prime Bank he may get goods released by the Bank under trust (e.s. LTR, LIM etc), i.e. without payment and pay for then on sale.

Import can be made without L/C:

           In the following cases import van is made without Letter of Credit:

      Books, Journal, Magazines and Periodicals against sight or usance draft

      Freely importable goods up to US$25000/per annum on payment from

      Bangladesh. However, this limit is US$2500 per consignment instead of per annum for import of goods without L/C by land route from Myanmar.

      Import of International Chemical Reference for use in quality control for manufacturing drugs by Pharmaceuticals industry with the approval of the Director Drug Control.

      Perishable food items valuing from US$10000/- to US$ 15000/- against each consignment through Teknaf land Custom and that off US$7500/- by other land Route.

      Import under Loans, Commodity Aid and grant for which specific procedure is prescribed.

      Any Importable goods regardless of value can be imported on direct payment abroad by overseas Bangladesh. No permission is required.

How Disposal of L/C is made:

      Original copy along with duplicate copy to advising Bank(original for supplier and duplicate for advising bank)

      Triplicate copy for reimbursing bank

      Quadruplicate copy of applicant

      Rest other L/C issuing bank.

Persons/Items exempted from Registration;

      Government Department

      Local Authorities and Autonomous Bodies

      Recognized Educational Institutions

      Hospitals

      Import of goods for which no Foreign Exchange Remittance is required

      Import of capital Machinery and initial spares to set up a new industry.

 Import Registration number is invariably required to mention in IMP form, LCAF, L/C etc.

Hints of Import risk:

      Bill of entry matching

      Indent/Proforma Invoice

      Signature

      validity

      principal inclusion

      Credit report

      CIB report

      L/C opening Commission

      VAT/Source Tax on L/C commission

      Margin

      Lodgment of import bill

      Bill of entry statement

      Back to Back L/C

      Signature of the customer’s authority.

      PAD/MIB/MBE:

 Before opening L/C, branch should assess the quality, financial strength       and personal worth of the customer as well as marketability of the product.

LIM/MPI:

Sanction of LIM must depend upon nature and type of commodity in addition to quality and nature of customer. Storage of goods also depends upon the same.

LTR:

A goods remain under custody of the importer, bank must be aware of the business position of the importer.LTR limit should be strongly monitored.

Export:

When a manufacturer/factory in Bangladesh received order from the foreign buyer for shipment/export of finished goods to the foreign buyer, then the manufacturer received an order from abroad in the form of Irrevocable Letter of Credit which is called Export L/C.It is also known as Master/Mother L/C.

Before receiving an Export L/C the exporter and the buyer have detail discussion/negotiation regarding item,style,unit price of the goods and issued a proforma invoice which dully accepted by the exporter and importer.

If any of the terms of the L/C appears to be vague, ambiguous for the banker to ensure compliance, the banker should immediately refer to the concerned correspondent by letter or SWIFT and get the vaguence removed before advising the L/C to the beneficiary (exporter).

Exporter:

Export means flow of goods and services produced within Bangladesh, but purchased by economic agents (Individuals, firms, government) of other countries.However, local export of goods is also possible. The economic agent or the party who is involved in the selling of goods and services is known as Exporter.

Types of Exporter:

          There are two types of exporter-

      Merchant/Trade Exporter:

 If the supplier is a merchant exporter, he will immediately start packing and shipping the goods when they are ready.

      Manufacture Exporter:

If the supplier is a manufacturer exporter, he will start manufacturing the item and then start packing and shipping the goods.

Main objective of Export:

The main objective of export is to earn valuable and scarce foreign exchange resources for the country. The government always tries to put its all efforts to boost up exports of the country with a view to meeting the needs of development of its expanding economy.Therefore,export control is exercised over far less a number of items as compared to import control. In Bangladesh, the export of goods is regulated by the Ministry of commerce in terms of the Import and Export (Control) Act, 1950; with Export Policy Orders & Public Notices issued from time to time by the Chief Controller of Imports and Exports (C.C.I. &E) and with rules & regulations provided by the Exchange Control Department of Bangladesh Bank.

Advising of Export L/C:

 It means forwarding of an Export L/C received from the issuing bank (abroad) to the beneficiary (Exporter) in Bangladesh.

Before advising an export L/C, the advising bank must follow the following steps:

      Put a serial number and date in the SWIFT incoming register (if export L/C received by SWIFT) and stamp it in the original incoming Export L/C message.

      Put a serial number and date in the Mail incoming register and stamp it(if L/C received through DHL/Mail)

      Whether the L/C is received in Mt 700 with authentication of BKE arrangements(incase of SWIFT export L/C)

      Verification of authorized signatories(incase of Mail Export L/C)

      Sometimes L/C issued in MT 999 (Free Format Message) with test key and then verifies the test.

      Check whether any clause “This L/C advising register” with stamp and signature in the export L/C mentioning “without engagement on our part”

      Then forward the export L/C to the beneficiary or beneficiary’s bank forwarding with Banks covering schedule.

Some important issues in Export:

      Mode of Payment:

      Advance Payment

      Consignment sale

      Bills for collection-D/A,D/P,CAD

      Letter of Credit

      Part drawings and advance remittance

      Short Shipments

      Shipment shut out entirely

      Shipment Lost or Damaged in Transit

      Disposal of Export forms

The following steps are to be undertaken by the exporter:

      Registered with chief Controller of Export & Import (CCI&E) and collect ERC.

      Receiving of order from the foreign buyer. It is also called indent. It contains details of the goods required including specification,price,packing,shipping inspection, date of shipment, method of reimbursement active the terms are acceptable to the exporter the sale is finalized and the exporter inform the importer.

      Opening of letter of credit of credit by the importer in favor of the exporter. It is an undertaking/commitment by the issuing bank in the importer country that the bill drawn by the exporter will be duly honored/paid.

      Booking of shipping space, obtaining a shipping order from the caption of the ship.

      Booking of exhange, to avoid any sort of fluctuation in the rate of exchange. To become sure of the amount he will receive in home currency.

      Procurement of goods and arrangement for shipment .Obtaining of mates, receipt. From the caption of the ship after shipment of the goods.

      Exporter will then arrange Insurance of the goods if the sell is on C.I.F basis otherwise Insurance is covered BT foreign buyer/importer.

      The exporter will prepare the shipping documents which includes-

      Major Documents:

      Bill of Exchange

      Bill of Lading

      Shipper Invoice

      Insurance Policy

      Subsidiary Documents:

      certified of origin

      Pre shipment inspection certified

      Packing list

      G.S.P certificate

      Phytosanitary certificate

      Quality control certified

      Any other documents specially prescribed in the letter of credit.

          Exporters prepare document/papers as per instruction of the Importer. The Exporter will immediately after shipment of the goods inform their Foreign Buyer about the shipment and approximate date of arrival of ocean vessel carrying the consignment.

      Presentation/Submission of the Export document to the banker along with L/C for discount.

Regulatory Body/ Export related Committee:

 Ministry of Commerce.

 Export Promotion Bureau (EPB)

 National Committee on Export-Prime Minister in the chair.

 Task force to implement decisions Headed by the Commerce Minister to implement the decisions.

 Product Development Council-Representatives of registered trade bodies, pioneering exporters and financial sector and concerned ministry representatives will comprise the councils.

Export Registration Certificate (ERC):

 According to the Imports and Exports (control) Act, 1950 as adopted in Bangladesh any firms/parties desirous of undertaking export trade are required to obtain ERC from the offices of the Chief Controller of Import and Export (C.C.I. &E.).The registration number along with the date of registration should be quoted on the relative EXP form.

ERC is an application in the prescribed form is required to be submitted to the C.C.I. &E. authority along with the following documents

      Nationality certificate of the proprietors/directors.

      Asset certificate of the applicant

      Valid Trade License from Municipal Authority

      Bank Solvency Certificate

      TIN Certificate

      Registered Partnership Deed in case of Partnership concerns.

      Memorandum 7 Article of Association and Certificate of Incorporation in case of Limited Company.

      Copy of Rent receipt of the Business premises.

      Treasury Challan for Registration fee.

Back to Back Letter of credit:

 A back to back credit is essentially a secondary or ancillary credit opened by a bank on behalf of the beneficiary of original credit, in favor of a supplier located inside or outside the original beneficiary’s country. Since such letter of credit is opened on the strength of and backed by the export letter of credit it is called “Back to Back Letter of Credit”. By opening a back to back credit, the exporter gets the facility of purchasing the relative goods without investing his own fund.

Types of Back to back L/C:

      Inland back to back L/C

      Foreign Back to Back L/C-

      Import from Foreign countries

      Import from EPZ

Documents required by bank for opening back to back L/C:

      Prescribed application and agreement of L/C duly filled in, stamped and signed.

      Request to open the BTB L/C should be made through Co.’s Pad

      A set of LCAF dully filled in & signed ( Not required in case of local BTB L/C)

      IMP from duly signed

      Proforma Invoice/Indent duly accepted.

      Insurance cover note along with Money Receipt.

      Necessity Charge Documents Duly Stamped and Signed.

Additional Documents:

      Valid IRC/ERC

      TIN Certificate

      VAT Certificate

      Valid membership Certificate forms the Concern Chamber of Commerce & Industry.

      Valid Bonded Warehouse License

      Membership certificate from BGMEA    

Export Operation under L/C:

Export Letter of Credit is issued in for a trader for his native country for the purchase of goods and services. Such letters of credit may be received for following purpose:

For physical export of goods and services from India to a Foreign Country.

For execution of projects outside India by Indian exporters by supply of goods and services from Indian or partly from India and partly from outside India.

Towards deemed exports where there is no physical movements of goods from outside India But the supplies are being made to a project financed in foreign exchange by multilateral agencies, organization or project being executed in India with the aid of external agencies.

For sale of goods by Indian exporters with total procurement and supply from outside India. In all the above cases there would be earning of Foreign Exchange or conservation of Foreign Exchange.

Banks in India associated themselves with the export letters of credit in various capacities such as advising bank, confirming bank, transferring bank and reimbursing bank.

In every case the bank will be rendering services not only to the Issuing Bank as its agent correspondent bank but also to the exporter in advising and financing his export activity.

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

      Bill of exchange / Draft.

   Bill of lading.

  Commercial invoice.

  Airway bill / Railway receipt.

   Insurance policy.

  Certificate of origin.

   Packing list.

  Weightment & measurement list other etc.

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.

Preparation of Export Documents:

           Export Documents are of five types-

Examination of Export Documents:

Examination of documents must is completed within five banking days following the day of receipt of documents. Banks can examination of bills and shipping documents individually-

Bill of exchange:

 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 L/C.

   Whether amount of bill of exchange differs that of commercial invoice.

      Bill of exchange not drawn on L/C issuing bank.

      Bill of exchange not signed.

      Tenor of bill of exchange not mentioned /tenor differs with L/C.

Commercial Invoice:

It is the seller’s bill for the merchandise-

      Signed by the beneficiary.

      Description unit price, quantity etc. differs with the L/C.

      Marked us ‘Original’.

Packing List:

 Gross weight, net weight and measurement number differ with that bill of exchange.

      Not marked original.

      Shipping marks differs with that of bill of exchange.

Bill of Lading (incase of sea shipment):

        It is ‘title of goods’ shipping line receipt goods from the exporter and the importer takes possession of the goods on carrying vessel at the port of destination.

      Whether full set of bill of lading submitted.

  Whether ‘shipped on board’; freight prepaid’ etc. notation is not marked on the bill of lading.

      Name and address of notify party mentioned in the bill of lading.

      Bill of Lading drawn or endorsed to the order of issuing bank.

  Description of goods in bill of lading does not agree with that of invoice and packing list.

  Whether any alteration/correction on bill of lading authenticated by signature and stamp.

      Whether the third party bill of lading submitted.

      Whether bill of lading originally signed.

      Blank backed bill of lading presented.

Export Items:

                Readymade Garments,                 æKnitwear,

                Frozen Food, Leather,                   æJute Products,

                Raw Jute,                                       æChemicals,

                Tea,                                                æAgro Products,

                Handicrafts,                                    æElectronics goods,

                Engineering Products,                    æPetroleum Products,

                Computer software,                        æspecialized fabrics,

                Textile Fabrics,                               æCeramic tableware,

                Bicycle,                                           æShoe,

                Other primary products,                  æother industrial products.

List of Export Prohibited Items:

                  Petroleum and Petroleum products other than naphtha, furnace oil, lubricant oil and bitumen.

                  Jute seeds/Shan seeds.

                  Wheat

                  Living animals and their limbs and skins.

                  Firearms, ammunition and related materials.

                  Radioactive materials

                  Archeological relics.

                  Human skull, blood plasma or any other products produced with human body or blood.

                  Pulses of all kinds.

                  Shrimps other than frozen and processed ones Deer of both gender.

                  Onion

                  All kinds of Bamboo /Cane/Wooden powder

                  Frogs of all kinds or their legs.

                  Chemical enlisted in the number one list of Chemical Weapons Convention.

                  Raw and weight blue leather.

Advantages of the Exporters:

      Undertaking:

      A superior undertaking of the bank under the letter of credit assures the importer that when the documents are tendered as per the turns of the credit payment would be made to him.

      Controlling:

                 The exporter is absolved of the botheration of knowing in details the exchange control regulations of the importer country and is also increased to some extent against charges in such regulations.

The Bank handled export business worth Tk. 18617.43 million in the year under report. In 2007 total export business handled by the Bank was Tk. 13990.33 million. Thus there was an increase of being 33.07 percent over the preceding year. The major export item was Readymade Garments.

Handling the amount of Export Business:

Table: 12

YearJBL
20044790.80
20056521.80
200611583.64
200713990.33
200818617.43

Source: Annual Report from 2004-2008.

Handling Of Export Business in JBL:

Limitations of Export:

      Lack of natural resources.

      Market of our readymade garments is limited to North America and European Union.

      Export Products are not diversified.

Hints of Export Risk:

     Realization of the export proceeds

      Reporting of the export proceeds

      Bill of lading

      Signature of the shipping agent

      Discount cases

Foreign Remittance means money remitted in foreign currency. Foreign Remittance represents remittances in foreign currency that are received in and made out abroad. Foreign remittance is purchased and sale of freely convertible foreign currencies. Purchase of foreign currencies and bills constitute Inward foreign remittance and sale of which constitutes outward foreign remittance .The foreign remittances are affected either through the respective bank’s foreign branches or correspondents.

Remittance services are available at all branches and foreign remittances may be sent to any branch by the remitters favoring their beneficiaries.

Remittances are credited to the account of beneficiaries instantly through Electronic Fund Transfer (EFT) mechanism or within shortest possible time.

Jamuna Bank Ltd. has correspondent banking relationship with all major banks located in almost all the countries/cities. Expatriate Bangladeshis may send their hard earned foreign currencies through those banks or may contact any renowned banks nearby ( where they reside/work) to send their money to their dear ones in Bangladesh.

To facilitate sending money in Bangladeshi Taka directly, Jamuna Bank Ltd. has Taka Drawing Arrangement with many banks/exchange companies in different countries. The expatriate Bangladeshis may send their money in BDT through the branches/subsidiaries of Jamuna Bank Ltd.

Local Remittance:

      Between banks and non banks customer

      Between banks in the same country

      Between banks in the different centers.

      Between banks and central bank in the same country

Foreign Exchange