Foreign Exchange Operation of United Commercial bank - Assignment Point
Foreign Exchange Operation of United Commercial bank

Major purpose of this report is to identify the various aspect of the foreign exchange transaction of Foreign Exchange Operation of United Commercial bank. Other objectives are familiar with banking management system and evaluate the performance of foreign exchange division. Here also discuss on different rules and regulation of export and import formalities and get knowledge about the Function of the Foreign Exchange Department.

Objective of the Report:

Broad objective: – To identify the various aspect of the foreign exchange transaction.

Specific Objective:

  • To apply theoretical knowledge into practical arena.
  • To be familiar with banking management system.
  • To evaluate the performance of foreign exchange division.
  • To familiarize the working hours, values and environment of the book.
  • To familiarize different rules and regulation of export and import formalities.
  • To gather knowledge about the Function of the Foreign Exchange Department
  • Describing necessary posting.

Research Question:

  • What is Foreign Exchange?
  • Definition of Letter of Credit?
  • Parties involved in Letter of Credit operation?
  • How Letter of Credit functions?
  • Documents used in Letter of Credit?
  • Types of Letter of Credit?
  • Special types of Letter of Credit?
  • Back to Back Letter of Credit?
  • Discrepancies in documents?
  • Trade disputes and settlement?
  • What are the rules and regulation behind Foreign Exchange?
  • What are the guidelines behind Foreign Exchange?
  • What are the mechanisms of Foreign Exchange?
  • What are the functions of Foreign Exchange?
  • Who are the bodies of Foreign Exchange Management?
  • What are the operations of Foreign Exchange?

Methodology of the Study:

Both primary and secondary data are used here in this study for make the report fruitful. As my related topic is more narrative I have used the primary source as the main of information.

Primary sources of data

  • Face to face conversation with the bank officers & staffs
  • Informal conversation with the clients
  • Different circulars of U.C.B.L

Secondary sources of data

  • Annual report of U.C.B.L
  • Different manuals of U.C.B.L
  • Prospectus of U.C.B.
  • Different papers of U.C.B.L
  • Unpublished data
  • Different Text Books

 

Historical Background of the Bank:

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

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

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

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

 

Vision:

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

Mission:

  • To become the leader in the industry attaining highest level of customer satisfaction with strong corporate culture and good governance.
  • To maximize profit with steady growth ensuring major market share
  • To engineer enterprise and creativity in business and industry with a commitment to social responsibility
  • To introduce fully automated systems through integration of ICT.
  • To maintain high moral and ethical standard and participative management
  • To nurture an enabling environment where the innovativeness and performance is rewarded
  • To develop and retain a quality workforce through effective HRM system
  • To offer an array of products & services in the search for excellence and create an impressive economic value

 

Financial Position of UCBL

Assets

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

 

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

Capital and Reserves

During the year under report authorized capital of the bank remained unchanged at TK 1000 million and the paid-up capital stood at TK 230 million. The reserve fund of the bank increased by 33.46 percent to TK 1045 million against TK 783 million in the previous year. 2004 to 2005 changes little bit but from 2006 to 2008 over the time period degree of increases is significantly high.

Deposit

The deposit of the bank registered an increase of 17.115 percent in the year under review. At the close of 2008, Total deposit stood at TK 24559 million as against TK 20970 million in the previous year. Average deposit per branch stood at TK 306.9875 million in 2008 as against TK 262.125 million in the previous year. Deposit of the bank is increasing significantly it good sign as well as increase liability

Credit

The bank continued its participation in different credit programs for financing new industrial projects, working capital, trade finance, international etc. consequently net credit rose to TK 20,211 million from Tk 15,385mollion of 2008. Average advance of per branch was 252.3675 million.

1.CONTINUOUS LOAN11707.88
2DEMAND LOAN3076.14
3TERM LOAN (UP O 5 YEARS)3222.64
4TERM LOAN (OVER 5 YEAR)1954.23
5STAFF LOAN250.11

Investment

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

 

Company Analysis:

SWOT Analysis:

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

Strengths:

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

  • It has got significant image in the banking industry.
  • UCBL Bank has the reputation of being the provider of good quality services to its present and potential customers.
  • Excellent Management
  • High Commitment of Customer
  • Qualified and experienced Human Resource
  • Strong network.
  • Sophisticated Automated System
  • UCBL Bank has already achieved a high growth rate. Deposits as well as loans & advances are increasing rapidly.

Weaknesses:

  1. Lack of motivation of work among some employees.
  2. Heavily depended on Head Office for decision making.
  3. Some of the job positions in the UCBL Bank have no growth or advancement path which brings job dissatisfaction among some employees.
  4. The promotional activities of the Bank are not adequate to widen its market share.
  5. UCBL Bank does not provide ATM card which limits its competence in the fast changing banking industry.
  6. UCBL Bank has more redundant manpower compared to other banks of the same generation which increases its operational cost.

Opportunities:

  1. Increasing demand of customer finance.
  2. Investment potential of Bangladesh.
  3. Relationship Management.
  4. A large portion of our population is middle class. Different types of retail lending products have a great appeal to this class. So, a wide variety of retail lending products has a very large and easily pregnable market. Thus, UCBL Bank can adopt variety scheme for retail lending.
  5. Bank can introduce special corporate scheme for corporate customers or service holders according to the professions, such as engineers, lawyers, doctors etc.

Threats:

  1. Some commercial/ foreign as well as private bank.
  2. Similar types of retail banking products.
  3. Certain Bangladesh Bank rules and regulations.
  4. Customer awareness of pricing and services.
  5. Industries are becoming sick at an increasing rate and growth of industrialization is very slow in the country. Therefore, it is very likely that poor industrial growth will affect the potentiality of UCBL Bank.

Leverage:

Degree of operating Leverage (DOL)% changes in EBIT/ % changes in sales0.34422/0.260751.32011
Financial leverage (DFL)EBIT/EBIT-I1152/1152-1501.149
Degree Total Leverage (DTL)DOL*DFL1.32011*1.1491.5168

 

Effect of Leverage: 

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

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

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

 

Risk Analysis: (Taka in Thousand)

20042005200620072008Average
Profit1751544166268524446
Standard Deviation298.677

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

 

 

Ratio Analysis

Percentage of current asset in total asset

Year20042005200620072008
Percentage of current asset in total asset62.57%61.50%64.26%66.35%68.01%

 In 2004 to 2005 ratio is decline, but from the 2005 the ratio is gradually increasing

 

Percentage of cash in current asset

Yea20042005200620072008
Percentage of cash in current asset3.10%6.29%3.66%5.02%5.86%

In 2005 the ratio in pick but in 2006 it fall and the gradually increasing but still can not exceed 2005 ratio

 

Percentage of advance & deposit in current asset

year20042005200620072008
Percentage of advance & deposit in current asset20.11%15.61%12.25%13.77%14.12%

 

In 2004 it was 20% but after that it is decreasing up to 2006 then is stable over the time period.

 

Percentage of trade debtor in current asset

Year20042005200620072008
Percentage of trade debtor in current asset3.42%2.62%4.81%6.43%6.75%

In 2004 to 2005 the ratio is decline but after that period it is gradually increasing over the time period.

 

Percentage of stock in current asset

Year20042005200620072008
Percentage of stock in current asset70.18%78.66%79.27%74.42%73.61%

In 2004 to 2006 the ratio is increasing but after then it is decline over the time period.

 

Ratio of net working capital

Year20042005200620072008
Ratio of net working capital1 Base year.991.011.371.48

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

 

Current Asset ratio         

Year20042005200620072008
Current ratio1.301.251.241.321.34

Over the time period the ratio is moderately stable so it is good looking for an organization

 

Current asset to fixed asset ratio

Year20042005200620072008
Current asset to fixed asset ratio1.671.601.801.972.12

In 2004 to 2005 the ratio is slide decline but from 2005 to 2008 over the time period it is gradually increasing

 

Return on total asset (ROA)

Year20042005200620072008
ROA5.33%4.70%4.16%4.10%2.92%

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

 

Last Five year Profits

Table: 2.1 Profits                    Figures in million

Years20042005200620072008Average Growth (%)
Operating Income(A)1,040

 

1,027

(-1%)

1,342

(31%)

1,580

(18%)

1,992

(26.08%)

17.64

 

Operating expenses(B)537

 

572

(7%)

637

(11%)

723

(14%)

840

(16.18%)

11.83

 

Gross Profit (C) = A – B503

 

454

(-10%)

704

(55%)

857

(22%)

1152

(34.42%)

23.02

 

Provisions for Loans and advances(D)328

 

300

(-9%)

287

(-4%)

231

(-20%)

300

(29.87%)

-2.21

 

Net Profit

= C – D

175

 

154

(-12%)

416

(170%)

626

(50%)

852

(36.10%)

48.54

 

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

 

Income and profit:

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

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

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

 

 

Last Five Years Position at a Glance

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

Particulars20042005200620072008
Authorized Capital1,0001,0001,0001,0001,000
Paid-up Capital230230230230230
Reserve Fund3944406587831,045
Deposits14,24616,41717,41320,97024,559
Advances10,94211,82614,39615,38520,211
Investments1,9623,9623,0223,0202,877
Gross Income1,7271,7662,1972,5543,188
Gross Expenditure1,2241,3111,4931,6972,036
Net Profit(pre-tax)175155417626852
Import Business13,13314,97518,48824,38629,408
Export Business5,3095,6217,49210,47014,785
Foreign Correspondents193256295322329
Number of Employees1,8121,8191,8741,8781,949
Number of Branches7980808080
Number of Shareholders3,5393,9433,9073,9794,064

 

 

Definition of Foreign Exchange

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

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

Foreign Trade and Foreign Exchange

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

a)Different countries have different monetary units;

(b)Restrictions imposed by countries on import and export of goods;
(c) Restrictions imposed by nations on payment from and into their countries;
(d) Differences in legal practices in different countries.

Foreign exchange means foreign currency and includes:-

(i) All deposits, credits and balances payable in any foreign currency and any drafts,
travelers cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency;

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

Function of Foreign Exchange

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

i) Rate of exchange.
ii) How the rate of exchange works.
iii) Forward and spot rate.
iv) Methods of quoting exchange rate.
v) Premium and discount.
vi) Risk of Exchange rate.
vii) Causes of exchange rate.
viii) Exchange control.
ix) Convertibility.
x) Exchange position.
xi) Intervention money.
xii) Foreign exchange transaction.
xiii) Foreign exchange trading.
xiv) Export and import letter of credit.
xv) Non-commercial letter of trade.
xvi) Financing of foreign trade.
xvii) Nature and function of foreign exchange market.
xviii) Rules and Regulation used in foreign trade.
xix) Exchange Arithmetic.

 

Area of Foreign Exchange:

Foreign exchange has three wings that are below

  • Import
  • Export
  • Remittance

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

 

Definition on Import:

Buying of goods & services form foreign countries for sales is considered as import. The person or organization who import the goods & services form foreign countries is known Importer and from which goods & services are imported is known as Exporter. In case of Import, the importers are asked by their Exporters to open a Letter of Credit (L/C). So that there payment against goods & services is ensured.

The main objectives of the Import Policy:-

  • to make the Import Policy Compatible with the changes in the world market that have occurred as a result of the introduction of market economy and signing of the GATT Agreement;
  • to simplify the procedures for import of capital machinery and industrial raw materials with a view to promoting exports, and
  • To ensure growth of the indigenous industry and availability of high quality goods to the consumers at a reasonable price.

Different Way of Import

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

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

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

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

  • Import of books, journals, magazines and periodicals on sight draft usance bill basis;
  • Import of any permissible item for an amount not exceeding US Dollars Five thousand only during each financial year against remittance made from Bangladesh. However, consignment from Mayanmar shall be importable.
  • Import under commodity aid, grant or such other loan for which there are specific procurement procedures for import of goods without opening any L/C;
  • Import of “international chemical references” through Bank drafts by recognized pharmaceuticals (allopathic) industry on the approval of Director, Drugs Administrators for the purpose of quality control of their products.

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

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

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

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

  1. New or not exceeding twelve years old plant and machinery of permissible specification;
  2. New or not exceeding five years old motor cars;
  3. Cargo or passenger vessel of steel or wooden bodies, including refrigerated vessel of any capacity either new or not exceeding fifteen years old; but in case of ocean going ships. Old ship, not exceeding twenty years old shall be importable.
  4. Import of plant and machinery for export oriented industrial units with the clearance of the competent sanctioning authority, wherever necessary; and
  5. Trawlers and other fishing vessels, either new or not exceeding twenty years old.

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

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

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

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

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

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

 

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

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

Open a Bank Account

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

  • To open a bank account following document have to submit
  • Trade license
  • Value added tax (VAT)

Tax identification number (TIN)

  1. Import Registration Certificate (IRC)
  2. Tax Identification Number (TIN)
  3. Valid Trade License.
  4. Chamber of commerce Certificate
  5. National ID Card

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

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

  1. LCAF form.
  2. Application and Agreement form.
  3. IMP form
  4. Charge documents for documentation.

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

Step Three: Document submit to open L/C

The client will approach to open the L/C in Bank’s prescribed form, duly stamped & signed, along with the following paper & documents: Such as

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

Step Four:  Bank Verify about the Importer

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

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

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

Market Report: Bank will verify the marketability of the item & market price of the goods. Some times the importer may misappropriate the Bank’s money through over invoicing.

Sufficient Security or margin: Price of some items fluctuates frequently. In case of those items Bank will be more careful to take sufficient cash margin or other security.

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

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

Permission from Ministry of Commerce: If the goods to be imported under CIF (cost insurance & freight), then permission form ministry of commerce to be obtained.

Creditability of the Client: In consideration of all the above points, if Bank becomes satisfied regarding the client then L/C may be ope3ned on behalf of the client. Before opening the L/C bank will issue & authenticate a set of LCAF in the name of the importer.

Step Five: Requirement of Head office Approval:

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

Step Six: Sent Document to Negotiating/Confirming Bank:

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

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

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

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

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

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

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

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

 

Introduction to Export

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950.there are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports and Exports (CCI&E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI &E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.

Incoterms:

Incoterms simply mean International Commercial Terms. These terms have been prepared and named by the international chamber of commerce (ICC) pairs. France.

The purpose of Incoterms is provide a set of international rules for the interpretation of the most commonly used trade terms in international trade/ foreign trade. Thus the uncertainties of different interpretation of such terms in different countries can be avoided or at least reduced to a considerable degree. International Chamber of Commerce first introduces the incoterms in the year 1936. After that amendment and additions of the incoterms were made by the ICC in several times to cope with the changing situations of the world related to international trade foreign. Present incoterms have been revised by the ICC in 2000 which are known as Incoterms 2000.

There are thirteen Incoterms divided into four categories and four groups. These are as follows………

CategoriesGroup              TermsIncoterms
 

 

Departure

 

 

E

1.      The seller makes the goods available to the buyer at the seller’s own premise or another named place.

2.      The seller should handover the goods to the buyer at the seller’s premise or another named place

EXW

 

EX Works

Main carriage unpaid 

F

1. The seller is called upon to deliver the goods to a carrier appointed by the buyer.

 

2. The seller should handover the goods for carriage as instructed by the buyer since the buyer would make the contract of carriage and named the carrier.

FCA-Free Carrier

FAS-Free Alongside ship

FOB-Free on

Board

Main carriage paid 

C

1.      The seller has to contract for carriage but without assuming the risk of loss of or damage to the goods or additional costs due to events occurring after shipment and dispatch.

 

2.      The seller should contract for contract for carriage and put the goods

CRF-Cost and Freight (named port of destination)

CIF-cost Insurance and Freight

CPT-Carriage Paid To

CIP-Carriage and Insurance paid to.

 

ArrivalD1.      The seller has to bear all costs and risks needed to bring the goods to the country of destination.

 

 

 

 

2.      The seller should handover the goods to the buyer’s country.

DAF- Deliver At Frontier

DES-Deliverd Ex ship

DEQ-Delivered Ex Quay

DDU-Delivered Duty Unpaid

DDP-Delivered Duty Paid.

 

Export Procedures

  • Registration of Exporters
  • Securing Export Order
  • Signing the Contract
  • Receiving the Letter of Credit
  • EXP form for the declaration of exports.
  • Shipment of goods.
  • Preparation/Procurement of Export Documents.
  • Submission of Export Documents for Negotiation.

Practices of Export Department in United Commercial Bank Ltd.

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through U.C.B.L are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.

As an advising bank

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

As Negotiating Bank

It negotiates the bill and other shipping documents in favor of the exporter. That is, it collects the proceeds of the export-bill from the drawer and credits the exporter’s account for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawer to in cash it.

In our country, Export and Import operation of bank is very much related with one another because of use of Back to Back and maturity of payment for Back to Back L/C is set in such that it can be paid out of export proceeds.

 

Back To Back L/C

It is simply issued to the clients against an import L/C. Back to Back mechanism involves two separate L/C. One is Master Export L/C another is Back to Back L/C. On the strength of Master Export L/C bank issues back to Back L/C. Back to Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.

Features of Back to Back L/C

  • An Import L/C to procure goods/raw materials for further processing.
  • It is opened based on Export L/C.
  • It is a kind of Export Finance.
  • Export L/C is at Sight but Back to Back L/C is at Usance.
  • No margin is required to open Back to Back L/C.
  • Application is registered with CCI&E.
  • Applicant has bonded warehouse license.
  • L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.
  • Usance period will up to be 180 days.
  • The import L/C is opened for 75% of the value of Export L/C.
  • Here L/C issued against the lien of Export L/C
  • Arrangements are such that export L/C matures first then out of his export profit, import L/C is paid out.

Documents required for Opening a Back to Back L/C

In U.C.B.L Foreign Exchange Branch, following papers/documents are required for opening a back to back L/C:

  1. Master L/C
  2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC).
  3. L/C Application and LCAF duly filled and signed.
  4. Proforma Invoice or Indent
  5. Insurance Cover Note wit money receipt
  6. IMP form duly signed

Payment of back to back L/C:

In case of back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

L/C under (Exporter Development fund) EDF:

  • Exporter development fund is created by Bangladesh Bank to give encourage to the exporter in Bangladesh.
  • Generally Back to Back L/C is Usance L/C that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance/ negotiation. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank gives the fund to the bank to pay the price of imported goods in favour of the local purchaser of raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.

Negotiation of Export Documents

The most common method of financing exporters is negotiation of documents under L/C. It is a post-shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation.. After approval of negotiation of the bill the full particulars of the documents are branch with a forwarding letter. The branch claim reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to credit the proceeds of the bill to the U.C.B.L head office NOSTRO A/C maintained with the named correspondent bank abroad under telex intimation to the Principal branch and Head Office.

Negotiation stands for payment of value to the exporter against the documents stipulated in the L/C. If documents are in order, U.C.B.L purchases (negotiates) the same on the basis of banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

If the bank is not satisfied with the documents submitted to U.C.B.L gives the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening bank for collection. This is known as Foreign Documentary Bill for Collection (FDBC) entered into the Foreign Bill purchased (FBP) register. The documents are sent to the L/C opening.

Presentation of export documents for negotiation/ Purchase

After shipment, exporter submits the following documents for negotiation.

  • Bill of exchange
  • Bill of Lading
  • Insurance Policy/ Certificate
  • Certificate of Origin
  • Inspection Certificate
  • Consular Invoice
  • Packing List

Foreign documentary bill for collection (FDBC)

U.C.B.L forwards the documents for collection due to the following reasons:

  • If the documents have discrepancies.
  • If the exporter is a new client

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment U.C.B.L make regular follow up with the L/C opening bank in case of any delay in getting payment.

Settlement of Local Bills

The settlement of local bills is done in the following ways:

  1. The customer submits the L/C to U.C.B.L along with the documents to negotiate
  2. C.B.L official scrutinizes the documents to ensure the conformity with the terms and conditions.
  3. The documents are then forwarded to the L/C opening bank. The L/C issuing bank gives the acceptance and forwards an acceptance letter.
  4. Payment is given to the customer on either by collection basis or by purchasing the documents.

 

Letter of Credit (L/C):

Letter of credit is a document issued mostly by a financial institution which provides an irrevocable payment undertaking to a benificiary against complying documents as stated in the credit. Letter of Credit is abbreviated as an LC or L/C, and often is referred to as a documentary credit, abbreviated as DC or D/C, documentary letter of credit, or simply as credit (as in the UCP 500 and UCP 600). Once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to honour irrespective of any instructions from the applicant to the contrary. In other words, the obligation to honour (usually payment) is shifted from the applicant to the issuing bank or confirming bank, if any. Non-banks can also issue letters of credit however parties must balance potential risks.

A Letter of Credit may be payable either at sight or at extended payment terms (payment at a future date). A payment at sight means that the payment is due upon the presentation and receipt of documents after shipment of the goods and/or services are provided. On the other hand, if the exporter (seller) allows the importer (buyer) an additional period after presentation of documents to pay the credit at a future date, then the credit is payable at 30, 60 or 90 days after presentation and acceptance of documents

Contents of the Letter Of Credit

Banks normally issued letter of credit (L/C) on forms, which clearly indicate the banks name and extent of the banks obligation under the credit. The contents of the L/C of different Banks may be different .In general L/C contains the following information: –

i) Name of the buyer: Who is also known as the accounted since it is for his account that the credit has been opened?
ii) Name of the seller: Who is also known as the beneficiary of the credit?

iii) Moment of the credit: Which should be the value of the merchandise plus any shipping charges intent to be paid under the credit?

iv) Trade Terms: Such as F.O.B and CIF

v)Tenor of the Draft which is normally dependent upon the requirements of the buyer.

vi) Expiration Date: This is specified the latest date documents may be presented. In this manner or by including additionally a latest shipping date, the buyer may exercise control over the time of shipment.
vii) Documents required: Which will normally include commercial invoice consular or customers invoice, insurance policies as certificates, if the source is to be effected by the beneficiary and original bills of lading.
viii) General description of the merchandise:This briefly and in a general manner duly describes the merchandise covered by a letter of credit.

 

Classification of L/C:

There are many kinds of L/C. Few of them are briefly discussed below:

Irrevocable L/C: Irrevocable credit means the credit cannot be amended or cancelled without the agreement of all parties (the beneficiary, the applicant, the issuing bank and the confirming bank if the letter of credit is confirmed). A credit therefore should clearly indicate whether it is revocable or irrevocable; however, in the absence of such indication, the credit shall be deemed to be irrevocable.

Revocable L/C: A revocable letter of credit may be cancelled or modified after its date of issue, by the issuing bank.

Standby Letters of Credit: These types of credits are not specifically related to the movement of goods. They are used as a form of payment guarantee in the case on non-performance of the applicant under contractual obligation between the applicant and the beneficiary. A standby letter of credit allows the beneficiary to draw in the event of default on a contract.

Back-to-Back L/C: Where the beneficiary under a letter of credit is intermediary processing goods from supplier and likes the supplier to set the benefit under the credit, transferring the credit in favour of the supplier does it. But transfer of the credit is possible only if it is authorized by the beneficiary remaining his bank to open another letter of credit in favour of the supplier on the original credit. Such as ancillary Letter of credit is know as Back to back Credit.

Red Clause and Green Clause Credit Also: known as packing or anticipatory credit, a red clause letter of credit contains a clause printed in red, authorizing the negotiating bank to grant advance to the exporters for the purchase and processing, packing and arranging for movement of goods up to the port for shipment.

Sight versus Usance: At sight means the beneficiary is paid as soon as the paying bank has determined that all necessary documents are in order. Usance time can be between 30 and 180 days after the bill of lading date. This is a form of delayed payment, and should be avoided.

Parties of Letter of Credit: We’ve provided you with a comprehensive list of the parties involved in a letter of credit transaction. This page helps you understand the possible players in your scenario.

Applicant: The party who applies to the opening (issuing) bank for the issuance of a letter of credit.

Beneficiary The party in whose favor the letter of credit has been established. The beneficiary is the party who demands payment under the letter of credit.

Advising Bank: Denotes the bank giving notification of the terms and conditions of a letter of credit to the beneficiary (seller). The advising bank also takes reasonable care to check the apparent authenticity of the letter of credit, which it advises.

Confirming Bank: A bank that at the request of the issuing bank, assures that drawings under the credit will be honoured.

Drawee Bank: The bank on which the drafts specified in the credit are drawn and from which payment is expected.

Issuing Bank (Opening Bank): The bank which issues the letter of credit on behalf of the applicants known as an applicant bank.

Negotiating Bank: Bank, other than the issuing bank, which elects to “negotiate” (advance funds or give value to the beneficiary) against presentation of complying documents.

Paying Bank The bank authorized in the letter of credit by the issuing bank to honour sight or deferred payments under the terms specified in the credit. (If this bank is the advising bank, it has no obligation to honour documents; however, if this is a confirming bank, it is obligated to pay against complying documents.)

Presenting Bank The bank that forwards the documents directly to the issuing bank to obtain settlement.

Reimbursing Bank The bank authorized by the issuing bank to reimburse the drawee bank or other banks submitting claims under the terms of the credit.

Transferring Bank A bank authorized by the issuing bank as specified in the credit that can transfer the issuing bank’s documentary credit from one beneficiary to another at the request of the first beneficiary.

 

Advantages of Letter of Credit for Importer and Exporter

Advantages for the Importer (Buyer)

The advantages of the LC to the Buyer are short listed below-

  • Reduce the commercial risk by ensuring that supplier will not be paid until evidence has been provided that the goods have been dispatched.
  • Import LC also helps by assuring bank will refuse payment to the seller if the documents presented do not comply with the terms and conditions of the Letter of Credit.
  • Conserve company’s cash flow by eliminating the need to make advance payments or deposits.
  • Demonstrate your creditworthiness to the supplier. The letter of credit protects the buyer because he knows that the seller will not be paid until he has presented documents to the bank evidencing shipment of the merchandise.

Advantages for the Exporter (Seller)

The advantages of the LC to the Seller are short listed below-

  • The seller is protected because he knows that he will be paid once the merchandise has been shipped and the required documents tendered to the bank.
  • Dramatically increase the export sales, not financial risk of the seller.
  • Exporter can rely on a bank’s creditworthiness rather than the buyer’s.

 

Introduction To Foreign Remittance

This bank is authorized to deal in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services.

The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes place an agreed  rate of exchange, which the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like any other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.

Remittance procedures of foreign currency

There are two types of remittance:

  1. Inward remittance
  2. Outward remittance

Inward remittance: Inward remittance covers purchase of foreign currency in the form of Foreign T.T, D.D and bills, T.C etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange Control Department of Bangladesh Bank on Form-C.

Outward Remittance: Outward remittance covers sales of foreign currency through issuing foreign T.T, Drafts, Travellers Check etc. as well as sell of foreign exchange under L/C and against import bills retired.

 

Works of this Department

  1. Issuance of TC, Cash Dollar/Pound
  2. Issuance of FDD,FTT & purchasing, payment of the same
  3. Passport endorsement
  4. Encashment Certificate
  5. F/C Account opening & filing
  6. Opening of Export FC Retention Quota A/C &      maintain
  7. Maintenance of ledger of Cash Dollar, FC Deposit A/C      & TC
  8. Maintain FBC register & follow up FBC
  9. Opening of Student file & maintain
  10. Preparation of all related statement, Voucher & posting
  11. Preparation of Weekly, Monthly, Yearly Statement for Bangladesh Bank returns

 

Modes of Remittance Process

The remittance process involves the following four modes

 

Cash

Remittance

Dollar/

pound

SellBank sells Dollar/pound for using in abroad by the purchaser. The maximum amount of such sell is mentioned in the Bangladesh Bank publication of ‘Convertibility of Taka for Currency Transactions in Bangladesh’.
PurchaseBank can purchase dollar from resident and non-resident Bangladeshi and Foreigner. Most dollars comes from realization of Export Bill of Exchange.
 

 

 

Traveler’s

Cheque (TC)

Issue of TCTC is useful to traveler abroad. Customers can encash the TC in abroad from the drawee bank. TC is alternative to holding cash and it provides better security than holding cash in hand.
 

Buying of  TC

If any unused leaf of TC is surrendered bank buys it from the customer. All payments are made in local currency. Banks generally buy only those TC.
Telex  TransferOutward TTIt remits fund by tested TT via its foreign correspondence bank in which it is maintaining its NOSTRO Account.
Incoming TTIt also makes payment according to telegraphic message of its foreign correspondence bank from the corresponding VOSTRO Account.
Foreign Demand DraftBank issue Demand Draft in favor of purchaser or any other according to instruction of purchaser. The payee can collect it for the drawee bank in which the Issuing bank of Demand Draft holds its NOSTRO Account. Bank also makes payment on DD drawn on this bank by its foreign correspondence bank through the VOSTRO Account.

In this process of remittance, bank must have to make profit as a business institution. Profit is made in two ways:

  1. Commission Charge
  2. Difference in the buying and selling rate.

Last Five Year foreign Exchange Performance of UCBL:

The foreign exchange market or currency market is the market where one currency is traded for another. It is one of the largest markets in the world.

Foreign exchange business of the UCBL Bank includes import business and export business. Changes in these three components of foreign exchange business are shown below:

Table: International Trade

Figures in million

 

 

20042005200620072008Average Growth (%)
1Import Business13,13314,97518,48824,38629,40822.33
2Export Business5,3095,6217,49210,47014,78529.18
3Total Foreign Business18,44220,59625,98034,85644,19324.42

 Source: Annual Report, 2001–2005 & Auditor’s Report and Audited Financial Statements, 2006-2008.

 

Bangladesh Bank Guidelines for Foreign Exchange Transactions

IMPORTS

Investment in Bangladesh: Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the Import and Export (Control) Act, 1950; with Import Policy Orders issued biannually, and Public Notices issued from time to time by the office of the Chief Controller of Imports and Exports (CCI&E). The instructions contained in this chapter apply to sales of foreign exchange or transfers to non-resident taka accounts against import of goods into Bangladesh.

Registration of importers: In terms of the Importers, Exporters and Indentors (Registration) Order, 1981 no person can import goods into Bangladesh unless he is registered with the Chief Controller of Imports and Exports or exempted from the provisions of the said Order. Before any Letter of Credit (LC) is opened or remittance made for imports into Bangladesh the AD should verify that the importer is registered with the CCI&E or otherwise exempted from such registration. The AD should ensure that the registration number of the importer is invariably furnished on the IMP form. Where the importer is exempted from such registration, a suitable mention of this fact should be made on the IMP form.

The ADs must ensure that they deal only with known customers having a place of business in Bangladesh arid can be traced easily should any occasion arise for this purpose.

LC Authorization Form

  1. The ADs are authorized to issue ‘Letter of Credit Authorization Forms'(LCAFs) in conformity with the IPO allowing imports into Bangladesh. LCAFs or import permits or clearance permits are not required for imports by the Ministries and government departments. The LCAFs, available with the ADs, are issued in sets of 5 copies each of these; the one marked “For Exchange Control Purpose” should be used for opening LC and for effecting remittances. The ADs should be very careful about compliance with the instructions of the IPO and relevant Public Notices in the matter of issuance of LCAFs.
  2. If foreign exchange is intended to be bought from the Bangladesh Bank against an LCAF it has to be registered with Bangladesh Bank’s Registration Unit located in the concerned area office of the CCI&E. For such registration the LCAF, duly filled in and signed by the importer and authenticated by the AD, shall be submitted by the AD to the concerned Registration Unit. The Unit will put a registration number on all the copies and emboss a security seal. After registration the original and duplicate copies of the LCAFs will be delivered to the authorized representatives of the ADs. The triplicate and quadruplicate copies will be passed on to the concerned area office of the CCI&E and the quintuplicate will be retained by the Registration Unit.
  3. Where no registration of LCAFs is needed, the AD will send the triplicate and quadruplicate copies to the concerned area office of the CCI&E, retaining the other copies with itself. Where an import is against a source of financing (foreign project loans, grants) usable through a specific designated bank, the nominated AD of the importer will forward to the designated bank the authenticated LCAFs and the designated bank will eventually forward the triplicate and quadruplicate copies of LCAF to the area office of the CCI&E.
  4. The ADs will not issue blank LCAFs to their clients. The importer should himself/herself sign the LCAF in the presence of an officer of the AD, an authorised official of the AD should put his/her signature with date and seal on
  5. The LCAF, evidencing verification of the importer’s signature and import entitlement as per current IPO.
  6. The ADs will maintain records of the signatures of the authenticating officers of the Bangladesh Bank Registration Unit and verify, before opening LC, that the signature of the authenticating officer of the Registration Unit is genuine.
  7. In no case the ADs will accept authenticated LCAF for opening LC direct from the parties. Normally the AD issuing and authenticating an LCAF would also open the LC but if it requires transfer to another AD this should be done directly by the transferring AD itself. The AD receiving the LCAF must conduct its own verification of the signatures on the LCAF before opening LC.

Opening of L/Cs and payments for imports into Bangladesh should be made through an AD in the area where the holder of the LCAF is resident (Appendix-4 lists the areas for foreign exchange regulation purposes).

Imports under special arrangements: Specific procedural instructions regarding imports under special arrangements or agreements (grants, loans, barters etc.) issued by the Bangladesh Bank from time to time should be followed by the ADs.

Misclassified imports: The ADs should take all precautions to quote the correct ITC nos (HS Codes) of the goods to be imported, in the LCAF and the LC. Failure to do so may lead to imposition of penalties by the Customs Authorities. In all cases of doubt, reference should be made either by the AD or the customer direct to the area office of the CCI

When L/Cs is opened, full particulars thereof must be endorsed on the back of the exchange control copy of the LCAF under the stamp and signature of the AD. The Taka equivalent of the LC opened must be endorsed on the LCAF at the ruling BC selling rate

(Spot), but if a forward exchange cover is provided the conversion should be made at the actual for-ward rate. Foreign exchange must not be sold ready if a forward sale is outstanding against an LC.

Details of amounts remitted, whether under LC or other-wise, should be endorsed on the Exchange Control copy of the LCAF together with the number of the relative IMP form. Appropriate reference to the LCs, the dates on which these were opened and remittances effected should be noted in order to identify the endorsement against any particular LC opened or remittances effected.

Before delivering the import documents to the importers, the AD should invariably endorse on the invoices accompanying the bills the amount both in figures and words which they have remitted from Bangladesh. The endorsement should be under the stamp and signature of the ADs. In case of payment on DA terms, the amount for which the bill has been accepted should be endorsed in the invoices.

On expiry of an LC unutilized partly or wholly, or on cancellation or reversal of a sale of foreign exchange, the endorsements made on the back of the LCAF may be canceled with appropriate remarks, under the seal and signature of the AD.

In case an endorsement is made mistakenly on a wrong LCAF, the AD may cancel the endorsement provided the endorsement is transferred simultaneously to the appropriate valid LCAF. Endorsement may be transferred only from one valid LCAF to another valid LCAF where both are identical in all respects.

Amounts for which Letters of Credit may be opened and remittances made under LCAF

The aggregate amount of foreign exchange sold against an LCAF whether under LC or otherwise, should not exceed the value mentioned in the LCAF, In case where LC was opened and remittance is needed in a floating currency against which no forward booking has been made, the Taka value of the LCAF will be deemed to have been increased to the extent of appreciation of the foreign currency for the purpose of allowing remittance by the AD.

Remittances in excess of LCAF value: Remittance in excess of the value of the LCAF is not permissible without prior approval of the Bangladesh Bank except for payment of normal bank charges of the foreign correspondents. In other words, the ADs need not adjust the amount of bank charges from the LCAF value. Remittances of bank charges should be reported to the Bangladesh Bank as usual with TM forms and necessary supporting documents. The ADs will endorse the amount of bank charges remitted alongwith the date of remittance on the back of the Exchange Control copy of the LCAF. They should also quote the approval number and date, if remittance is affected against any specific approval from the Bangladesh Bank

Bank charges of unusual nature i.e., not commonly attributable to transactions against L/Cs cannot be remittedwithout Bangladesh Bank’s approval. Foreign bank charges in respect of imports in the public sector will be on the suppliers account and, hence, cannot be remitted from Bangladesh. Bank charges under barter/STA shall be payable in accordance with the relevant provisions therein.

Imports on FOB basis: L/CAFs can normally be utilized on c&f basis. Full LCAF value is therefore not remit table as f.o.b value of goods. In other words, freight charges payable on imports on f.o.b basis are to be adjusted against the relative LCAF value. In case of f.o.b imports the AD should endorse, beside f.o.b value, the freight payable in Taka as indicated in the Bill of Lading etc. In cases where miscellaneous charges i.e. handling charges, cartage/surface transportation, documentation charges etc., are required to be paid by the importers on arrival of goods through the Airlines, the ADs will also endorse on the Exchange Control copy of the L/CAFs the amount of such charges as indicated in the Airway bill along with the freight in Bangladesh Taka. The ADs should also give a certificate to the Importers in the form given in Appendix 5/11 to the effect that the amount of freight, handling charges etc. has been endorsed on the relative LCAF. The issue of this certificate is essential as the shipping companies etc. are under instructions not to accept payment of freight in Taka unless the above mentioned certificate is produced to them. In cases where the f.o.b value and the amount of freight payable in Taka exceeds the value of the LCAF the application should be referred to the Bangladesh Bank for consideration with full particulars and supporting documentary evidence.

 

Section -Ii Letters Of Credit and Remittances against Imports

L/Cs covering imports: The ADs may not issue, advise, notify or confirm any LC, authority to purchase, guarantee or similar undertaking covering imports into Bangladesh the implementation of which would involve a payment in Taka to a non-resident account or a payment in foreign currency except in accordance with the instructions prescribed hereunder. The AD should establish L/Cs against specific authorization only on behalf of their own customers who maintain accounts with them and are known to be participating in the trade. Payments in retirement of the bills drawn under L/Cs must be received by the ADs by debit to the account of the concerned customer or by means of a crossed cheque drawn on the drawee’s other bankers. These restrictions will not apply to import of articles for the private use of the importer as permitted in the Import Policy Order.

Terms on which L/Cs may be opened: All L/Cs and similar undertakings covering imports into Bangladesh must be documentary L/Cs and should provide for payment to be made against full sets of onboard (shipped) bills of lading, air consignment notes, railway receipts, post parcel receipts showing dispatch of goods covered by the Credit to a destination in Bangladesh. All L/Cs must specify submission of signed invoices and certificates of origin.

If any particular LCAF require submission of any other document or the remittance of exchange at certain periodical intervals or in any other manner, the LC should incorporate those instructions of the LCAF. Port of entry (destination land port) should be specifically declared or mentioned at L/C in the case of import through land route.

(ii) It is not permissible to open clean or revolving or packing credits. Applications for opening such L/Cs should be referred to the Bangladesh Bank with full particulars.

(iii) The ADs may open divisible, transferable L/Cs for imports into Bangladesh under cash LCAF without reference to the Bangladesh Bank. They may also allow without reference to the Bangladesh Bank amendments that do not violate foreign exchange regulations and import control regulations.

(iv) It is not permissible to open import L/Cs in favour of beneficiaries in countries from which import into Bangladesh is banned by the competent authority.

 

Period for which L/Cs may be opened: LC covering import of goods into Bangladesh against valid LCAF should be opened within the period, if any, prescribed in the current IPO.

LC to be opened only against firm contracts: The AD should, before opening an LC, see documentary evidence that a firm order for the goods to be imported has been placed and accepted. The AD should ensure while opening an LC that full description of the goods to be imported are given in each Credit along with the unit price of the merchandise. The ADs should also obtain confidential report on the exporter from their branches or correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter by consulting standard books of reference issued by international credit agencies such as Seyds, Dunn and Bradstreet in all cases where the amount of the LC exceeds Tk. 2, 00,000 against proforma invoices issued direct by foreign suppliers and Tk. 5,00,000 against indents issued by local agents of the suppliers. Such reports should be obtained by the ADs themselves and the reports if submitted by the importers should not be accepted. The ADs may also, at their discretion and in their own interest, verify the standing of the beneficiaries even in cases where the value of the Credit is lower than the limits mentioned above.

Approved methods of payment: L/C may be established providing for payment to the country of origin of goods or any other country except those countries imports from which are prohibited. The LC may provide for payment or reimbursement in any freely convertible foreign currency, in the currency of the country of the beneficiary or of the country of origin/shipment of goods,

Applications for remittances for imports which the ADs may approve: An AD may approve on behalf of Bangladesh Bank remittance against imports into Bangladesh provided the conditions set out in Section-I and elsewhere in this chapter are complied with and provided also that the documents covering the import, whether under LC or otherwise, are received through the AD concerned. In case of import by post, the ADs may make remittance without prior approval of the Bangladesh Bank only if the parcel is addressed directly to the AD. Where the parcel is addressed to an individual care of the AD/ to the individual direct, prior approval of Bangladesh Bank should be applied for, in the manner laid down in para 25 below.

LCAF issued in the name other than that of the applicant: An AD may not open LC or make remittances of foreign exchange covering imports into Bangladesh in cases where the Exchange Control copy of the relevant LCAF has been issued in the name of a person or firm other than that of the applicant. Such requests received by an AD should be referred to the area office of the CCI.

Remittances of proceeds of dishonoured bills: An AD should not remit the proceeds of bills in cases where the name of the importer on the bill of exchange differs from that on the LCAR. As an exception, where goods are imported on DP or DA basis or even under LC and the original drawee dishonours the bill and the foreign shipper or his local agent finds another buyer for the goods, the AD may make the remittance without prior permission of the Bangladesh Bank provided he certifies that the applicant-remitter is the buyer of the goods and provided the remitter is in possession of a valid LCAF covering the import of the goods in question.

Advance remittances: Bangladesh Bank would be prepared to consider approval for advance remittance against goods to be imported into Bangladesh where such goods are of specialized or capital nature. Applications for approval in Form IMP should be submitted to Bangladesh Bank along with the exchange control copy of the relative LCAF, the contract in original (with a spare copy) entered into between the importer and the foreign manufacturer or supplier, and an undertaking as per proforma at Appendix 5/12. Such application will not normally be considered where the advance remittance applied for is more than one third of the total c&f value of the goods to be imported. Advance remittance up to US$ 2500 may

Disposal of fully utilized or unutilized LCAF: An AD may not make remittance in payment of goods if the Exchange control copy of a valid LCAF is not produced even though the goods may have been cleared by the Customs. Goods imported in an unauthorized manner are liable to be confiscated by the Government. All applications for remittances of foreign exchange covering such imports should be submitted to the Bangladesh Bank for prior approval and should be accompanied by the Exchange Control copy of the Customs Bill of Entry for Consumption in Bangladesh, the relative penalty order together with full particulars of the circumstances under which the goods were imported without the requisite LCAF.

Remittances against goods imported under penalty: An AD may not make remittance in payment of goods if the Exchange control copy of a valid LCAF is not produced even though the goods may have been cleared by the Customs. Goods imported in an unauthorized manner are liable to be confiscated by the Government. All applications for remittances of foreign exchange covering such imports should be submitted to the Bangladesh Bank for prior approval and should be accompanied by the Exchange Control copy of the Customs Bill of Entry for Consumption in Bangladesh, the relative penalty order together with full particulars of the circumstances under which the goods were imported without the requisite LCAF.

Extension of time Limit for submission of Bills of Entry etc.: The Bangladesh Bank is prepared to consider applications for extension of the time limit beyond 4 months in cases of genuine difficulties, such as delay in the arrival of the ship or difficulties in clearing the goods already landed at a port in Bangladesh etc.

Pre-shipment inspection fee: ADs may establish L/Cs for pre-shipment inspection favouring internationally reputed pre-shipment inspection companies if the relative sales contracts or L/Cs so stipulate, as per terms of contract entered into by the importer with the pre-shipment inspection companies. Remittances against such L/Cs for pre-shipment inspection may be affected on receipt of claims accompanied by the relative pre-shipment inspection report. These remittances should be approved and reported in TM forms.

LC on deferred payment basis: Subject to compliance with other conditions laid down in this chapter and in the current IPO, import L/Cs may be opened on deferred payment (DA) basis in die following cases

  • Capital machinery imports on up to 360 days usance basis;
  • Industrial raw materials imports for own use of industrial importers (including back to back imports discussed in detail in the next section) on up to 180 days usance basis;
  • (Import of coastal vessels including oil tankers, and ocean-going vessels including those procured for scrapping on up to 360 days usance basis;
  • Import of agricultural implements and chemical fertilisers on up to 180 days basis
  • Import of life saving drugs on up to 90 days usance basis;

For such deferred payment imports, the prices must be internationally competitive and usance interest if any should not be at rate higher than the LIBOR for the relative period or the equivalent rate prevailing in the currency of the country of the supplier.

(b) Instructions regarding opening of import L/Cs on longer usance terms against supplier’s credits obtainable by industrial enterprises in the private sector as per general or specific BOI approval are contained in chapter 23 of this publication.

Submission of Return by holders of foreign securities: Instructions regarding opening of import L/Cs on longer usance terms against supplier’s credits obtainable by industrial enterprises in the private sector as per general or specific BOI approval are contained in chapter 23 of this publication.

 

Back To Back L/Cs

Opening of back to back import L/Cs: The ADs may open back to back import L/Cs against export L/Cs received by export oriented industrial units operating under the bonded warehouse system, subject to observance of domestic value addition requirement (stated in terms of permissible limit of c&f value of imported inputs as percentage of fob export value of output) prescribed by die Ministry of Commerce from time to time.

Inland back to back LC; opening of back to back import LC against inland back to back LC

Further to the relevant general instructions in the foregoing sections of this chapter, the following instructions should be complied with while opening back to back import LCs:

  • Only recognized export oriented industrial units operating under bonded warehouse system will be allowed the back to back LC facility. The unit requesting for this facility should possess valid registration with the CCI&E and valid bonded warehouse license.
  • The master export LC (against which opening of back to back LC is requested) should have validity period adequate to cover the time needed for importation of inputs, manufacture of merchandise, and shipment to consignee;
  • The back to back LC value shall not exceed the admissible percentage of net f.o.b value of the relative master export LC (as per prescribed value addition requirement) and the price of goods to be imported must be competitive. For computation of net f.o.b value of a master export LC, the freight charge, insurance cost and commission if payable by the exporter shall be deducted from the LC value. If the freight element is not shown separately, a certificate from the shipping company or the shipping agent should be asked for.
  • The back to back import L/Cs shall be opened on up to 180 days usance (DA) basis except in case of those opened against Export Development Fund (EDF) administered by the Department of Banking Operation and Development of Bangladesh Bank in which case the back to back LC will be opened on sight (DP) basis. Interest for the usance period shall not exceed LIBOR, or the equivalent interest rate in the currency of settlement,
  • All amendments of the master export LC should be noted down carefully to rule out chances of excess obligation under the back-to-back import LC.
  • Back to back import LC should not be opened against L/Cs received for export under Barter/STA, without prior approval of Bangladesh Bank.

Payment Settlement against back to back L/Cs: Payment abroad in settlement of usance bill against the back to back import L/Cs shall be made at maturity, out of proceeds of the relative export patriated in foreign exchange; the required foreign exchange will be set aside, out of the export proceeds, in a separate foreign currency account in the subsidiary ledger of the AD. Before making remittance against the back to back import bill, the AD should see that the exchange control copy of bill of entry for bond in evidence of actual arrival of the relative imports has been submitted. Usance bills against back to back import LCs should be settled at maturity even where for some reason export has not taken place, or where the export proceeds have not been realised, or where the realised export proceeds net of value addition requirement is not adequate to cover the back to back import payment. In such cases post facto approval of Bangladesh Bank will have to be applied for, explaining fully the circumstances of export failure or non-realisation/ short realisation of export proceeds, with relevant supporting documents. Cases of failure of export against the relative master L/Cs should also be reported to the National Board of Revenue (NBR) and the concerned Commissioner of Customs so that they may monitor closely the level of stock of the relative goods in the bonded warehouse. A copy of the letter to NBR reporting the export failure should be submitted to Bangladesh Bank along with the application for post facto approval of remittance towards back to back import payment. Also, all applications for post facto approval of such remittance in events of export failure and short realisation/non-realisation of export proceeds should be accompanied by the exchange control copy of the relative bill of entry evidencing actual receipt of the back to back imports. The AD should maintain effective watch on the stock of inputs procured under the back to back arrangement and of finished products made therewith; any indication of illegal disposal of stocks from the bond coming to the knowledge of the AD should immediately be reported to the concerned commissioner of customs and NBR

 

Prohibited Goods for Export & Import

List of Prohibited Goods for Import in Bangladesh

  • Alive Pig & Pork.
  • Publication heating religious sentiments.
  • All types wastes.
  • Recondition Vehicles of more than four years of age.
  • Two stroke three wheeler.
  • Polythene Bag.
  • Current net.
  • Old machineries.
  • Opium
  • Poppy seed
  • Artificial mustard oil.
  • Glass syringe.

List of Prohibited Goods for Export

  • Petroleum and petroleum products other than naphtha, furnace oil, lubricant oil and bitumen;
  • Jute Seeds, Wheat.
  • Living animals and their limbs and skins of wild lives of all species.
  • Firearms, ammunition and related materials.
  • Radioactive materials.
  • Archaeological relics
  • Human skull, blood plasma.
  • Pulses of all kinds.
  • Shrimps other than frozen and processed ones.
  • Onion
  • Deer of both gender
  • All kinds of bamboo, cane, wooden powder.
  • Frogs of all kinds or their legs.
  • Raw and weight blue leather
  • Urea fertilizer

 

 

FINDINGS

From the experience of concluding the project a number of recommendations may be given which may be useful or the newly entrance to offering these services of Foreign Exchange (Export and Import) such as:-

  1. A special customer appointed to the Bank for guiding the users and recording their complains and reporting to the management.
  2. For more security customer submitted their necessary papers that is verifies by responsible officers before opening L/C that is very essential for Export or Import goods.
  3. Bank provides the facility and gives opportunity to transaction a certain sum of money in credit time.
  4. For protecting the robbing it is needed to program a safety alarm system in the required foreign exchange, which is connected to the bank.
  5. Bill payment facility of all types of utility may be given to Bank than offering some selected utilities.
  6. In selecting goods, which is valid or not valid to export or import Bangladesh Bank takes the rules that is must abide by the rules. Bank suggests the rules to customers.

RECOMMENDATION

Modern Commercial Banking is exacting business. The reward are modest, the penalties for bad looking are enormous. And Commercial banks are great monetary institutions, important to the general welfare of the economy more than any other financial institution. It has a vastly sobering and exacting responsibility.

 

CONCLUSION

United Commercial Bank Limited (UCBL) playing a vital role in financing import and exports of the country. Without Bank’s co-operation, it is not possible to run any business or production activity in this age. Exports and import need finance in various stages of their activities. Export and import financing are letter of credit (L/C), payment against documents (PAD), loan against imported merchandise (LIM) etc. All these facilities are provided by UCBL. For this purpose Bank’s consider the borrower’s business standing, integrity, liability with the bank term and conditions of the L/C. There are lots of risks involved in foreign business. So, the United Commercial Bank Limited (UCBL) has to clearly justify the customers from a neutral point and gather the current information about the market.