Main objective of this report is to analysis Procedure of Opening Letter of Credit of Uttara Bank Limited, here Letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. Other focus subjects are present an overall banking activities and get a clear idea about Banks and how it runs and what function it dose. Finally draw SWOT analysis and suggest recommendation.
A standard, commercial letter of credit (L/C) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking.
The letter of credit can also be source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. In such cases the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler’s cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin.
Objectives of the report:
The following are the general and specific objectives of the report:
The General objectives of the report are follows
- To fulfill the academic requirements of Project report.
- To acquire experience in different banking service of Uttara Bank.
The specific objectives of the report are follows:
- To present an overall banking activities.
- To gather knowledge.
- To get a clear idea about Banks and how it runs and what function it dose.
Historical Background of Uttara Bank Limited:
Uttara Bank formed in 1972 as a scheduled bank with assets and liabilities of the Eastern Banking Corporation set up in East Pakistan on 28 January 1965. It started banking business 22 June 1965 and became a member of the Dhaka Clearing House on 17 September 1965. At the time of establishment, Eastern Banking Corporation had a paid up capital of Tk 1.42 million and deposit resources of about Tk 10 million. It was the only scheduled bank formed with capital raised entirely from the small income group of people of East Pakistan.
Eastern Banking Corporation was nationalized under the Bangladesh Banks Nationalization Order 1972 and its name was changed to Uttara Bank. At that time, the bank had 182 branches. The government retracted 95% of its share capital and allowed it to operate as a private bank. It was transformed into a limited company on 15 September 1983. On 31 December 2000, the authorized capital of the bank was Tk 200 million divided into 2 million ordinary shares of Tk 100 each. It issued and paid up capital was Tk 100 million, of which Tk 5 million is subscribed by the government. The bank is listed with both Dhaka and Chittagong Stock Exchanges.
The bank performs all traditional commercial banking functions. It renders agency services to the government in food procurement and collection of government revenue through the network of its branches all over the country. The total volume of foreign exchange business handled by the bank during 1998-99 amounted to Tk 16,600 million which comprised exports servicing Tk 4,450 million, imports financing Tk 10,560 million and remittances facilities Tk 1,590 million. The bank has correspondent relationships with 300 foreign banks/bank offices and exchange houses in 72 countries. With the objective of attracting the Bangladeshi wage earners abroad and the non-resident foreigners to invest in Bangladesh, the bank offered them the opportunity to open non-resident foreign currency deposit accounts and foreign currency current deposit accounts with it. Further, the bank floated Wage Earners’ Development Bond and established Wage Earners Investment Cell. The bank has some other schemes to induce the wage earners to invest their savings in the securities market of the country.
The volume of deposits at the bank in 1972 was Tk 4.43 million of which Tk 2.44 million comprised demand deposits. Prior to privatization in 1983, the deposits were Tk 21.81 million and their volume increased to Tk 24,730 million in December 2000. Total loans and advances including bills purchased and discounted amounted to Tk 2.34 million in 1972 and Tk 22,307 million in December 2000. The interest rate offered by the bank on the savings deposits in both rural and urban areas is 7.25%, while the lending rates charged by it on different sectors varied between 10% and 16.5%, the lowest being charged on export credits. The broad economic areas in which the bank provided lending and the total outstanding amount of advances to those areas upto June 1999 were
(a) Agriculture and fisheries Tk 26 million,
(b) Small and cottage, large and medium sized industry Tk 4,675 million,
(c) Retail/wholesale trade and hotels and restaurants Tk 2,202 million,
(d) Transport/communication and storage Tk 169 million,
(e) Special credit programmes including poverty alleviation Tk 134 million,
(f) insurance, real estate and business services Tk 5,523 million, and
(g) Others Tk 3,771 million.
In December 2000, the total assets including off-balance sheet items of the bank were valued at Tk 31,296.5 million. The quality of assets was severely deteriorated due to accumulation of a huge amount of non-performing loans. The bank’s classified loans amounted to Tk 7,372 million in December 2000. The bank’s investments in government securities, treasury bills, debentures and shares and other approved securities were Tk 108.5 million in 1972 and Tk 2,564 million in 1999. Up to December 1999, its loans to the government amounted to Tk 50 million. In addition, the bank lent Tk 115 million in 1999 in poverty alleviation projects and Tk 129 million in a special project called Uttaran, the objective of which was to assist the customers with credit facility for buying consumer goods.
In 2000, the total and net income of the bank was Tk 3,060 million and Tk 1,040 million respectively. The bank’s net interest income increased during the period from 1992 to 2000. But the increase in operating expenses arrested the growth of its net income. Also, the compulsory maintenance of provisions for classified loans from profit is responsible for slow growth of its net income.
The management of the bank is vested in a 15-member board of directors consisting of a chairman and 14 directors. The managing director is the chief executive assisted by a deputy managing director and 2 assistant managing directors. In 2001, the bank had 198 branches (150 urban and 48 rural) and the number of employees in all its branches 2,822 including 84 executives, 1,756 officers, 326 assistant officers, and 656 employees of non-officer grades. The bank’s branch banking is supervised through its 12 zonal offices in different parts of the country.
The functions of Uttara bank Ltd. are divided into two categories:
i) Primary functions, and
ii) Secondary functions including agency functions.
i) Primary functions:
The primary functions of Uttara Bank Ltd. include:
a) accepting deposits; and
b) granting loans and advances;
a) Accepting deposits
The most important activity of the Uttara Bank Ltd. is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, publicare motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.
b) Grant of loans and advances
The second important function of Uttara Bank Ltd. is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts.
The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment.
The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of Uttara Bank Ltd’s income.
A loan is granted for a specific time period. Generally, Uttara Bank Ltd.grant short-term loans. But term loans, that is, loan for more than a year, may also be granted.
The borrower may withdraw the entire amount in lump sum or in installments. However, interest is charged on the full amount of loan. Loans are generally granted against the
security of certain assets. A loan may be repaid either in lump sum or in installments.
An advance is a credit facility provided by the Uttara Bank Ltd. to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.
Modes of short-term financial assistance
Uttara Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting.
a) Cash Credit
Cash credit is an arrangement whereby the Uttara bank Ltd. allows the borrower to draw amounts up to a specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers.
Overdraft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specified limit is allowed either on the security of assets, or on personal security, or both.
c) Discounting of Bills
Uttara Banks provide short-term finance by discounting bills, which is, making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without waiting for the date of maturity of the bills. In case any bill is dishonored on the due date, the bank can recover the amount from the customer.
ii) Secondary functions
Besides the primary functions of accepting deposits and lending money, Uttara banks perform a number of other functions which are called secondary functions. These are as follows –
a) Issuing letters of credit, traveler’s cheques, circular notes etc.
b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers;
c) Providing customers with facilities of foreign exchange.
d) Transferring money from one place to another; and from one branch to another branch of the bank.
e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc.
f) Collecting and supplying business information;
g) Issuing demand drafts and pay orders; and,
h) Providing reports on the credit worthiness of customers.
Foreign exchange Practices of Uttara Bank Limited
Foreign Exchange is very lucrative & profitable in modern Banking business. Its recognized as a way of generating maximum profit with low investment. In other Banking like advance needs high capital investment. But foreign exchange required comparatively low investment. In foreign business complexity is high due to rapid change in technology especially for a bank consists of so many branches dispersed in a wide region. The system is easy for a bank to control rich in capital equipped with modern technology concentrated in a small areas. Technology is necessary to prepare quick statement, getting information, preparing reports .Now technology is a turbulent in foreign exchange business. To survive in the competition a bank has to adapt with this changes. For this it will require skilled manpower, on line banking, 24- hours banking services, high capital investment. Problems arise in foreign exchange for changes in economical, and political business environmental changes of the country. Changes in exchanges rate, change in currency rate, govt. rules and regulations, create problems while dealing in foreign business. So it needs always a conscious mind for successfully dealing in foreign business.
How to open an L/C:
For opening an L/C there must be a relationship between banker and customer through opening an account with the bank.
Procedures for opening bank accounts:
- Before opening accounts clients must submit some paper
- In case of company must submit annual financial statement
- In case of individual must submit all types of income tax payment certificate.
General Section of UBL:
There are many types of bank accounts:
- Savings Account (S/B)
- Current Account (C/A)
- Cash Credit (C/C)
- Short Term Deposit (STD)
- Loan Account (L/A)
This account also gives benefit to the account holder. Generally business organization or limited company cannot open this account. Savings Account is opened by those person/people, who are interested to collect money from his account every now and then as well as want to get interest on deposited amount.
Nature of Savings Account:
- No one can collect money from his/her account more than two times per week. Generally week is denoted from Saturday to Sunday.
- Inter is given to this account. But if the given interest of six months is less then TK. 10 will not be added in the account.
- At least TK. 1000 has to be kept as balance by the depositor.
- Interest is counted two times meaning after six months after.
Categories of Savings Account:
Basically savings account has no types. But it can be opened by-
- Individuals Savings Account
- Joint Savings Account
Requirements of a Savings Account:
- Two copies of passport size photo.
- Character certificate by the chairman/commissioner certificate/photocopy of the passport (only first four pages).
- Personal information of the organization (if opened with minor).
- Details information of the organization (if needed).
- Signature in the account opening from/card must be same with the signature of the passport.
Fixed Deposit Receipt (FDR):
The FDR account is an important account. The interest rate of this account is higher then other account but it depends on the period of time. The more you hold your money in the bank, the more you get as interest. So many people keep their money as FDR basis in the bank. The UBL also invites a lucrative fixed profit for account holders who are more interested to open these types of account.
Nature of FDR:
There are some information is given below:
- Any Bangladeshi national residing home or abroad may open FDR with UBL.
- FDR may be opened single/joint name for a period of 3, 6, 12 and 36 months.
- UBL offers attractive/competitive rate of interest in FDR.
- Interest is given periodically.
- If any account holder wants to receive money from his account without the covering of maturity he must not be paid any interest by the bank. But it is said that if any account cross the three (3) months he must paid on three months interest.
Short Term Deposit (STD):
This account is also an important for many organizations. This account requires a large amount. Generally there is no basis difference between the Current Account and the STD Account. The only main difference is that STD A/C provides interest but Current A/C does not do it.
Characteristics of STD:
Some features of STD account are given below:
- , Semi-Govt., Autonomous organization and an individual may open STD Account with UBL.
- UBL offers attractive/competitive rate of interest in STD accounting.
- After opening this account cheque is issued.
- Account holder can withdraw money from his/their account at any time.
- 7 days notice required to withdraw big amount.
Requirements of this account (STD):
It requires (For Individuals): 1. name 2. Father’s Name 3. Present & permanent address 4. Date of birth & age 5. TIN no. (If available) 6. Phone no (If available) 7. Photocopy of the passport (first four pages)/Word Commissioner Certificated/Character Certificate of the Union Perished Chairman.
It requires (For Limited Company): 1. Certificate of Incorporation 2. Articles of Association 3. Memorandum of Association 4. Decision of the Board Meeting 5. Director’s Message and the necessary information of the account conductor.
It requires 9Club and Other Organization): 1. Office Employees Description 2. By-Laws 3. Government Authorization Letter (if registered) 4. Certificate of Registration 5. Introduction of the Members of the governing Body or Managing Committee etc.
Actually cash maintenance is vital portion of a bank. Because it is the risky deed one. All the employees should understand the activities of cash department to make self development to be a complete banker. But it is common to all branches that maximum employees are far from the cash function to avoid the risk. Generally, Assistant manager is the main responsible person to handle the remittance function. No one can go out of the Bank until and unless cash is sent to the volt.
- Receiving cash from the depositors.
- Payments of cash to the client as demanded.
- Checking all areas of deposit slip whether it is clearly written or not (name, account no. amount).
- Verifying the payment cheque when to pay the money to the clients whether the information is available or not like date, amount, account number etc.
- All the received and payment money must be written down in the receipt & payment register along with account number.
- Cash register must be maintained by the Cash Officer.
- Maintenance of daily cash balance.
- Preparation of monthly cash balance statement
Nature of L/C
- Cash L/C (sight)
- Cash L/C
- Inland B/B L/C (sight)
- Foreign B/B L/C
- L/C under AID loans
- Import from EPZ B/B/L/C)
- Import from EPZ B/B/L/C) (sight)
- Import from EPZ 9CASH L/C (SIGHT)
- L/C UNDER sta.
A L/C is most suitable under following conditions
- When the importer is not well known. The exporter selling on credit may wish to have the promise of payment.
- When the importer doesn’t want to pay the exporter until it is reasonable certain that the merchandise has been shipped in good condition.
Importance of L/C
In international trade since the buyer and seller are quite distant from each other a problem often arises to make the delivery of goods and when to make the payment for the delivery. This problem is absent in home trade. But in foreign trade neither the importer nor the exporter can rely completely upon the others. L/C is effective instruments that can solve this problem also act as finance for the buyer. This method is a compromise between buyer and seller because it affords certain advantage to both parties. The exporter is assured of receiving payment from the issuing bank as long as its present documents in accordance with L/C. the issuing bank is obligate to honor drawing under l./c regardless of the ability or willingness to pay. Importer does not have to pay until shipment has been made and the documents presented in good order. However the importer still rely upon the exporter to ship the goods as described in the documents, since the L/C does not guarantee that the goods purchased will be those invoice and shipped. So the usual time under a L/C is when shipment has been made. While the goods are available after payment, the risk to the exporter is very little, depending on credit term, while the risk to the importer is that he has to rely on the exporter to ship goods described in the documents. Because of all the protection and benefits it can accords both exporter and importer.
The various steps involved in the operation of credit are described as follows
- The importer and exporter have contract before a L/C has been issued.
- The importer applies for a L/C from his banker known as the issuing bank. He may use his credit lines.
- The issuing bank opens the L/C that is channeled through its overseas correspondent bank, known as advising bank.
- The advising bank informs the exporter of the arrival of the credit.
- Exporter ships the goods to the to the importer or other designed place as stipulated in the L/C.
- Meanwhile the exporter also prepares his own documents and collects transport documents or other documents from relevant parties. All documents will be sent to his banker, which is acting as negotiating bank.
- Negotiation of export bills occurs when the banker agrees to provide him with finance. In such case he obtains payment immediately upon presentation of documents. If not the documents will be sent to the issuing bank for payment or an approval basis in the next step.
- Documents are sent to issuing banker reimbursing bank, which is a bank nominated by the issuing bank to honor reimbursement from negotiating bank for reimbursement or payment.
- Issuing bank honors to its undertaken to pay the negotiating bank on condition that the documents comply with the L/C terms and conditions.
- Issuing bank releases documents to the importer when the letter makes payment to the former or against the letter trust receipt facilities.
- The importer takes delivery of goods upon presentation of the transport (usually shipping documents).
Parties involved in letter of credit
The applicant is the parties who generally approaches in order to issue the L/C. generally the applicant ids the exporter who reaches an agreement with the exporter before approach in the bank to issue the L/C.
The issuing bank;
The bank issuing the L/C is known as issuing bank and it is usually the bank with which the importer maintains an account. The issuing bank undertakes an absolute obligation to pay upon presentation of documents.
The advising bank:
The correspondent bank sends the L/C is commonly referred to as advising bank. The advising bank simply advises the L/C without any obligation on its part. However, the advising bank shall take reasonable care to check the apparent authenticity of the credit that it advises.
The beneficiary or exporter is the party entitled to draw payment under L/C. The Beneficiary will have to present the required documents to avail payment under L/C.
The Confirming bank:
The confirming bank confirms that the issuing bank has issued a letter of credit. The confirming directly obligated on the credit to the extent of its confirmation and by confirming it acquires the right and obligation of an issuer.
The negotiating bank;
The bank that agrees to examine the documents under the L/C and pay t5he beneficiary is called the negotiating bank. Typically, the advising bank is nominated as the negotiating bank.
Back to back L/C
Back to back L/C is mostly issued in Bangladesh. When a beneficiary receives a letter of credit, which is not transferable, and he cannot furnish the goods himself, he may arrange with his banker to issue a second credit, which is known as back-to-back L/C to supplier to supply the goods.
As both L/C cover the same goods the back to back credit must be issued with identical terms to the muster L/C, except that the credit amount, unit price if any are smaller. The expiry date under the back-to-back credit is earlier while the latest shipment date may have to be advanced. The bank issuing back-to-back credit will obtain repayment through muster credit, which is deposited to the issuing bank of the back-to-back credit. The bank must try to maintain control of the documents and hold them after payment to the supplier pending receipt of its customer’s invoices and present the documents itself for payment under the muster credit in favor of its customer.
Advantage and disadvantage of L/C
- An importer can assure that the exporter has complied with certain terms and condition as specified in L/C before payment.
- Importer can insist on shipment of goods within a certain time stipulated a latest shipment date.
- He can get advice from the banker according to L/C terms.
- He can ask for financial assistance from the banker.
- Protection offered by UCP500.
- Since bank deals with documents only goods may not be the same as those specified in the credit.
- Issuing bank obliged to pay even though the conditions of goods may be poor.
- L/C commission is relatively high.
Advantages for exporter
- The risk for nonpayment is lower as complies provided with L/C.
- It is a safe method through which prompt payment obtains after shipment.
- Exporter can get expertise advice from the banker.
- The exporter can get financial assistance before the buyer makes payment.
- Sometimes terms and condition cannot fulfill such as unreasonable shipment date adding on L/C the clause of “restriction of a designated vessel to be informed by L/C amendment
- The goods shipped before receiving payment and so it is not 100 percent safe.
Main business of Foreign exchange department
The primary business of foreign exchange department of Barisal branch is to make reimbursements and payments on behalf of the issuing bank. Besides acting as the correspondent bank for reimbursing bank or the payee bank, branch also advice s negotiates, and confirm letter of credits. Acting as the negotiating and confirming Barisal branch earns a commission, which is a percentage of the total L/C amount. This Percentage varies depending on the risk of non-payment by the importer. On the other hand branch earns a flat rate fixed commission when it acts as the advising bank as well as when it authorized to make reimbursement on behalf of the issuing bank. Reimbursement made either to ACU Dollar account AMEX Calcutta, or to US$ dollar account in AMEX new York. These reimbursements contribute to major portion revenue of foreign exchange department.
Service offered by foreign exchange department of Uttara branch
Barisal branch offered a wide services for its relationships other bank and clients both home and aboard. These service are related to trade finance, international payment, investment, trading services.
- Letter of credit (L/C) negotiation
- Letter of credit (L/C) confirmation.
- Letter of credit (L/C) advising.
- Reimbursement authorizations.
- Payment instruction.
- Export bills collections.
All types of L/C money, student’s fees, and other charges are sending to foreign country through remittance. After negotiation between importer and exporter, getting all documents, payments of goods are made to the exporter bank (advising bank) from U.S.A. Amex bank. but must be arrangement with that bank. After entering the goods in the importer country, getting bills of entry from the custom, exporter send all documents to the issuing bank. Issuing bank then judge the accurateness of these documents and calculate total due with interest, commission, and other charges, deduct amount of margin that was prepaid while opening L/C after preparing dock statement-all the entry transaction is reported to a c-form to Bangladesh bank where total foreign currency record is maintain in commodity wise.
Problems of foreign exchange remittance
- Still many country of the world has not open exchange house like Japan, Korea, Canada , Belgium and others so clients cannot get promptly remittance.
- Every year many exporter collect cash assistance by showing false documents to Bangladesh bank. As a result much currency are go away of the country that are a major problem for import and foreign currency of the country.
- As still there Is no remittance with many countries taking this opportunities one class of broker are benefited, dollars are going away of the country, the rate of exchange of Tk. are decreases.
Solutions of cash remittance problems
- Adequate measure have been taken for quick remittance , exchange warehouse have to set in each country where Bangladeshi are available.
- Cash remittance may be a profitable sources of foreign income in th absence of others export business.
- Adequate rewards have to be given all those foreign Bangladeshi who send their money through remittance.
- Card system has to introduce opening a nostros account of each individual-then amount of cash remittance will be increases.
Suggestion for the Management for Future Improvement
Developing team sprit–manager have to take details information regarding employees i9ncome family, no of children, where they study, personal problem, claim of works and have to give solution for them, So those in case of any officer absence they can run official works cooperative with others and develop team spirit in their works.
- Make cautious to every Employee: Management has made cautious to every employee that they to work with make out, and opening their eyes and ear so that any mistake cannot occur in their works.
- Reducing all unnecessary charges: Manager has cautious about branch profit so unnecessary charges have to reduce.
- Proper utilization of Branch Resources: Branch has to use all resources, such as capital. Funds, deposit, loans and advances, assets, equipment properly. Manager has to use the work force properly, so that some of the employees cannot spend their time idly while others do works.
- Placement of officer to reduce workloads: Management has to write letter to head office for providing them more qualified staff to increase efficiency of the branch. Modern technology- management has to take measure for arrangement of modern technology to speed up works and reduce their labor.
- Q- Cash or ready cash services-n: In order to tackle competition, and speed up customer branch need to introduce new services, such as ready cash, or q-cash like other private bank- to increase customer satisfaction, and no. Of clients. As customer always interested about new services like ready cash that can reduce their time, cost risk, traffic jam. In ready cash system they can with draw their money from any branch where he intentioned, not need physically present that branch.
- Strictly followed of business ethics: Manage have to care about following of business ethics in all the activities-not take any gift from customer- in case of offer tactfully avoid gift.
- Not pending of official works: Management have to cautious about not pending of works, sending report to the head office accurate time, sending advice’s, TRV to different branch to appropriate time, quickly response to audit report.
- Shift the branch in suitable location: As customer feels many disturbances to come here so the branch has to be shifted in a suitable location with parking facility.
- Improving working environment: As the branch has space limitation, seating place, so management have to improve working environment. Branch need separate place for officials and customer saying prayers.
- Increasing deposits: As branch deposits are comparatively low than loans and advance so branch need to take measure to increase deposit through opening new clients account.
- Human resources development: Management always has to emphasis on human resources development of the branch they have not rely only on few employees. Management has to take measure for employee training for future improvement of their skills.
- Expanding service range: Branch should expand services range; they should introduce new service that are not copied by the competitor as well as service offered by competitor bank.
- Increasing branch assets: Branch has to emphasis on increasing its own assets, it should buy own building, purchases more equipment, and other assets to reduce extra charges.
- Implementation of new Pascal. As employees has strong expectation about to implement of new pay scale. It is great expectations that new pay scale have already design for them so management should immediately implement the new scale to increase their motivation level.
- Making list of non performer of the branch: Some of the employees who idly spend their time or busy other business branch need to make of those non-performer and take immediate action towards them such as suspend, demotion, transfer, fine etc.
- Work ethics: Employee of the branch has to be followed work ethic in all-official activities.
- Client satisfaction: Management should always work for their client satisfaction .they should listen customer complaint and take remedies to solve these. They should take all necessary arrangement for customer satisfaction through improvement of branch environment, location, security, parking facility new service etc.
- Customer retention: Management has to take steps to retain customer. They should build a strong relationship with their existing customer so that they cannot swift away to competitor bank. Because retention is six time important than attention of new customer.
- Expanding investment base: Branch should expand investment base, they should not depend only on limited sector of investment, they should invest all profitable sector to increase their profit and maintain growth level.
- Reducing bank charges where necessary: Branch should reduce charges for price sensitive customer especially who transaction high volume of business.
- Being more marketing oriented: Branch has to take more marketing oriented for success in future. They should take strategic marketing plan to increase their profit and growth.
A problem service organization face is that they may be unaware of all the capabilities they have. This is due to bank intangible elements particularly human skills and aptitude. Organization fails to audit all the areas to manage the farm capability. This is because intangibility of their capability.
The particular range of services offered will be developed in response to internal needs and external influences. Customer and user perceptions of product lines can often give services marketer insight into ways in which service product mix should extended or reduced service product lines stretched or shortened.
An Overview of Letter of Credit (L/C):
Letter of Credit (L/C):
Letter of Credit (L/C) can be defined as a credit contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit.
An arrangement, however named or described, whereby a 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 of third party (the beneficiary) or is to accept any pay bills of exchange (Drafts) drawn by the Beneficiary, or
- Authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Drafts).
- Authorizes another bank to negotiate, against stipulated documents, provided that the terms and conditions are complied with.
Types of Letter of Credit: Documentary credits may be either:
- Revocable Letter of Credit.
- Irrevocable Letter of Credit.
Revocable Letter of Credit:
A revocable credit is a credit, which can be amended or cancelled by the issuing bank at any time without prior notice to the seller.
Irrevocable Letter of Credit:
An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. This sort of credit is always preferred to revocable letter of credit.
Parties to a Letter of Credit (L/C):
There are a number of parties involved in a L/C and the rights and obligations of the different involved parties also differ from each other. The involved parties can be named below:
- Opening/Issuing Bank.
- Advising Bank.
- Confirming Bank.
- Negotiating Bank.
- Paying/Reimbursing Bank.
Importer/Buyer: Importer/Buyer is the person who requests/instructs the opening bank to open a L/C. He is also called the opener or the applicant of the credit.
Opening/Issuing Bank: It is the bank which opens/issues a L/C on behalf of the importer. It is also called the importer’s/buyer’s bank.
Exporter/Seller/Beneficiary: Exporter/Seller/Beneficiary is the party in whose favor the L/C is established.
Advising Bank: It is the bank through which the L/C is advised to the exporter. It is situated in the exporter country and it may be a branch of the opening bank or a correspondent bank.
Conforming Bank: It is a bank which adds its confirmation to the credit and it is done at the request of the issuing bank. The confirming bank may or may not the advising bank.
Negotiating Bank: It is a bank which negotiates the bill and pays the amount to the beneficiary. It has to carefully examine the documentary credit before negotiation in order to see whether the documents apparently are in order or not.
Paying /Reimbursing Bank: It is a bank from which the bill will be drawn (as per condition of the credit). It is nominated in the credit to make payments against stipulated documents complying with the terms and conditions of the credit. It may or may not the issuing bank.
Importer/Buyer Procedure or Formalities:
- Procurements of IRC (Import Registration Certificate) from the concerned authority.
- Signing purchase contract with the seller.
- Requesting the concerned bank (importer’s/issuing bank) to open a L/C on behalf of the importer favoring the exporter.
- The issuing bank opens or issues the L/C in accordance with the request of the importer and request another bank (advising bank) located in the exporter’s country to advice the L/C to the beneficiary.
- The advising bank advises or informs the seller that the L/C has been issued.
- As soon as the exporter receives the L/C and is satisfied that he can meet the L/C’s terms and conditions, he is in a position to make shipment of the goods.
- After making shipment of goods in favor of the importer, the exporter submits the documents to the negotiating bank for negotiation.
- The negotiating bank examines the documents and if found in order, negotiates the documents and send them to the issuing bank.
- After receiving the documents the L/C issuing bank also examines the documents and if found in order makes to the negotiating bank.
- The L/C opening bank then the importer to receive the documents on payment.
- The importer after paying all the dues receives the documents from the L/C issuing bank and releases the imported goods from the port authority.
Import Procedure Including Registration:
To carry on the business of import, the first thing one need is registration with the licensing authority. To get this registration the interested person submits the application along with the following papers or documents directly to the Chief Controller of Imports AND Exports or the respective Zonal Offices of CCI and E.
- Income tax registration certificate.
- Nationality certificate.
- Certificate from Chamber of Commerce and Industry or Registered Trade Association.
- Bank Solvency Certificate.
- Copy of Trade License.
- Any other documents if required by CCI and E.
On receiving application the respective CCI and E offices will examines the documents and conduct physical verification and issue demand notice to the prospective importers to submit the following papers through their nominated bank.
- Original Copy of Treasury Challan deposited as IRC fees.
- Asset certificate.
- Affidavit from 1st class Magistrate.
- Rent receipt.
- Two copies of passport size photograph.
- Partnership deed in case of partnership firms.
- Certificate of Registration, Memorandum, Articles of Association in case of limited company.
The nominated bank of the applicant will scrutinize the documents and verify the signature of the applicant. After scrutinization and verification, the nominated bank will forward the same to the respective CCI and E office with forwarding schedule in duplicate through bank’s representative. The CCI and E office will ac knowledge on duplicate copy of the forwarding schedule and return back the same to the bank representative.
On being satisfied, after scrutinization of the documents, the respective zonal offices of CCI and E will issue Import Registration Certificate (IRC) to the applicants.
Typical Letter of Credit (L/C):
If the relationship with the customer is good, other methods of financing can make business transactions easier. We might want to consider three special types of letters of credit that offer more flexibility:
- Revolving Letter of Credit (L/C): This is useful when shipping a variety of goods to an established customer. It normally runs a period less than one year and it provides for prompt reinstatement when drawn against.
- Assignable Letter of Credit (L/C): This type the same as the normal letter of credit, except that it includes the phrase “and/ or assignees” following the name of the beneficiary. This allows the exporter to make his or her domestic purchase by using the overseas buyer’s credit. That is, we agree that payment for the letter of credit may be made to us U.S. suppliers. This is a way for an exporter to conduct business with limited capital.
- Banker’s Acceptances: As our business grows we will want to extend credit to our importer. One of the most efficient methods of doing this is through a banker’s acceptance. After agreeing to the terms (e.g. 90 days at sight), the importer opens a draft (check) under a letter of credit in favor of the exporter (beneficiary). The exporter presents the draft and the requested shipping documents to the paying bank. The bank reviews the documentation for correctness, then “accepts” the draft to become payable (mature) in 90 days, or if the exporter requires, “accepts” the draft and discounts the amount because of the need for immediate funds.
Letter of Credit (L/C) Opening Procedure:
Documents required for New Importer while Opening L/C:
An importer should follow the relevant import formalities while the importer tends to import goods to Bangladesh. A list of significant documents which are required for a new importer while opening a L/C is given below:
- Account to be maintained with the bank.
- Valid Import Registration Certificate (IRC).
- Bonded warehouse license (in case of export oriented industry).
- Pro-forma Invoice (PI) issued by the foreign supplier.
- Insurance cover note.
- Trade license.
- TIN (Tax Identification Number) Certificate.
- VAT (Value Added Tax) Certificate.
- Declaration in triplicate regarding the payment of income tax by the importer.
- Letter of Credit Authorization Form duly filled in and signed by the importer.
- One set of IMP form duly signed by the importer.
- Valid membership certificate from a registered Chamber of Commerce and Industry or Trade Association.
- Membership certificate from BGMEA (Bangladesh Garment Manufacturers and Exporters Association) in case of Garments Industry.
- Proof of payment of renewal fees for the IRC.
- Certificate of incorporation with RJSC (Registrar Join Stock Companies).
- Certificate of commencement.
- Resolution of Board of Directors.
- Any such documents as may be required as per Import Policy Order (IPO).
A list of common discrepancies is given below:
- Unclean Bill of Lading.
- Bill of Lading.
- Bill of Lading undated.
- Shipment effected from port other than that stipulated in the credit.
- Goods shipped on deck (unless stipulated in the credit).
- Full set of bill of lading not presented.
- Certificate of country of origin not presented.
- Certificate notifying insurance company of shipment not presented.
- Weighment certificate not presented.
- Cuttings or alterations in documents not authenticated.
- Documents inconsistent with each other.
- Description of goods on invoice differs from that in the credit.
- Weights differ between documents.
- The amount shown in invoice and bill of exchange differ.
- Shipping marks and numbers differ between documents.
- Credit amount exceeded.
- Credit expired.
- Documents not presented in time.
- Late shipment.
- Short shipment.
- Absence of documents called for in the credit.
- Bill of exchange drawn on a wrong party.
- Bill of exchange payable on an indeterminable date.
- Absence of signatures in the documents.
- Packing list not submitted.
- Inspection certificate not submitted.
- Unit price not mentioned in invoice.
Operations of Documentary Letter of Credit (L/C):
The following five major steps are involved in the operation of a documentary Letter of Credit:
Issuing Letter of Credit: Before issuing L/C, the buyer and seller located in different countries, concludes a “sales contract” providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank-the issuing bank-to issue a credit in favor of the seller (beneficiary).Instruction or application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application, which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the ‘necessary conditions’ contained in the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a credit the opening bank then proceeds for the credit to be addressed to the beneficiary.
Advising a Letter of Credit (L/C): Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature of the officer of the opening bank and ensures that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export. In such act of advising, the advising bank does not take any liability.
Amendment of Credit: Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended.
In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable credit it can neither be amended nor canceled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary.
Presentation of Documents: The seller being with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in o0rder, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and if they are found as per credit requirements, either.
- Effects payment.
- Reimburses in the pre-agreed manner.
Settlement: Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit.
Settlement by Payment: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied, the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then sends the documents to the issuing bank if the issuing bank is satisfied with the requirements, payment is obtained by the paying bank them the issuing bank.
Settlement by Acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and draft and if it is a bank than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.
Settlement by Negotiation: This settlement procedure starts with the submission of documents by the seller to the negotiating bank accompanied by a draft drawn on the buyer or any other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner.
- Lack of modern technology.
- Higher educated and smart employees are not present.
- Sitting space for customers is not sufficient.
- The decoration and environment of this branch is poor compare with other banks.
- Workloads on the employees are too heavy; it also creates problems to provide proper services.
- This branch has no customer services department.
- Customer turnover is high.
- This branch offers only a few loan schemes to customers.
Uttara Bank Limited is successfully doing their business in Bangladesh. From the findings it has been found that the overall position of the bank is satisfactory. But in some case it has been found that their performance is below the optimum level. As an old bank in Bangladesh, UBL can follow the following recommendations to improve their business.
- Uttara bank Ltd (Tongi Branch) should use modern technology to provide better services and attract to customers.
- UBL should be needed to provide standard payment structure. It will be very easy to attract and retain higher educated employees.
- UBL should need to increase sitting space for customers by this way customers will be satisfied and attracted.
- The authority of UBL should decorate it nicely both inside and outside of the branch.
- To reduce workloads of the employees the bank should use latest technology and provide training to employees.
- UBL should open customer care department within very short time customer so that customers get there required information easily.
- UBL should open ATM card, debit card, marriage loan, home loan, educational loan, car loan; it should open different types of schemes to reduce the customer turnover.
- UBL should offer all types of loan scheme which is already offers by the other branches, like commercial lending (Export, Import, Internal trade).
Banking sector being a service of Bangladesh continues to contribution to a great in the economy of Bangladesh. Uttara Bank Ltd. is one of the leading banking services of the country. Though UBL is the new entrants in the banking industry, it has already shown huge potentials 7 years of operation.
I observe the total foreign exchange department very carefully while completing my internship in UBL. With a keen attention and observation the study has been tried to complete. The following are some extract of the major findings:
- For the effectiveness of the foreign exchange department, UBL has divided the whole department into three major parts, which are Export, Import, and Remittance.
- The monitoring system of the command is strictly maintained here. The executives now and then visit the department, which keeps all the officers alert about their duty.
- Sometime officers show negligence to the clients, which have a negative impact on its service.
I also think that there is bright future waiting for the Uttara Bank Ltd. and UBL is in a position to go as a catalyst for third development in the banking sector in Bangladesh. Another thing I have to mention here that the UBL is going through the oath in which they need to go and as like today it will bring more and welfare oriented activities in the banking sector in the years to come