Foreign Trade of United Commercial Bank:
Foreign trade can be easily defined as a business activity, which transcends national boundaries. These may be between parties or government ones. Trade among nations are a common occurrence and normally benefit both the exporter and importer. In many countries, international trade accounts for more than 20% of their national income.
Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economical profitable for a country to specialize in the production of that commodity in which the producer country has the greater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, service, investment, technology transfer etc.This trade among various countries causes for close linkage between the parties dealing in trade. The bank which provides such transactions is referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller and this flow of 23 goods and payment are done through letter of credit (L/C).
As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which is known as foreign exchange. The term”Foreign Exchange” has three principal meanings. Firstly, it is a term used referring to the currencies of other currencies in terms of any single one currency. To a Bangladesh, Dollar, pound sterling etc. are foreign currencies and as such foreign exchange. Secondly, the term also commonly refer to some instruments used in international trade, such as bill of exchange, drafts, Travel Cheques and other means of international remittance. Thirdly, the terms foreign exchange is also quite of ten referred to the balance in foreign currencies held by a country.
In terms of section 2(d) of the foreign exchange regulations 1947 as adopted in Bangladesh, Foreign exchange means Foreign currency and includes any instrument drawn, accepted made or issued under clause (13) of article 16 of the Bangladesh Bank order 1972 all the deposits, credits and balance payable in any foreign currency and draft Cheque, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any Foreign country.
In exercise of the power conferred by section 3 of the foreign exchange regulation, 1947 Bangladesh bank issues license to schedule bank to deal with exchange. These Banks are known as Authorized dealers. Licensees are also issued by Bangladesh bank to persons or firms to exchange foreign currency instruments such as T.C currency notes and coins. They are known as authorized money changers.
Functions of Foreign Exchange Department:
- Pre-shipment advance.
- Purchase of foreign bills.
- Negotiating of foreign bills.
- Export guarantees.
- Advising/confirming letters-letter of credit.
- Advance for deferred payments exports.
- Advance against bills for collection.
- Opening of letter of credit (L/C)
- Advance bills.
- Bills for collection.
- Import loan and guarantees.
- Issue of DD, MT, TT etc.
- Payment of DD, MT, TT etc.
- Issue and enhancement of traveler’s cheques.
- Sale and enhancement of foreign currency notes.
- Non-resident accounts.
The Most commonly used documents in Foreign Exchange:
- Documentary Letter of Credit.
- Bill of exchange.
- Bill of Lading.
- Commercial Invoice.
- Certificate of origin of goods.
- Inspection certificate.
- Packing List.
- Insurance policy.
- Pro-forma Invoice/ Indent.
- Master receipt.
- GSP certificate.
In simple terms a documentary credit is a conditional bank undertaking a payment. Expressed more fully, it is a written undertaking by a bank (issuing bank) given to seller (beneficiary) at the request, and in accordance with the instructions of the buyer (applicant) to effect payment (that is, by making a payment or accepting or negotiating bill of exchange) up to a started sum of money, with in a prescribed time limit and against stipulated documents. The customary clauses contain in a L/C are the followings:
- A clause authorizing the beneficiary to draw bills of exchange up to certain on the
- List of shipping documents, which are to accompany the bills.
- Description of the goods to be shipped.
- An undertaking by the opening bank that bills drawn in accordance with the conditions will be dully honored.
- Instructions to the negotiating banks for obtaining reimbursement of payments under the credit.
Parties to a letter of credit (L/C): The parties to a letter of credit are:
- Importer/ Buyer
- Opening Bank/ Issuing Bank.
- Exporter/ Seller/ Beneficiary.
- Advising Bank/ Notifying Bank.
- Negotiating Bank.
- Confirming Bank.
- Paying/ Reimbursing Bank
Bill of Lading:
A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constituted a document that is, or may be, needed to support an insurance claim.
The details on the bill of lading should in Claude-
- A description of the goods in general terms not in consistent with in the credit.
- Identify marks and numbers, if any.
- The name of the carrying vessel.
- Evidence that the goods have been paid loaded on board.
- The ports of shipment and discharge.
- The names of shipper, consignee, and name and address of the notifying party.
- Whether freight has been paid or is payable at destination.
- The number of original bills of lading issued.
- The date of issuance.
A bill of lading specifically states that goods are loaded for ultimate destination specifically mentioned in the credit.
A commercial invoice is the accounting document by which the seller changes the goods to the buyer. A commercial invoice normally includes the following information;
- Name and address of the buyer and seller
- Order of contract number, quantity and description of the goods, unit price and the total price.
- Weight of the goods, number of the package, shipping marks and numbers.
- Terms of delivery and payment.
- Shipment details.
Certificate of origin:
A certificate of origin is a signed statement providing evidence of the origin of the goods.
This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract on the L/C. The inspection is usually nominated by the buyer who also indicates the types of inspection he wishes the company to undertake.
The insurance certificate documents must-
- Be that specified in the credit.
- Cover the risks specified in the credit.
- Be consistent with the other documents in its identification of the voyage and description of the goods.
- Unless otherwise specified in the credit
- Be a document issued and/or signed by an insurance company or its agent, or by underwriters.
- Be dated on or before the date of the date of shipment as evidenced by the shipping documents.
- Be for an amount at least equal to the C/F value of the goods and in the currency of credit.
Import is foreign goods and services purchased by customer, firm and Government in Bangladesh.
An importer must have import registration certificate (IRC) given by chief controller of import and exports (CCI&E) to import any thing form other country. To obtain import registration certificate (IRC) the following certificates are required:-
- Trade License
- Income Tax clearance certificate.
- Nationality certificate
- Banks solvency certificate
- Asset certificate.
- Registration partnership deed (if any)
- Memorandum and Article of Association.
- Certificate of incorporation (if any)
- Rent receipt of the business premises
To import though United Commercial Bank Limited (UCBL) a customer/Client requires:-
- Bank Account
- Import registration certificate.
- Tax paying identification number
- Pro-forma Invoice/Indent
- Membership certificate
- L/C application form duly attested
- One set of Imp Form
- Insurance cover note with money receipt
To import, a person should be competent to be an importer. According to import and export control Act, 1950, the office of chief controller of import and Export provides the registration certificate (IRC) to the importer. After obtaining the person has to secure a letter of credit Authorization (LCA) from Bangladesh Bank and then a person becomes a qualified importer.
He is the person who requests or instructs the opening Bank to open an L/C. He is also called opener or applicant or the credit.
Importers application for L/C limit/ Margin:
To have an import L/C limit, an importer submits an application to the department of (UCBL) furnishing the following information:-
- Full particulars of Bank account.
- Nature of Business.
- Required amount of limit.
- Payment terms and conditions.
- Goods to be imported.
- Offered Security.
- Repayment Schedule.
A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the head office credit committee (HOCC). The committee, if satisfied, sanctions the limit and return back to the Branch. Thus the importer is entitled for the limit.
Opening of letter of credit (L/C) by bank:-
Opening of L/C means, at the request of the applicant (Importer) issuance of a L/C in favor of the beneficiary (Exporter) by a bank. The bank which open or issue L/C is called L/C opening bank or issuing bank. On receipt of the importers L/C application supported by the firm contract (Indent/Pro-Forma Invoice) and insurance cover note the bank scrutinize the same thoroughly and fix up a margin on the basis of banker-customer relationship.
Before opening a L/C, the issuing bank must check the following:-
- L/C application properly stamped, signature verified and margin approved and properly retained.
- Indent/ pro-forma Invoice signed by the importer and Indenter/supplier.
- Ensure that the relevant particulars of L/C application correspond with those stipulated in indenter/pro-forma invoice.
- Validity of LCA entitlement of goods, amount etc. Conforms to the L/C application.
- Conversion and rate of exchange correctly applied.
- Charges like commission, FCC, postage, Telex charge, swift charge, if any recovered.
- Insurance cover note-in the name of issuing bank-A/C importer covering required risks and voyage route.
- Incorporation of instruction for negotiating banks as per banks existing arrangement.
- Reimbursement instruction for reimbursing bank.
- If foreign bank confirmation is required, necessary permission should be obtained and accordingly advising bank is advised as per banks existing arrangement.
- If add confirmation is required on account of the applicant charges should be recovered from the applicant.
- In case of séance L/C, mention rate of interest clearly in the letter of credit.
Liability of issuing Bank:-
As per article 9(a) of UCPDC 500, An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents- comply with the terms and conditions of the credit.
Advising of letter of credit:
Advising means forwarding of a documentary letter of credit received from the Issuing bank to the beneficiary (exporter).
Before advising a L/C the advising bank must see the following:-
- Signature of issuing bank officials on the L/C verified with the specimen signatures book of the said bank when L/C received.
- If the export L/C is intended to be an operative cable L/C test code on the L/C invariably be agreed and authenticated by two authorized officers.
- L/C scrutinized thoroughly complying with the requisites of concerned UCPDC provisions.
- Entry made in the L/C Advising Register.
- L/C advised to the beneficiary (Exporter) promptly and advising charges recovered.
Advising Banks Liability:-
Advising banks liability is fixed up in uniform customs and practice for documentary credits, publication 500.
Article7(a):- Credit may be advised to a beneficiary through another bank (the “Advising Bank”) without engagement on the part of the advising bank, but the bank, if it elects to advice the credit shall take reasonable care to check the appeasement authenticity of the credit which it advises. If the bank elects not to advice the credit, it must inform the issuing bank without delay.
Article7(b):- If the advising bank cannot establish such apparent authenticity it must inform, without delay the bank form which the instructions appear to have been received that it has been unable to establish the authenticity of the credit and if its elects nonetheless to advice the credit it must inform the beneficiary that it has not been able to establish the authenticity of the credit.
Adding confirmation is done by the confirming bank. Confirming bank is a bank which adds its confirmation to the credit and it is done at the request of the issuing bank the advising usually does not do it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary bill without recourse to him.
- Issue L/C and request to add confirmation.
- Review the L/C terms.
- Provide reimbursement.
- Drafts to be drawn on L/C opening bank.
- Availability of credit facilities.
- Line allocation from the business and ownership units in the importers country.
- Confirm and advice L/C.
Amendments to letter of credit:
After issuing and advising of a L/C, it may be felt necessary to delete, add or alter some of the clauses of the credit. All these modifications are communicated to the beneficiary through the same advising bank of the credit. Such modifications to a credit are termed as amendment to a letter of credit.
There may be some of the conditions in a credit are not acceptable by the beneficiary. In that cases beneficiary contract applicant and request for amendment of the clauses. On receipt of such request applicant approaches his bank that is issuing bank with a written request for amendment to the credit. The issuing bank scrutinizes the proposal for the amendment and if the same is not in contravention with the exchange control regulation and banks interest, the bank may then process for amendment. There can be more than one amendment to a credit. All the amendment forms an integral part of the original credit.
L/C amendments are to be communicated by SWIFT or mail. If there are more than one amendment to a credit, all the amendment must bear the consecutive serial number so that the missing the any amendment can be identified by the advising bank or by the beneficiary.
What is to be done by the issuing bank before advising amendment:-
The issuing bank has to-
A) Obtain written application from the applicant of the credit duly signed and verified by the bank.
B) In case of increase of value, applications for amendment are to be supported by revised indent/pro-forma invoice evidencing consent of the beneficiary.
C) In case of extension of shipment period, it should be ensured that relative LCA is valid/ revalidated/increased up to the period of proposed extension.
D) Amendment of an increase of credit amount and extension of shipment period both the cases amendment of insurance cover note also is submitted.
E) Proper recording and filling of amendment is to be maintained.
F) Amendment charges (if an account of applicant) will be recovered and necessary voucher is to be passed
The following clauses of L/C are generally amendment:-
- Increase/decrease value of L/C and increase/decrease of quantity of goods.
- Extension of shipment/negotiated period.
- Terms of delivery i.e. FOB, CFR, and CIF etc.
- Mode of shipment.
- Inspection clause.
- Name and address of the supplier.
- Name of the reimbursing bank.
- Name of the shipping line etc.
Settlement of letter of credit:
Settlement means fulfillment of issuing bank in regard to affecting payment subject to satisfying the credit terms. Settlement may be done under three separate arrangements as stipulated in the credit.
Settlement by payment:
Here the seller presents the documents to the nominated bank and the bank scrutinizes the documents. If satisfied the nominated 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 and claim reimbursement as per arrangement.
Settlement by Acceptance:
Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank (nominated by the issuing bank for acceptance) accompanied by drafts down on the bank at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than issuing bank, then sends the documents to the issuing bank stating that it has accepted the drafts and the 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 in a freely negotiate documents and if negotiation restricted by the issuing bank, only nominated bank can negotiate the documents. After scrutinizing that the documents meet the credit requirement, the bank may negotiate the documents and give value to the beneficiary. The negotiating bank then sends the documents to the issuing bank, as usual, reimbursement will be obtained in the pre-agreed manner.
Sundry Deposit L/C Margin A/C—————————————— Dr
(Margin amount transferred to PAD A/C)
Customer A/C——————————————————————– Dr
PAD A/C————————————————————————– Cr
(Customer account debited for the remaining amount)
PAD A/C————————————————————————— Dr
Head Office A/C+ Exchange Trading A/C———————————- Cr
Income A/C interests on PAD————————————————- Cr
(Amount given to Head office ID and interest credit)
Bankers Liability ————————————————————— Dr
Customers Liability ——————————————————— Cr
(When lodgment is given)
After realizing the telex charge, service charge, interest (if any) and the shipping documents is then stamped with PAD number & entered in the PAD register. Intimation is given to the customer calling on the banks counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsements is made on the back of the bill of exchange as “Receipt payments” and the bill of lading is endorsed to the effect “please deliver to the order of M/S–
Under two authorized signatures banks officers (P.A. holder). Then the documents are delivered to importer.
Payment procedure of the import documents:
This is the most sensitive task of the import department. The officials have to be very much careful while making payment.
- Date of payment: Usually payment is made within 7 days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.
- Preparing sale Memo: A sale memo is made at BC rate to the customer. AS the TT & DD rate is paid to the ID the difference between these two rates is exchanging trading. Finally, an inter Branch exchange Trading credit advice is sent to ID.
- Requisition for the foreign Currency: For arranging necessary fund for payment, a requisition is sent to the International Department.
- Transmission of Telex: A telex is transmitted to the correspondent bank ensuring that payment is being made.
Practically by the term Export we mean out carrying of anything from one country to another. As banker we define export as sending of visible things outside the country for sale. Export trade plays a vital note in the development process of an economy. With the earning we meet out import bills.
Although export trade is always encouraged, any body can not export anything to any place. Like importer the exporters are also required to get them registered before entering into export trade. Export registration certificate (ERC) given by CCI & E is required for this purpose. The required documents to obtain ERC are also same as IRC.
When a bank (Authorized Dealer) receives a L/C (Cable or original) it ascertains the correctness of the test number and the authorized signature. Then the bank sends the original copy of the L/C to the Beneficiary.
The exporter presents the relative documents to the negotiating bank after the shipment of the goods. The L/C issuing bank undertakes to honor is obligation only if the beneficiary fulfills the conditions stipulated in the L/C, may namely, the submission of stipulated documents with in the stipulated time. Even a slide deviation of the documents from these specified in the L/C may give an excuse to the negating bank. So the negotiating bank must be careful, promote, systematic and bias-free while scrutinizing the tender documents after careful and through examination of the documents, the banker has to list out the discrepancies which may be classified as major or minor, irremovable or removable. The removable discrepancies can be corrected by the tendered or future losses, which may arise due to non-repatriation of proceeds.
The following types of discrepancies may be noted while the negotiating bank examines the documents:
- L/C expired
- Late Shipment
- Amount drawn in excess of the L/C
- Bill of exchange not properly drawn
- Descriptions of goods differ.
- Bill of lading or Airway bill of state
- Bill of lading classed
- Insurance covered Note as per terms L/C
- Insurance cover obtained after the bill of lading or Airway bill date
- Enough number of copies not submitted as required by L/C
- Negotiation under L/C restricted
- Packing list and certificate of analysis not as per the L/C
- Documents not properly endorsed in favor of the bank
- Full shipment not effective and part shipment prohibited
- Gross weight and Net weight shown in different documents differ
- Same of the documents required by L/C not submitted and
- Documents inadequately stamped.
Documents with major discrepancies, which could not be negotiated, should be sent on collection basis with the permission of the exporter.
The export and importer trade in our country are regulated by imports and exports (control) Act, 1950. Under the Export policy of Bangladesh the exporter has to get the valid export Registration certificate (ERC) from chief controller of import & Export (CCI & E). The ERC is required to renew every year. The ERC number is to be incorporated on EXP forms and other papers connected with Exports.
Registration of exporter:
For obtaining ERC indenting Bangladesh exporters are required to apply to the controller/ Join controller/ Deputy controller/ Assistant controller of imports and Exports, Dhaka/ Chittagong/ Khulna/ Mymensingh/ sylhet/ comilla/ Barisal/ Bogra/ Rangpur/ Dinajpur in the prescribed from along with the documents:
- Nationality and assets certificate
- Memorandum and Articles of Association and certificate of Incorporation in case of limited company.
- Bank certificate
- Income Tax certificate
- Trade license etc.
Securing the order:
After getting the ERC (Export Registration certificate) the Exporter may proceed to secure the Export order. He/she can do this by containing the buyers directly or though agent. In this purpose exporter can get help from-
- Liaison office
- Buyer’s local agent.
- Export promotion organization
- Bangladesh mission abroad
- Chamber of commerce (Local & Foreign)
- Trade fair etc.
Signing the contract:
After communicating with buyer exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price shipment, insurance and marks, inspection, arbitration etc.
Receiving the letter of credit:
After getting contract for sale, exporter should ask the buyer for letter of credit clearly stating terms and conditions of export and payment.
The following are the main points to be looked into for receiving (collecting export proceeds by means of documentary credit) –
- The terms of the L/C are in conformity with those of the contract
- The L/C is an irrevocable one, preferable confirmed by the advising bank.
- The L/C allows sufficient time for shipment and negotiation
Terms and conditions should be stated in contract clearly in case of other modes of payment:
- Cash in advance
- Open A/C
- Collection basis (Documentary/ clean)
- (Here the regulatory frame work is URC-525, ICC publication).
Procuring the Materials:
After the making deal on the L/C opened in his favor, the next step for the Exporter is to set about the task of procuring or manufacturing the contracted materials/ merchandise.
Shipment of goods:
Then the Exporter should take the preparation for export arrange for delivery of goods as per L/C and INCO-terms, prepare and submit shipping documents for payment/Acceptance/Negotiation in due time. Documents for shipments-
- Exp form
- ERC (Valid)
- L/C Copy
- Customer Duty Certificate
- Shipping instruction
- Transport Documents
- Insurance Documents
- Other Documents
- Bill of Exchange (if required)
- Certificate of origin
- Inspection certificate
- Quality control certificate
- G.S.P. certificate
- Photo -sanitary certificate
After those exporter submits all these documents along with a letter of indemnity to NCCBL for negotiation. An officer scrutinizes all the documents. If the document is a clear one, NCCBL purchases the documents of the banks of banker- customer relationship. This is known as Foreign Documentary bill purchases (FDBP).
Procedure for FDBP:
After purchasing the documents, NCCBL gives the following entries.
FDBP A/C DR
Customer A/C CR
(Before realization of proceeds)
Head Office A/C DR
FDBP A/C CR
(Adjustment after realization of proceeds)
A FDBP Registered is maintained for recording all the particulars:
Foreign Documentary Bills for collection:
United commercial Bank Limited forwards the documents for collection due to the following reason:-
- If the documents have discrepancies.
- If the exporter is a new client.
- The banker is in doubt.
Foreign documentary bills for collection signify that the exporter will receive payment only when the issuing bank gives payments. The exporter submits duplicate EXP form & commercial invoice, subsequently, the value of the bill is calculated and the following accounting entries are given:-
Head Office A/C DR @ TT clean
Clients A/C CR
@ OD sight)
Govt. Tax A/C CR
(@ of invoice value)
Postage A/C CR
Income A/C profit on Exchange CR
After passing the above vouchers, an inter Branch Exchange Trading Debit advice is sent for debiting the NOSTRO Account. United commercial bank limited has NOSTRO account with its reimbursing bank. An FDBP register is maintained, where first entry is given when the documents are forwarded to t5he issuing bank for collection and the second one is done after realization of the proceeds.
Export Bill Scrutiny sheet:
- Late shipment
- Late presentation
- L/C expired
- L/C overdrawn
- Partial shipment or transshipment beyond L/C terms
B) Bill of Exchange
- Amount of bill differs with invoice
- Not drawn on L/C issuing bank
- Not signed
- Tenor or B/E not identical with L/C
- Full set not submitted
- Not issued by the beneficiary
- Not signed by the beneficiary
- Not made out I name of the applicant
- Description, price, Quantity, sales terms of the goods not correspond to the credit.
- Not marked one fold as original
- Shipping marks differ will B/A & packing list
C) Packing List
- Gross weight, Net weight & measurement, Number of cartoons/ Packages differs with B/L
- Not marked one fold as original
- Not signed by the beneficiary
- Shipping marks differ with B/L
D) Bill of Lading/Airway Bill:
- Full set of bill not submitted
- B/L is not drawn or endorsed
- B/L shipping on board”Freight prepaid” or”Freight collect” etc. Notations are not marked on the B/L.
- B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L.
- Shipped on board notation not showing name of pre-carriage vessel/intended vessel.
- Shipping on board notation not showing port of loading and vessel name (Incase B/L indicates a place of receipt or taking in charge different from the port of the loading).
- Short form B/L
- Charter party B/L
- Description of goods in B/L not agrees with that of invoice/E & P/L
- Alternations in B/L not authenticated
- Loaded on deck
- B/L bearing clauses or notations expressly declaring defective condition of the goods and/or the packages.
- Non-negotiable documents not forwarded to buyers or forwarded beyond L/C terms.
- Inadequate number of invoice, packing List & others submitted.
- Short shipment certificate not submitted.
Settlement of Local bill:
The settlement of local bill is done is the following ways:-
- The customer submits the L/C to United Commercial Bank Limited along with the documents to negotiate.
- United Commercial Bank Limited official scrutinize the documents to ensure the conformity with the terms and conditions.
- The documents are then forwarded.
- The L/C issuing bank gives the acceptance and forwards an acceptance letter.
- Payment is given the customer on either by collection basis or by purchasing the documents.
Accounting treatment of or purchase of local bill:
Local bill purchase documentary DR
Party A/C CR
Commission A/C CR
Interest A/C CR
A LBPD (Local bill purchase documentary) register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register.
Mode of payment of export bills under L/C:-
The most common methods of payment under a L/C are as follows:-
- Sight payment credit:-In a sign payment credit, the bank pays the stipulated sum immediately against the exporters presentation of the documents.
- Negotiation credit:-In negotiation credit, the exporter has to present bill of exchange payable to him in addition to other documents that the bank negotiation.
- Deferred payment credit:-In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export document. No bill of exchange is involved in UCBL payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the head office is paid at T.T clean rate. The different between the two rates is the exchange trading for the branch.
- Acceptance credit: In acceptance credit, the exporter presents a bill of exchange payable to himself and drawn at the agreed tenor (That is, on a specified future date event) on the bank that is to accept it. The bank signs its acceptance on the bill returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.
Advising Letter of credit (L/C):-
When exporter L/C is transmitted to the bank for advising, the bank sends an advising letter to the beneficiary depicting that L/C has been issued.
Test key Arrangement:
Test key Arrangement is a secret code maintained by the banks for the authentication for their telex message. It is a systematic procedure by which a test number is given and the person to when this number is given can easily authenticate the same text number by maintaining that same procedure. United commercial bank limited has test key arrangements with so many banks for the authentication of L/C messages and for making payment.
Back to Back Letter of credit:
A back to back letter of credit is a new credit. It is different from the original credit based on which the bank under takes the risk under the back to back credit. In this case, the banks main security is the original credit (selling credit) are separate instruments independent of each other and in no way legally connected, although they both from part of the same business operation.
The supplier (beneficiary of the back to back credit) ships goods to the importer and presents documents to the bank as is specified in the credit. It is intended that the exporter would substitute his own documents for negotiation under the original credit his liability under the back to back letter of credit would be adjusted out of these proceeds. The exporter L/C is marked lien and no margin is taken.
In UCBL, papers/ documents required for submission for opening of back to back L/C:-
A) Master L/C
B) Valid Import registration certificate (IRC) & Export Registration certificate (ERC).
C) L/C application & LCA form duly filled in signed.
D) Pro-forma invoice or indent.
E) Insurance cover note with money receipt.
F) IMP form duly signed.
In addition to the above the following papers/documents are also required are export oriented garments industries while requesting for opening back to back letter of credit:-
1) Textile permission.
2) Valid bonded warehouse license.
3) Quota allocation letter issued by export promotion bureau (EPB) in favor of the applicant in case of quota items.
4) In case of the factory premises is a rented one, letter of disclaimer duly executed by the owner of the house/ premises to be submitted.
Detective points or clauses appear in the master L/C:-
- Issuing bank is not reputed.
- Advising credit by the advising bank without authentication.
- Port of destination absent.
- Inspection clause.
- Nomination of specific shipping/Airline or nomination of specified vessel by subsequent amendment.
- B/L to blank endorse, to third bank, to be endorsed to buyer or third party.
- No specific reimbursing clause.
- UCP clause not mentioned.
- Shipment/presentation period is not sufficient.
- Original document to be sent to buyer or nominated agent.
- FCR or HAWB consigned to applicant or buyer.
- Shippers Load and count is acceptable.
- L/C shall expire in the country of the issuing bank.
- Negotiation is restricted.
Payment of back to back letter of credit:-
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.
Accounting treatment for back to back L/C:-
When the document is arrived, the following vouchers are passed:-
Customers A/C DR
Commission on Acceptance CR
When payment, if the fund is at hand, the accounting entry is-
Sundry deposit margin on acceptance DR
Customers A/C CR
If the party is paid in foreign currency, B.C. rate is applied in this regard. International department takes the T.T. OD. rate. If the payment is made to ID in local currency in national rate, T.T. clean rate is followed by ID. When the party is paid O.D sight rate is followed.
If the fund is not available to make the payment, the following vouchers are to be passed:-
Customers A/C CR
Under the back to back concept, the seller, as beneficiary of the credit, offer it as security to the advising bank for the issuing of the second credit. As applicant for this second credit the seller is responsible for reimbursing the bank for payment made under it regardless of whether or not be himself is paid under the first credit. There is, however, no compulsion for the bank to issue the second credit, and in fact, many banks will not do so.
Foreign Exchange Remittance:
Remittance means sending of fund. The word remittance we understand sending/ transferring of fund through a bank form one place to another place which may be within the country or between two countries, one is abroad is called foreign remittance.
“Foreign Remittance” means purchase and sale of freely convertible foreign currencies as admissible “Foreign Exchange Regulations Act-1947” and “Guidelines for foreign exchange transaction-VOL. 1&2 of the country. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies out ward foreign remittance.
So we see that there are two types of foreign remittance:-
- Foreign inward remittance.
- Foreign outward remittance.
- Inward Remittance.
The remittances which are received from abroad are called inward remittance.
Purpose of inward remittance:-
- Family maintenance
- Indenting commission
- Foreign Investment
- Export proceeds
Mode of inward remittance:
- Telegraphic Transfer (TT)
- Mail transfer (MT)
- Foreign demand Draft (FDD)
- Payment Order (PO)
- Travelers Cheque (TC)
- Foreign currency Notes.
2. Outward remittance:
Remittance which is made from our country to abroad is called outward remittance.
Mode of outward remittance:
- Foreign Telegraphic Transfer (FTT)
- Foreign Mail Transfer (FMT)
- Foreign Demand Draft (FDD)
- Travelers Cheque (TC)
- Foreign Currency Notes.
Present limit of outward remittance fixed by Bangladesh Bank:
A) For private Travel: Private travel quota entitlement of Bangladesh Nations total US$3000 per calendar year for visit to countries other than SAARC (India, Pakistan, Nepal, Bhutan, Srilanka, Maldives) and Myanmar.
Quota for SAARC countries and Myanmar is US$1000 for travel by air and US$500 for travel by land. At a time Bank can issue full amount of above quota if required. Case dollar may be issued maximum US$600 per passport per travel. The amount of travel quota mentioned above is prescribed for adults only. The minors are eligible for 50% of the annual ceilings of adults.
B) Business Travel:
1) Subject to an annual upper limit of US$5000 importers are entitled to Business travel quota 1% of their imports settled during the previous financial year.
2) Subject to an annual upper limit of US$5000 non exporting producers are entitled to business travel quotas 1% of their turnover of the preceding financial year as declared in their tax return.
C) For Exporters: New exporters are entitled to a quota for US$ 6000 annually and old exporters can use FCAD expanse retention quota A/C as per their requirement.
D) For Foreign Nationals: The Authorized Dealers may issue foreign currency TCS to foreigners without any limit and foreign currency notes up to US$ 300 or equivalent amounts in foreign currencies.
Foreign exchange may be remitted for studies abroad by Bangladesh National in all regular courses (Subject to being consistent with the education policy of the Bangladesh Govt.) in recognized institutions. Authorized dealer has to open file for the individual student. Application and papers required for this purpose as follows:-
- Application duly filled in.
- Original and photocopy of admission letter issued by the educational institution in favor of the student.
- Original and photocopy of estimate relating to annual tuition free, board and loading incidental expenses etc. issued by concerned institution.
- Attested copies of educational certificates of all applicant.
- Valid passport.
Seminar/ workshop/ conferences:
- Up to US$ 250 per dicer and US$ 200 per diem receptively may be issued by Authorized dealers to private sector participants for attending seminars, conferences and works hops arranged by recognized international bodies in SAARC member countries or Myanmar and in other countries without prior approval of the Bangladesh Bank. Foreign exchange may be released only for the actual period of the seminar, workshop and conference to be held.
- Medical Treatment:
Foreign currency up to US$ 10000 our equivalent may be released by the ADS on the basis of the recommendation of the medical Board set up by the health directorate and the cost estimate of the foreign medical institution. Application for release of exchange exceeding US$ 10000 should be forwarded along with supporting documents to Bangladesh Bank for prior approval.
The ads may release foreign exchange towards remittance of membership fees of foreign professional and scientific institutions and fees for application, registration, admission, examination (TOFEL, SAT, etc). In connection with admission into foreign educational institutions on the basis of written application supported by demand notice/ letter from the concerned foreign institutions showing the amount to be-
- Family Maintenance:
- Bangladesh National: Outward remittance may be made to family members/ dependent parents, spouses and children living abroad with the permission from Bangladesh Bank. A certificate issued by relevant Bangladesh embassy regarding residency of the beneficiary extend of income abroad along with the embassies recommendation as required for this purpose.
- Foreign Nationals: Foreign Nationals who are resident in Bangladesh and who have an income in Bangladesh are permitted to make monthly remittances to the country of their domicile out of their current savings up to 50% of their income to cover their commitments abroad.
- Foreign shipping lines/Air Lines/ Courier Services Company:
These Companies may remit their income after adjustment of the amount of shipment for local disbursement and tax payable.
- Dividend/Gain of foreign Companies/Shareholders:
Dividend, Profit, Gains may be remitted abroad to the owner, shareholders without prior approval of Bangladesh Bank.
- The Govt. of Bangladesh announces each year the scale at which foreign exchange may be issued to intending pilgrims for performing Hajj. Release of foreign exchange for this package should be made as per instruction, to be issued for this purpose by Bangladesh bank each year.
- Remittances of salaries and savings by expatriates:
Expatriates working in Bangladesh with the approval of the Govt. may remit through an authorized Dealer 50% of salary and 100% of leave salary as also actual savings and admissible pension benefits. No prior Bangladesh Bank approval is necessary for such remittance.
- Expenses of office opened abroad:
Remittance of up to US$ 3000 or equivalent may be made annually meet current expenses of such offices opened abroad by a commercial or industrial concern. Such remittance may also be made in the names of concerned offices, subsidiary companies abroad.
- Remittance of Royalty and Technical Fees:
No prior permission of Bangladesh Bank or BOI is required by the enterprises for entering into agreement involving remittance of Royalty, technical know how or technical Assistance Fees. Operational services Fees, Marketing commission etc. If the total fees and other expenses connected with technology transfers do not exceed the following limit:-
- For new projects, not exceeding 6% of the cost of imported Machinery.
- For on going concerns not exceeding 6% of the previous years sales as declared in the income tax return.
Operating Expense of Bangladesh Shipping Corporation & Bangladesh Biman:
Bangladesh shipping corporation and Bangladesh Biman are allowed to make remittances to meet bona fide disbursements in foreign ports, foreign station without approval of Bangladesh Bank.
Remittance against Export claims:
The Authorized Dealers may remit export claims not exceeding 10% of the repatriated export proceeds on the following counts:-
- Short weight claims
- Quality claim
- Part shipment
Subscriptions to Foreign Media Services:
On application from the local news papers, Ads may remit foreign exchange towards cost of subscriptions of news items features articles of foreign news agencies. Remittance should be made on the basis of contracts entered into between the applicant and the foreign agency and NOC of the ministry of information Ads may remit abroad costs, fees on account of their own subscription of foreign media services such as Router monitor service without prior Bangladesh Bank approval.
Advertisement of Bangladeshi products in Mass Media Abroad:
Ads may without prior Bangladesh Bank approval effect remittance towards cost of advertisement of Bangladeshi products on mass media abroad.
Bank charges and sundries:
The Authorized dealers may affect remittances toward settlement of dues to foreign Banks of Bank charges, Cost of cables and other incidental charges arising in their normal curse of the business without prior Bangladesh Bank approval. All such remittances should be reported to the Bangladesh on forms TM along with appropriate return.
Incoming, outgoing passengers may bring in/ take out up to taka 500 per person in Bangladesh currency.
In all above cases for outward remittance TM form to be obtained and this will have to be reported to Bangladesh Bank Monthly basis.
The Ads must maintain adequate and proper records of all foreign exchange transactions including transaction on non-resident Taka A/C in their book and furnish such particular in the prescribed statements/ returns for submission to the Bangladesh Bank.
The purpose of submission of return and statements to Bangladesh Bank for keeping systematic and proper records of all dealings in foreign exchange including transactions on non-resident Taka A/C. Submission of the returns/ statements to Bangladesh Bank is very much important. Total picture of foreign exchange transaction of the country such as reserve of FC, FCS earned through export, wage earners & other reference and FCS paid through import, treatment, education, traveling etc can be ascertained after compilation of these returns/ statements submitted to Bangladesh Bank by the Ads.
Procedures for reporting transactions:
1) Export bills drawn under confirmed and/or irrevocable L/Cs:
Transactions in respect of export bills negotiated by the Ads should be reported as purchase only at the time entries are made in the currency account duly supported by Exp form and schedule-A
- Exp original reported by custom Authority to Bangladesh Bank at the time of shipment/ export.
- Exp duplicate to be reported by the Ads to Bangladesh Bank within 14 days of shipment.
- Exp Triplicate: To be reported after repatriation of the export proceeds.
ii) Export bills drawn on collection basis:
Sometimes Ads also purchase export bills drawn on collection/CAD basis. Transactions relating to such export bills should be reported as outright purchases against ”Export” in the summary statement on receipt of advice of realization of the export proceeds.
iii) Export bills pertaining to head office or Branch maintaining independent currency account:
When export bills are re-discounted with the Bangladesh Bank the transactions should be reported as purchase in the summary statement supported by schedule A and Exp form and the contra entries should be reported on schedule D as sales to Bangladesh Bank.
iv) As and when the exports are re-discounted with the Bangladesh Bank the Branch concerned will report the transactions as purchase in the summary statement supported by schedule A-1/0-1 and Exp. Form.
B) Other Receipts:
Purchase of DD, TT and MT etc. Should be reported to Bangladesh Bank only when the transactions are put through the currency account
- Foreign currency A/Cs of Ads is debited at the time of negotiation of import documents by their foreign correspondent drawn under the L/Cs established by the Ads. Sale of this F.C. should be reported on receipt of negotiated import documents and not on the basis of retirement of bills by the importer.
- All sales on account of imports are required to be supported by the original copy of the IMP form.
- Import bills received on collection/CAD basis, the transactions will be reported on schedule E-2 supported by original IMP form.
E) Other payment:
Transactions relating to DD, MT, TT etc issued by the Ads should be reported only at the time of entries are made in the currency Accounts.
Transactions in non-resident Taka accounts of foreign Banks should also be reported by the Ads.
Coding of Transactions:
AD will give code numbers for all receipts and payments transactions on the relevant forms and schedules as per code list provided by foreign Exchange policy Dept. Bangladesh Bank (2000 edition) and AD will use the HS code number form the HS code guide titled “The Harmonized commodity Description and coding system” exports and imports in the relevant schedules.
Reporting procedure for cash transaction:
Ads shall export to the Bangladesh Bank particulars of all their foreign exchange transactions i.e. all outward and inward remittances effected. Whether through their accounts in foreign currencies or through the taka accounts of non-resident Banks. The original copies of statement/ schedules to be sent directly to the statistics Dept. Bangladesh Bank Head Office, Dhaka the duplicate copies along with the relevant forms should be endorsed to the concerned area office of Bangladesh Bank. These monthly statement/ schedules to be sent to Bangladesh Bank by the 5th day of the following month.
Compilation of summary statement:
Each summary statement will be an abstract of the Ads ledger A/C and will consist of totals under specified heads. Opening and closing balances should be added making each summary a complete and balance statement.
Supporting Schedules and forms of the summary statement:
Every summary statement must be accompanied by schedules and the relative forms as indicated in the summary statements.
Preparation of schedules:
When Exp form is certified against purchase of FCS the transaction must be listed in schedule A-1 in triplicate showing the number of Exp form and the amount.
- Advance receipt for goods to be exported this is to be reported through “Advance Receipt Voucher” (Appendix-19 Vol-2)
- Where the duplicate EXP form has already been lodged with the Bangladesh Bank and the triplicate is not available at the time when proceeds are received. This is to be reported through “EXP form not attached voucher” (Appendix-20-Vol-2)
Schedule A-3/0-3 is used to report purchase of F.C. against export to Mayan mar under Bangladesh – Mayan mar Border Trade Arrangement.
Schedule – C:
Currencies purchased from other Ads or branches in Bangladesh to be reported in schedule – C to be attached with relative S-1, S-2, and S-6 statement.
Schedule – G:
Currencies sold to other Ads or Branches in Bangladesh to be reported in Schedule –G to be attached with S-1, S-2, and S-6.
Schedule – D:
FCs Purchased from and sold to Bangladesh Bank to Be reported as Schedule—D.
Schedule-E-2/P-2, E-3/P-3 and EL 1/2/3:
All import transactions to be reported schedule E=2/P-2 and the charges (interest reimburse etc.) there against and other sales other than import traveling, Treatment, Service/ Technical charges etc in Schedule E-3/P-3. Transactions relating to Loans/ Grants will be reported through EL-1/2/3.
Reporting to Inland L/C settlements:
Payment against inland L/Cs in foreign exchange will be reported in summary statement S-1 or sales side as “payment against Inland L/C” and the recipient AD will report the receipt on the purchase side of S-1 as “Receipt in settlement of Inland L/c”.
Date of Submission of statement of Bangladesh Bank:
1. Operations on private non resident taka Accounts of non –Bank clients
2. Monthly statement of outstanding payment commitments abroad.
3. Commodity Wise statement of imports L/Cs outstanding as on each month end.
4. Monthly statement of outstanding exports bills as of each month end.
Currency wise daily position statements should be kept ready for immediate submission to Bangladesh Bank as and when called for.