Instruments of Foreign Trade Finance of Dhaka Bank Limited-CPC Trade Operations
The banking sector of Bangladesh plays a significant role in boosting the economy of the country and Dhaka Bank Limited is recognized as one of the reputed Private Commercial Banks of the country. Dhaka bank Limited started its journey as a Public Limited Company on April 6, 1995 but now it operates as a Private Commercial Bank which has its presence at 78 locations across the country. Dhaka Bank Limited registered itself in the Dhaka Stock Exchange and Chittagong Stock Exchange in the year 2000. The bank has products and services ranging from Consumer Banking, Corporate Banking, SME Banking, and Islamic Banking to Foreign Trade Financing.
Considering the importance of foreign trade financing, Dhaka bank Limited has centralized its trade operations in the year 2009 by establishing CPC Trade Operations that carries out the foreign trade financing activities of the Authorized Dealer branches (AD). The foreign trade financing activities of CPC Trade Operations are facilitated by the use of various instruments like Letter of Credit, Loan against Trust Receipt (LTR), Indent, Proforma Invoice, Commercial Invoice, Bill of Exchange, Letter of Credit Authorization Form, Bill of Lading, Shipping Guarantee, Packing List, Air Waybill, Bill of Entry, Customs Import Declaration, Customs Export Declaration, Clean Report of Findings (CRF), EFTN, etc. Moreover, CPC Trade Operations is well equipped with trained officers who are expert in proper utilization of the instruments and other resources and delivers risk free, convenient and smooth service to their export and import business clients and helps in building long lasting ties with them. CPC Trade Operation helps the export and import business to flourish and boosts the economy by earning foreign exchanges and remittances from the overseas nations.
The financial system of Bangladesh consists of the Bangladesh Bank, Scheduled and Non Scheduled Banks, non-bank financial institutions, micro finance institutions, insurance companies, credit rating agencies, stock exchange, etc. In the year 1971 the banking system of Bangladesh consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than west Pakistanis. Besides this there were fourteen smaller commercial banks and all of the banking services were concentrated in urban areas. Soon after the independence the Government of Bangladesh designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it Bangladesh Bank. The central bank was responsible for regulating currency, controlling credit and monetary policy, administering exchange control and the foreign exchange reserves. The Government of Bangladesh initially nationalized the entire domestic banking system and proceeded to reorganize and rename various banks. Meanwhile, the foreign owned banks were permitted to continue doing business in Bangladesh. The primary function of the credit system throughout the 1970s was to finance trade and the public sector. The number of rural bank branches doubled between 1977 and 1985 to more than 3330. After the private industrial growth Bangladesh bank and the World Bank began to focus their lending on the emerging private manufacturing sector.
After the independence the banking industry in Bangladesh started its journey with six nationalized commercial banks, two state owned specialized banks and three foreign banks. The banking industry of Bangladesh achieved significant expansion with the entrance of private banks in the year 1980. Currently, the banks in Bangladesh primarily are of two types: Scheduled Banks and Non-Scheduled Banks. The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Banks. On the other hand, the banks which are established for special and definite objectives and operate under the acts that are enacted for fulfilling those objectives are termed as Non-Scheduled Banks.
There are 56 Scheduled Banks in Bangladesh which operate under full control and supervision of Bangladesh Bank in compliance with Bangladesh Bank Order, 1972 and Bank Company Act, 1991. The Scheduled Banks can be classified into four categories which are – State Owned Commercial Banks (SOCBs), Specialized Banks (SDBs), Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs). There are 4 State Owned Commercial Banks which are fully owned by the Government of Bangladesh. There are 4 specialized banks majorly owned by the Government of Bangladesh which were established for specific objectives like agricultural or industrial development. One of the renowned Specialized Bank is Bangladesh Krishi Bank, a specialized agricultural banking institution from which the farmers and the fishermen borrow money for agricultural development. There are 39 Private Commercial Banks which are majorly owned by the private entities and these banks can be categorized into two groups – Coventional PCBs and Islami Shariah Based PCBs. There are currently 31 Conventioanl PCBs operating in the banking industry and they perform interest based operations. There are 8 Islami Shariah Based PCBs in Bangldesh who execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode. There are 9 Foreign Commercial Banks operating in Bangladesh as the branches of the banks which are situated in foreign countries. Besides the Scheduled banks there are 4 Non-Scheduled banks operating in the banking industry of Bangladesh which are – Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank and Jubilee Bank.
Historical Background of Dhaka Bank Limited:
Dhaka Bank Limited is a brainchild of a host of committed entrepreneurs and farsighted dreamers of banking excellence. Dhaka Bank was established as a Public Limited Company on April 6, 1995 under Companies Act, 1994 and the company commenced banking operations on July 5, 1995 with an authorized capital of Tk. 1000 million and paid up capital of Tk. 100 million. The Present authorized capital of the bank is Tk. 10000 million and the paid up capital of the bank stood at Tk. 5685129640.00 as on June 30, 2014. From the very beginning of its journey, Dhaka Bank has brought into focus the heritage and history of Dhaka and Bangladesh from Mughal outpost to modern metropolis. Most of its presentation, publication, brand initiatives, delivery channels and financial manifestations bear the bank’s commitment to this attachment. Today the bank is widely recognized for its exceptional service, simplicity, proximity and cutting-edge way of delivery.
Dhaka Bank has stood out for its financial strength and operational craftsmanship marking its position as the potential market player in all core areas of banking in the country. In the year 2000, Dhaka Bank Limited got itself listed in Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). Dhaka Bank Limited got hold of a country wide reach through its large network of branches, ATMs, SME channels, agricultural outreach and mobile banking. Dhaka Bank Limited has established its presence at 78 locations including 2 Islamic Banking Branches, 1 Offshore banking Unit, 3 SME Service Centers, 1 Business Kiosk and 46 ATMs across the country. The bank has also established a subsidiary company named ‘DBL Securities Ltd’ which has six countrywide branches catering to the needs of Capital Markets.
Dhaka Bank Limited’s relationship with and beyond banking boosted by superior customer service and good governance culture has given the bank a proud brand image which is – ‘Excellence in Banking’. This brand image is taking shape in the employees’ everyday excellence from improved customer service, corporate governance, and innovative products and caring for the society.
The first dividend of DBL was declared on March 16, 1996 and the Initial Public Offering (IPO) was made in the year 1999. The first ATM of DBL was introduced on February 24, 2002. The first Consumer Banking or Retail Banking of DBL was launched on March 29, 2002 and first Islamic Banking commenced on July 2, 2003. The Real-time Online Banking of DBL started on April 1, 2004. The Flexcube which is a transition to Centralized Banking System also started on April1, 2004. On May 22, 2006, the Offshore Banking Operation was launched for the first time.
The launching of Internet banking happened on September 5, 2007 and the Centralization of Trade and Credit Operations was initiated on April 1, 2009. The Research & Development Unit of DBL was established on December 28, 2011 and the Automated Deposit Machine (ADM) was introduced for the first time on April 29, 2013.
Product and Service Offerings of Dhaka Bank Limited:
Dhaka Bank is one of the pioneering banks in Consumer Banking sector among local and multinational institutions and in the year 2002 Consumer Banking was launched at Dhaka Bank Limited. The Consumer Banking Division (CBD) of Dhaka Bank Limited is composed of 4 unites providing services through all the 74 branches and the units are – Marketing & Business Development Unit, Risk Assessment & Credit Approvals Unit, Loan Operations & Disbursement Unit and Legal & Recovery Unit.
Current Account: Current account offers low minimum required deposit, lower yearly service charge and free ATM card. The minimum required deposit for opening current account is Tk. 10000.00 and the yearly service charge is BDT 1000 + VAT. Maximum withdrawal per month can be initiated as per customer’s transaction profile. The usage of ATM card is free of charge for the first year after opening a current account.
Savings Account: The minimum required deposit for the savings account is Tk. 5000.00 and yearly service charge is BDT 600 + VAT (if Average Balance is 25000.00+). The interest is 5% and maximum withdrawal per month is allowed according to customer’s transaction profile. The usage of ATM card is free for the first year.
Short Term Deposit: The minimum required deposit for Short Term Deposit is Tk. 25000.00 with a yearly service charge of BDT 1000.00 + VAT. The interest rate is 5% and the use of ATM card free for the first year.
Fixed Deposit Receipt (FDR): The minimum required deposit for FDR is Tk. 50000.00 and the provision period for auto renewal is minimum 1 month and maximum 2 years.
Gift Cheque: Gift cheque can be issued and en-cashed at any DBL branch and it is available at suitable denominations of Tk. 100, 500 and 1000. It offers attractive rates of interest, can be refunded if lost or stolen and it’s free of charge.
Shopno Jatra Student Service: File opening deposit is Tk. 2500.00 and yearly service charge is BDT 600 + VAT. The student file processing fee is Tk. 4500.00 + VAT, FDD issuing charge is Tk. 700 + VAT and FTT issuing charge is Tk. 400 + VAT. The student loan facility requires 17% per annum on loan amount. Cash security provides the option of deposit 25% of total loan amount as cash and the maximum loan limit is Tk. 40 Lac.
The issuing charge for the international debit card is Tk. 1500.00 + VAT per annum and it is issued in US Dollar.
Students Ledger-School: Any school going student within the age limit of 6 to 7 years can open this account operated by his guardians. The insurance coverage is backed by MetLife Alico and the interest rate is maximum 1.5% higher than savings rate on daily balance. The minimum opening balance is Tk. 500 (with insurance) and Tk. 300 (without insurance) with the availability of free Cheque Book and Debit Card. The withdrawal limit is Tk. 40000.
Students Ledger-University: Any college or university going students within the age limit of 18 to 28 years can open and operate this account on their own. The minimum opening balance is Tk. 1000.
Honourable Seniors: Senior citizen segment of the country within the age bracket of 45 to 65 years can open this account. The key features include – free insurance coverage backed by MetLife Alico, interest rate maximum 2% higher than savings rate on daily balance and 0.50% higher than usual rates on FDR, minimum opening balance is Tk. 5000, free Cheque Book, overdraft facility and self-employment loan.
Special Deposit Scheme: The key features includes – tenure for 1,2 or 3 years, investment range is Tk. 100000.00 to Tk. 10000000.00 with a monthly return of Tk. 833 per Lac and the overdraft limit is up to 80% of total investment.
Deposit Double Scheme: This scheme entitles to double the deposit within the shortest possible time frame and the key features includes – tenure of 7 years, minimum deposit of Tk. 50000.00, maximum deposit of Tk. 5000000.00, overdraft and term loan facility up to 90% of the initial deposit.
Deposit Pension Scheme: Any Bangladeshi citizen of 18 years and above can apply for this scheme and the key features includes – monthly installment of Tk. 500 to Tk. 25000, flexible tenure of minimum 2 years to maximum 10 years and maximum maturity value around Tk. 52 Lac.
Smart Plant Scheme: Smart Plant Scheme offers free life insurance facility, money multiplier facility and option of taking advance of up to 90% of the contributed amount. It offers to multiply the initial cash investment to 10 times in 6 years. The minimum deposit required for availing such opportunity is Tk. 10000 and any Bangladeshi with an age more than 18 years and not exceeding 54 years can use Smart Plant Scheme.
EduSavings Plan: EduSavings Plan is an attractive deposit product that focuses on child’s education and plan for their future academic expenses. Some of the key features include – maximum deposit requirement of Tk. 20000.00 and minimum deposit requirement of Tk. 500.00, tenure of 4, 6, 8, 10 and 12 years, maximum maturity value of 6454000.00, loan of up to 90% of total deposited account, accidental benefits, etc.
Lakhopoti Deposit Scheme: It is a monthly deposit scheme to become lakhopoti in 4 to 12 years. Any institution, club or non-profit organizations can apply for it other than individuals. The overdraft facility is up to 80% of the deposited amount and free issuance of VISA Credit Card is available for the first year.
Kotipoti Deposit Plan: It is a monthly deposit scheme to become a kotipoti in 4 to 15 years.
Bundle Savings Account is of three types – Silver Account, Gold Account and Platinum Account.
- Silver Account: The key features of Silver Account are – minimum balance deposit of Tk. 30000, monthly interest of 6%, maximum monthly withdrawals is 6 times, free Debit Card, Credit Card, SMS & Internet banking, etc. Salaried individuals and professionals can apply for this account.
- Gold Account: The key features of Gold Account are – minimum balance deposit of Tk. 50000, monthly interest of 6.5%, maximum monthly withdrawals is 10, etc.
- Platinum Account: The key features of Platinum Account are – minimum balance deposit of Tk. 100000, monthly interest of 6.75%, maximum monthly withdrawals of 12 times, etc.
- Personal Loan: Individual salaried person from Multinational Company (MNC), reputed Large Local Company (LLC) and Bank can avail personal loan from Dhaka Bank Limited. The reputed professionals include – Doctors, Engineer, and Architecture with salary of BDT 50000 and above. Besides this, some reputed businessmen with gross income of BDT 80000 and above are also eligible for personal loan.
- Car Loan: Individual salaried person of Multinational Company, reputed Large Local Company, Bank and Financial Institution, doctors, engineers, architects and existing corporate clients who are maintaining salary account can take car loan. The income level includes Tk. 80000 and above for salaried person and Tk. 100000 and above for selfemployed professional and businessmen.
- Home Loan: The features of the home loan are same as that of the car loan.
- Dual Currency Credit Card: Dual Currency Credit card offers the most convenient and flexible way to pay for purchases made at home and outside. Salaried individuals, professionals and business persons can apply for Dual Currency Credit card. The minimum required income for availing this opportunity is BDT 25000.00, minimum credit limit is BDT 10000.00 and maximum credit limit is BDT 500000.00. The minimum age of the applicant should be 21 years and the maximum age should be 55 years.
The locker facility of Dhaka Bank Limited provides the option of covering valuables against any unfortunate incident at a very competitive price. Some of the key benefits of the locker service include – availability of lockers in various sizes like small, medium and large with varying rents, direct debits from customers’ deposit accounts which can get them rid of the hassles of writing out cheques and availability of lockers at different branches of Dhaka Bank Limited like – Gulshan Branch, Banani Branch, Dhanmondi Branch, Uttara Branch, Cox’s Bazar Branch, Narayangonj Branch, etc. The yearly charges for small, medium and large lockers are as follows – Tk. 3000, 5000 and 7000.
In the field of economy, 30% business volume of the industry has been captured by Islamic Banking & Finance due to its popularity and acceptability among people in our country. Dhaka Bank Limited started its first Islamic Banking branch at Motijheel, Dhaka on July 2, 2003 responding to the demand for Shariah Based Banking. The second Islamic Banking Branch was opened at Agrabad, Chittagong on May 22 of the year 2004. Dhaka Bank Limited is the pioneering bank to establish Shariah based banking operations through Islamic Banking branches in Bangladesh.
Specialization in Trade Services and Syndications and Structured Finance combined with a strong reputation and product expertise, gave Dhaka Bank Limited a competitive position in building long-term and well coordinated client relationship in the Corporate Banking sector. The Corporate Banking team of Dhaka Bank Limited is committed to helping clients achieve their ambitions and fulfill their dreams in the up and down cycles of business.
Short Term Financing Products:
- Overdraft: Overdraft is an extension of credit from the bank when an account reaches zero which means it allows clients to continue withdrawing money even if the account has no funds in it.
- Letter of Credit: Letter of Credit is a written commitment by an importer’s bank or issuing bank to the exporter’s bank or accepting bank to pay a specified sum in a specified currency within a fixed time frame. It substitutes the creditworthiness of a bank for the creditworthiness of a buyer.
- Demand Loan: It is a loan with or without a fixed maturity date which can be recalled at any time by the lender and must be paid in full on the date of demand.
- Time Loan: Time loan is a short-term asset based business payable usually in one installment at the maturity date. It is commonly used to finance revenue generating assets which provide the funds to pay back the loan and it can only be repaid on the maturity date.
Specialized Trade Service Products:
- EDF Loan: Export Development Fund loan is available to the exporters of non-traditional manufactured items which are utilized in case of importing raw materials for manufacturing exportable products.
- OBU Financing: OBU can finance to fully foreign owned company at home, companies in EPZ territory and in limited cases to Joint Venture or Local Industrial unit in Bangladesh in the form of investment after taking permission from Board of Investment (BOI).
Cash Management Solutions:
- Payment & collection solution
- Bulk cheque Processing
- Utility Bill collection
- Vendor/Salary Payment
- Cash pickup & Delivery
- Hajj Remittance Processing
- Managing IPOs as Lead Bank
- Act as Banker to the issue of IPOs
Syndications & Structured Finance:
Syndications & Structured Finance Unit (SSFU) of Dhaka Bank Limited started its journey in 2004 in order to complete bank’s Corporate Banking needs by sharing risks and providing efficient financing solutions for commercially viable activities. SSFU offers customized and flexible financial solutions to its clients and manages financial package in a cost effective manner. Some of the key achievements of this unit are as follows –
- Raised over BDT 15 billion as Lead Arranger for 19 different projects
- Participated in over 60 projects arranged by Dhaka Bank and other banks or financial institutions
- Provided Agency and Security Trustee functions to numerous projects
- aviations, ship building, steel, cement, ceramic, pulp & paper, consumer products, etc.
- Offers a wide range of products like – Term Loan, Working Capital Facility, IPFF Fund, Offshore Finance, etc.
Dhaka Bank Limited has access to USD denominated infrastructure fund under Investment Promotion Financing Facility (IPFF) managed by Bangladesh Bank and endowed jointly by the World Bank and Government of Bangladesh. The Syndications & Structured Finance Unit has arranged BDT 3.66 billion funds under IPFF for four different projects – two power projects, one water treatment plant and one Inland Container Depot Project up to June, 2014.
Securitization of Assets:
Securitization of assets is a powerful and effective means of generating funds for a certain category of institutions. The World Bank and the Asian Development Bank plays a vital role in the securitization of assets by the commercial banks like Dhaka bank Limited.
Finance and Advisory Services:
Dhaka bank Limited positions itself for providing investment banking advisory services such as – guidance on means of raising finance from the local Stock Markets, Mergers and Acquisitions, Valuations, Reconstructions of distressed companies and other expert knowledge based advice.
Project financing is an innovative and timely financing technique which is used to fund large scale corporate projects. It constitutes of preparing the financial plan, assessing the risks, designing the financing mix and raising the funds. The project financing of Dhaka bank Limited covers a wide range of businesses and industries such as – Textile, Ready Made Garments, Edible Oil, Consumer and Diversified industries, Shipping, Ship Breaking, Steel and Engineering, Energy and Infrastructure, Paper, Chemicals and Pharmaceuticals, Cement, Construction, Financial Institutions, Telecom, Media, Technology, etc.
Dhaka Bank Limited has launched its Offshore Banking operations in Dhaka Export Processing Zone in the year 2006 as one of the pioneers among local banks. The bank’s Offshore Banking Unit has earned enormous confidence of the foreign investors as a result of its strong commitment and dedication over the years. Offshore banking refers to international banking involving non-residents’ foreign currency denominated assets and liabilities. Offshore Banking Units conduct their deposit taking and lending activities with foreign investors without conflict with the domestic fiscal and monetary set up and independent of the local commercial banking system. The resident Bangladeshi citizens have no permission to enjoy OBU services and the unit only deals with the non-residents 100% foreign owned and joint venture investment enterprise inside the EPZs which does not fall under the set regulations of Bangladesh Bank. Its operations are being treated as a country within a country commissioned by a separate Banking License from Bangladesh Bank.
Dhaka Bank Limited launched its SME Banking operation in the year 2013 with the vision of achieving sustainability through blending business with rural and SME finance. In order to support Small & Medium Enterprises, Dhaka Bank Limited has widened its network up to the rural frontiers with a country-wide reach of branches, SME and Business Centers, alternative delivery channels (ADC), etc. The SME Banking sector of the bank has blended together small businesses, medium enterprise, women entrepreneurs, cottage industry, agricultural farmers, renewal energy and eco-friendly brick kilns among more than 5000 entrepreneurs.
Instruments of Foreign Trade Finance
Since its commencement in the year 1995, Trade Finance has been a major area of concentration for Dhaka Bank Limited. Letter of Credit is a popular instrument in the modern trade finance transaction and it is widely used for trade in Bangladesh. Dhaka Bank Limited maintains Relationship Management Applications (RMA), Nostro Accounts and various correspondent banking arrangements for secure and fast issuance and payment of L/Cs. The bank mainly provides the following services related with trade finance activities:
- Import Letter of Credits
- Export Letter of Credits, negotiation and documentary collection
- Re-issuance of Local guarantees against counter guarantees from international correspondents
With a vast network of over 320 correspondents throughout the globe Dhaka Bank Limited is capable of advising LCs in all continents of the globe. For confirmation of LCs, the bank enjoy significant amount of credit lines with almost all the major international banks. Dhaka Bank Limited has signed up with Asian Development Bank (ADB) to avail credit guarantee facility from ADB under its Trade Finance Facilitation Program (TFFP) for confirmation of the L/Cs issued by the bank for the purpose of enhancing the capacity to support trade transactions.
Dhaka Bank Limited has 15 Authorized Dealer (AD) Branches who are authorized to transact in foreign exchange and to trade finance business. Dhaka Bank Limited has centralized its Trade Operations by establishing CPC Trade Operations in the year 2009 and all trade finance related transactions are being centrally dealt with in the CPC trade Operations. CPC Trade Operations handles all import L/Cs, export documents and follow-ups for all import/export payments/receipts till respective settlements. CPC Trade Operations is a logical step undertaken by Dhaka Bank Limited for achieving excellence in banking and a group of expertise in trade finance working under a single roof ensures the effective and efficient functioning of trade finance activities.
Objective of the Report:
The general objective of this report is to exemplify the overall trade finance activities of Dhaka bank Limited, CPC Trade Operations and getting familiarized with the instruments that are used in Foreign Trade Finance. The purpose of illustrating the trade finance activities led to the clarification of various types of Letter of Credit and foreign trade activities, steps followed for establishing a Letter of Credit, trade finance guidelines followed as stated by Bangladesh Bank and different products and service offerings by the bank.
Instruments of Foreign Trade Finance Activity at CPC Trade Operations:
Responding to fast changing economic, financial and regulatory landscape around the world, the financial institutions are evolving for meeting the challenges and finding solutions for sustainability and are taking proper initiatives needed to build a more flexible, stable and environmental friendly financial service sector. Among the local commercial banks, Dhaka Bank Limited is one of the pioneers taking the challenge of centralizing the whole process of trade operations. After five years of operations, CPC Trade Operations has reached its maturity level where it can deliver high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking towards its goal and management objectives. CPC Trade Operations requires continuous communication with all the DBL branches, other banks both inside and outside the country, regulatory Government bodies, Central Bank and with the valued customers as well.
Some of the key features of CPC Trade Operations include:
- Strong scrutiny team with specialized personnel like CDCS. CDCS stands for Certificate for Documentary Credit Specialists which is a professional qualification recognized worldwide as a benchmark of competence for international practitioners. CDCS develops core knowledge and competency in the following areas – documentary credits types, characteristics and uses, rules and trade terms, parties to documentary trade transactions and their roles and obligations, methods of payment/credit used in documentary credit transactions, types of transport, commercial and financial documents, knowledge about airway releases, etc.
- Specialization of departments on the basis of operations.
- Cutting edge technology with Corporate Banking Software, SWIFT, Alliance Messenger, etc.
- Healthy MIS to take effective decision and better control.
- Continuous Process Reengineering using comprehensive technology helps to deliver faster service.
- Reporting Team to ensure correct and timely report required by the Central bank.
- Well equipped messengers for prompt delivery and collection of documents.
CPC Trade Operations adds value through –
- Optimum utilization of resources
- Reduced cost and risk
- Standardization of work
- More attention and prompt services to customers
- Prompt solution to trade related critical issues
- Better monitoring and accountability
Moreover, CPC Trade Operations maintains its accounting records in the general ledger of the respective branches and the import/export related processing and credit operations are centrally controlled and monitored by the CPC for efficient and effective decision making and reduction of cost as well.
CPC Trade Operations Financial Highlights of 2013 are as follows – number of Import L/C (15792), number of Export Bills for Foreign Export (8543), number of Export Bills for Local Export (11481) and total contract executed (78000).
According to the Imports and Exports (Control) Act, 1950, no goods of the specified description will be imported except in accordance with the conditions of a license to be issued by the Chief Controller of Imports and Exports (CCI&E) authorized in this behalf by the Government of Bangladesh. In Bangladesh, the import of goods is regulated by the Ministry of Commerce with Import Policy Orders and Public Notices issued from time to time by the CCI&E and the payments for the imports are regulated by Bangladesh Bank. The license issued by the CCI&E to the importers after registration is known as Import Registration Certificate (IRC) and without it no import activities can be conducted by any party unless exempted from such registration by the authority.
Import of any goods can only be affected by opening irrevocable L/C unless otherwise exempted by CCI&E for specific cases mentioned under Import Policy Order (2009-2012). The Document Scrutiny Department of Dhaka Bank Limited, CPC Trade Operations makes its payment to the exporters on behalf of the importers through the issuance of Documentary Credit or Letter of Credit (L/C) which is a conditional guarantee of payment. The parties to a documentary credit deal with documents not the goods that the documents relate to and it is a common method in Foreign Trade Finance as it offers some protection to both the importers and exporters. The common participants in a L/C process are – the buyer or applicant or importer, the seller or beneficiary or exporter, L/C issuing bank, L/C advising Bank, etc.
Instruments of Foreign Trade Finance (Import Activities):
Dhaka Bank Limited undertakes Import Finance in the form of both pre-import and post-import finance. Post-import finance is an arrangement under which an importer can request the issuing bank to grant loan against the documents if he has inadequate cash in his hand and he uses that loan for importing goods which will be repaid later to his issuing bank.
Letter of Credit: Letter of Credit is one kind of pre-import finance that is made in the form of commitment on behalf of the applicant to pay an agreed sum of money to the beneficiary upon the fulfillment of the terms and conditions. Letter of Credit is also known as Documentary Credit which is the bank’s guarantee of payment for imported goods within a specified time period.
Performance Bonds and other guarantees: Performance bond is a bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. Dhaka Bank Limited offers excellent solution to meet all performance bonds and guarantees required by its valued clients.
Loan against Trust Receipt (LTR): LTR is one kind of post-import finance facility which is awarded to retire import bill directly. In this case, the possession of the goods remains with the borrower (importer) and the borrower executes Letter of Trust Receipt in acknowledgement of debt and its repayment along with interest within agreed period of time. The importer takes possession of the goods on trust for resale before paying the issuing bank on Trust Receipt due date and Trust Receipt financing is only applicable for the goods imported under a documentary credit arrangement.
Indent or Proforma Invoice: An Indent or Proforma Invoice is a sales contract between an exporter and an importer and there is a difference between the two. Proforma Invoice is a document that declares the seller’s commitment to provide the goods or services specified to the buyer at certain prices and it is send by the seller before the shipment of goods. An Indent on the other hand is a document placed for order of goods by the importer often through a local or foreign agent of the supplier and the acceptance of such document constitutes a contract of sale. The information that are included in a Proforma Invoice are – port of loading, port of discharge, mode of shipment, date of shipment, goods description, quantity, unit price, total value of the goods, etc.
LCAF: LCAF stands for Letter of Credit Authorization Form which is submitted by the importer to the issuing bank for opening a Letter of Credit. The issuing bank authenticates the LCAF by confirming the following: IRC is valid, renewal fee paid (if required), item to be imported is eligible as per Import Policy, LCAF is properly filled and signed by the importer and H.S. Code inserted into the LCAF. After submission of the LCAF by the applicant to the issuing bank it is entered into the relevant register and submitted to the Area Registration Unit of Bangladesh Bank for registration. The officerin-charge of the Bangladesh Bank Registration Unit gives the registration number and scrutiny seal. The customs copy (Duplicate) of the LCAF is handed over by the AD branch to the importer which will be required at the time of clearance of goods from the customs on importation. On the other hand, the Exchange Control copy (Original) of the LCAF is retained by the branch which acts as the basis on which import into Bangladesh is permitted. The Triplicate of LCAF is for CCI&E’s Office, the Quadruplicate is the statistical copy, the Quintuplicate is the copy for Registration Unit of Bangladesh Bank and the last copy is the Office Copy of the bank.
T/M Form: The Travel and Miscellaneous expense Form is filled up and authorized by the issuing bank which specifies the bank charges on account of imports such as – advising commission, amendment commission, confirmation commission, L/C cancellation charges, freight charges, etc.
Bill of Exchange: Bill of Exchange is a written unconditional order by the drawer to the drawee to pay a certain sum for payment of goods received by the drawee. The drawee accepts the bill by signing it and converts it into a binding contract. The information that are included in a Bill of Exchange are – the name of the drawee, a statement of the place where the payment is to be made, the name of the person to whom payment is to be made, a statement of the date and of the place where the bill is issued, the signature of the drawer (issuer), etc.
Commercial Invoice: Commercial Invoice is a document required by customs to determine true value of the imported goods for assessment of duties and taxes. It includes the following information – buyer, seller, date and terms of sale, quantity, weight and volume of the shipment, description of goods, unit value and total value, freight charge (if applicable), etc.
Bill of Lading: Bill of Lading is a document issued by a carrier to the shipper as a contract of carriage of goods and it must be presented for taking delivery at the destination. A Bill of Lading contains – applicant and beneficiary’s name, port of loading, port of discharge, date of departure and arrival, list of goods being transported, etc.
Certificate of Origin: It is a document declaring in which country a commodity or good was manufactured. It also contains information regarding the product’s destination and country of export.
Packing List: Packing List contains the description of the goods, their quantity, packaging type, net weight, gross weight, etc.
Shipping Guarantee: Shipping Guarantee refers to a written guarantee issued by the bank and it is presented by the importer to the carrier for picking up the goods in the case of arrival of cargo before the shipping documents.
Payment mode of L/C: On the basis of payment terms L/C can be of two types – At Sight Letter of Credit and Usance/Deferred Payment Letter of Credit. When the payment is to be made at the time documents are presented by the issuing bank to the importer then it will be known as At Sight Letter of Credit. On the other hand, if the payment is to be made at a future fixed time from the presentation of the documents to the importer e.g. 60 days after sight, then it will be referred to as Usance or Deferred Payment Letter of Credit.
Bill of Entry: A Bill of Entry is declaration by the exporter regarding the precise quantity and value of the goods that are being shipped out and a qualified customs clerk prepares this document. A Bill of Entry is thoroughly checked by customs authorities for accuracy and conformity with tariff and regulations. After receiving the Bill of Entry CPC Trade Operations realizes about the shipments arrival at the port and on the basis of this the bank provides Clearance Certificate to the importer by displaying which he can get his goods released from the port of discharge.
Amendment to Letter of Credit: Sometimes alteration or amendments to the original terms and conditions of a Letter of Credit becomes necessary after issuance of that L/C. These amendments involve changes in unit price, extension of validity of the L/C, documentary requirements, etc. Amendments to a Letter of Credit can take place only at the agreement of the importer, exporter, advising bank and issuing bank. In such circumstances, the importer must make a formal request to the L/C issuing bank supported by revised Indent/Proforma Invoice and other necessary documents for making an amendment to the original Letter of Credit. After this, the issuing bank advises the required amendment to the advising bank through SWIFT message and notes down all the amendments in the L/C file and L/C opening register and charges L/C amendment commission to the client’s account. Sometimes an amendment requires an increase in the L/C value and in that case it must be ensured that the balance available in the LCA Form is sufficient to cover the increased L/C amount.
Inspection Certificate: Inspection Certificate is generally required for import of industrial equipment, meat products, perishable merchandise, etc. This certificate specifies that the good meets the required specifications and was in good condition and correct quantity at the time it left the Port of Departure.
Insurance Document: Insurance Document is a policy/certificate/declaration under cover note as required by the Letter of Credit. It covers the specified risks as stated in the Documentary Credit and the risks are very clearly defined.
Customs Import Declaration: Customs Import Declaration is the declaration on online about the import duty or taxes that were paid by the importer for importing of goods from abroad.
According to the Imports and Exports (Control) Act, 1950, no goods of the specified description will be exported except in accordance with the conditions of a license to be issued by the Chief Controller of Imports and Exports (CCI&E) authorized in this behalf by the Government of
Bangladesh. Without being registered no export activities can be conducted by any party unless otherwise exempted by the authority and for the registration exporters need to apply for Export Registration Certificate (ERC) to the CCI&E. After the registration the ERC is required to be renewed every year and the ERC number is to be included on EXP Forms and other documents as required. The export from Bangladesh is subject to export trade control exercised by the Ministry of Commerce through CCI&E.
Formal Procedures to the Letter of Credit (Exporter’s Perspective):
- Receiving export order: The first step for an exporter is to directly contact the foreign buyer through correspondence or contact with Dhaka Chamber of Commerce and Industry (DCCI) for getting information about the probable foreign buyers or importers of his products. After contacting with foreign buyer the exporter negotiates on the terms and conditions of the sale contract which includes price, specification and quantity of the product offerings. At this very stage the exporter formulates a Proforma Invoice or Indent after the agreement is being associated between the two parties.
- Request to open a Letter of Credit: The exporter requests the foreign buyer to open a Letter of credit on his behalf. The foreign buyer opens a Letter of Credit and the issuing bank advises the L/C to the advising bank or Dhaka Bank Limited which is the exporter’s bank by requesting the confirmation. Dhaka Bank Limited sends a copy of the Letter of Credit to the exporter.
- Inspection by the exporter: The exporter thoroughly examines the Letter of Credit to identify whether the terms and conditions of the L/C are clear and definite with that of the contract. The L/C should provide sufficient time for shipment of the goods by the exporter. If the exporter finds any inconsistency of the provisions of the L/C that conflict with the underlying contract he will immediately report to the foreign buyer to make necessary amendments through the issuing bank.
- Arrangement and shipment of goods: After receiving the L/C the exporter procures raw materials from the supplier to manufacture goods of the quantity and amount as specified in the contract. Then the exporter goes through a series of steps prior to shipping his goods. First of all, the exporter obtains inspection certificate from the Inspecting Authority and reserves space with the shipping agent by submitting Commercial Invoice and Sales Contract to the shipping agent. Secondly, he contacts with the Customs Chamber and submits Commercial Invoice, Packing List, Certificate of Origin, EXP Form and Insurance Certificate to the Clearing and Forwarding Agent (C&F Agent). After this, the exporter transports the goods to the Port of Loading by contacting with the Port Authority. From the Port of Loading the goods are finally shipped to the Port of Destination by the carrier.
- Presentation of documents and collection of Export Bills: The exporter obtains the Bill of Lading from the shipping agent after the shipment of goods and along with the Bill of Lading he displays other documents like Commercial Invoice, Packing List, Insurance Document and Certificate of Inspection to the advising bank for collection of export bills. The advising bank checks all the documents for any discrepancies and if the documents are in order the bank airmails the documents to the issuing bank. The issuing bank reviews all the documents and effects payment to the exporter through the advising bank. Then the exporter collects his export bills from his advising bank and the issuing bank forwards the documents to the importer for import bill settlement and for claiming the goods from the Port of Discharge.
Discrepancies in Export Documents:
- Expiration of Letter of Credit
- Late shipment
- Late presentation of documents
- Inspection Certificate and Certificate of Origin not presented
- Full set of Bill of Lading not presented
- Packing List not presented as per L/C or missing of gross and net weight
- Description of goods differs from the L/C
- Shipment from different port than the one mentioned in the L/C
- Unit price not mentioned in Commercial Invoice
- Bill of Lading, Insurance Documents and Bill of Exchange not endorsed properly
Instruments of Foreign Trade Finance (Export Activities):
Customs Export Declaration: It is a document declaring the amount of custom duty or taxes paid by the exporter from his received amount for exporting of goods to a foreign country.
Clean Report of Findings (CRF): Pre-shipment inspection is mandatory for all export activities except those identified as exempt, prohibited or restricted by the authority. The arrangement of Clean Report of Findings (CRF) has to go through a sequence of steps. First of all, the importer or foreign buyer has to complete a pre-shipment Inspection Order Form (IOF) for all imports subject to inspection and give it to Intertek. Intertek contacts the exporter and arranges for an inspection in the country of supply through their global network of offices. After satisfactory finding from the inspection, Intertek issues a Clean Report of Findings to the customs authority and certifies the exporter’s Invoice and Packing List. The exporter has to collect the CRF from the customs authority and provide it to the carrier that will ship his goods. If the goods arrive at the Port of Discharge without a Clean Report of Findings then the importer will be charged a penalty for releasing the goods.
Export Letter of Credit Advising: Dhaka Bank Limited provides a prompt advising of export Letter of Credit from a wide international network. Under this arrangement, the bank offers both pre-shipment and post-shipment facilities to the exporters. The pre shipment facilities are required to finance the costs of executing export orders, such as – procuring and processing of raw materials, packaging and transportation, payment of various fees and charges including insurance premium, etc. The post-shipment facilities of the bank are directed to finance the various requirements by the exporters after the shipment of the goods are made. Usually, the settlement of the export bills takes some time in the procedure of a Letter of Credit and in that time some financing can be assured by the bank to the exporter through post-shipment facilities.
Back to Back Letter of Credit: The Back to Back Letter of Credit is a type of preshipment finance in which an L/C is opened in favor of the exporter for the purchase of raw material or finished merchandise that will be required for executing export order.
Export Bills for collection: Export Bills for collection are the documents which are presented by the exporter to the advising bank for collection of export bills. These documents are forwarded to the issuing bank that in return effects payment to the exporter through the advising bank.
Packing Credit: Packing Credit is a borrowing facility provided by Dhaka Bank Limited to help the exporter finance the costs of buying or making a set of products, packaging and transportation of the products from the factory to the port, etc. It is offered by the bank to meet the client’s working capital requirement and can be extended if the purchaser issuing an L/C is based in another country.
FDBP: Foreign Documentary Bill Purchased is post-shipment finance allowed to the exporter through the purchase of foreign documentary bills which will be adjusted from the export proceeds later on after the exporter receives his export bills.
EDF: Export Development Fund was arranged by International Development Association (IDA) in the year 1989 at the request of Government of Bangladesh for promoting the export of non-traditional items manufactured in the country. According to Bangladesh Bank circulars, export-oriented manufacturing units in some sectors are allowed to avail EDF from Bangladesh Bank for bulk purchasing of raw material for manufacturing export products. The Authorized Dealer branches of Dhaka bank can also provide EDF facility to its client’s or exporters who have an account in the bank. An exporter will be eligible for availing Export Development Fund facility under the following circumstances:
a) The value addition of the products must be in line with the Import Policy Order, amounting to 20 percent of the FOB (Free On Board) Value except in case of garments where it has to be 30 percent or above.
b) The loan should be utilized for importing raw materials to manufacture the exportable products.
c) The exporter must have a valid contract with the supplier of the raw material.
d) The exporter must create a Back to Back Letter of Credit for importing raw materials.
Some of the organizations who are eligible for EDF are – Bangladesh Textiles Manufacturer Association (BTMA) member mills, Bangladesh Garments Accessories & Packaging Manufacturers & Exporters Association (BGAPMEA), Leather Goods & Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB), etc. The Export Development Fund (EDF) provides the following assistance and support to the exporters:
- Venture Capital on easy terms and low interest rates;
- Assistance in obtaining foreign technology and consultancy for product development and diversification;
- Assistance in fielding marketing missions abroad and participating in international fairs for market compatibility of products;
- Assistance in establishing sales and display centers abroad and extending warehousing facilities;
- Assistance for participating in overseas training programmes on product development and marketing help develop technical skill and marketing expertise;
- Assistance in any other activity related to product and market development.
Besides these instruments, there are other instruments used for Export Finance similar to that of Import Finance like – Bill of Lading, Certificate of Origin, Commercial Invoice and Packing List.
Analysis and Findings:
Responding to the ever changing trends and increased demand for Consumer Banking, Corporate Banking, SME Banking and Foreign Trade Finance activities, the Private Commercial Banks are competing against each other for attracting and retaining corporate clients and customers by evolving their strategies, structures, product and service offerings that will best fit and serve their clients and keep their banking business growing and prospering throughout the time. After analysis of the instruments of Foreign Trade Finance used by CPC Trade Operations, Dhaka Bank Limited, I have found few strengths and weaknesses which are described below.
Strengths of Foreign Trade Financing at Dhaka bank Limited:
- Dhaka Bank Limited has a wide network of branches operating in different regions of the country like – Dhaka Region, Chittagong Region, Narayangonj Region, Sylhet Region, Rajshahi Region, etc. Moreover, it has two Off-shore Banking Units at DEPZ and CEPZ along with Small Medium Enterprise Service centers at CEPZ, Goran and Shewrapara. These branches are equipped with well trained bankers and professionals who perform their duties and responsibilities with efficiency to satisfy their customers.
- CPC Trade Operations is divided into specialized departments for export and import trade financing activities and collection and checking of the documents by the expertise scrutiny team. The employees in each department work as team players and help each other in maximizing the efforts to get the required tasks done ahead of time.
- The employees of CPC Trade Operations are strictly supervised and monitored by the supervisor in charge of Trade Operations who always exhibits friendly behavior and advises regarding the proper utilization of the instruments of foreign trade financing.
- The customers and clients are given top most priority by the officers and they always tries to solve any discrepancies or problems that may arise because of some mistakes in the operational process at the quickest possible time which helps in creating long-lasting relationships with the customers.
- CPC Trade Operations uses cutting edge technology like Corporate Banking Softwares (Flex Cube, Forex, EFTN, SWIFT Alliance Messenger) that helps them complete their tasks within a short period of time and with increased accuracy. The use of these softwares makes the whole process of Letter of Credit much easier and the import/export bill settlement happens within the allotted time mentioned in the contracts.
- The bank always keeps its database up to date by giving online reporting to Bangladesh Bank about the inward and outward remittances that were affected through foreign exchange transactions associated with the importers and exporters.
- Dhaka Bank Limited strictly follows all the rules and regulation mentioned under Import Policy Order, Export Policy Order and the rules related with foreign trade financing and the use of the instruments of foreign trade finance.
- The bank offers flexibility to the importers and exporters by keeping different options open for the uses of Letter of Credit instrument as per demanded by their clients considering different scenarios. It also provides flexible line of credits to the customers that will facilitate them in their financing of foreign trade activities.
Technology is evolving at a fast rate and with that the business world is also changing and to keep on track with such changes CPC Trade Operations needs to utilize sound technological support for using the latest software and building healthy information systems. CPC Trade Operations needs to update its operations for ensuring smooth service of Foreign Trade Finance.
Some of the changes that could be undertaken are as follows –
- Electronic Archiving to reduce the number of paper based files and the records that are kept in hard copies can be stored in the server. This will save quite a lot of time as the employees will not have to search for related documents but can access the server at any point of time for getting the necessary information.
- Internal Info System for providing accurate and timely information automatically and it will facilitate the employees in retrieving any information they need for their regular operations.
- CPC Trade Operations can assign an Internal Audit Team for checking and controlling mismatches and errors. This will ensure the conformity and compliance of the operations of CPC.
- Research and Development Team should be formed that will work on formulating new strategies and techniques by implementing which CPC Trade Operations will become the most effective Unique Selling Proposition (USP) of Dhaka bank Limited.
As a Private Commercial Bank, Dhaka Bank Limited has had a significant contribution to the banking sector as well as the economy of Bangladesh. Since the commencement of Dhaka bank Limited, it is continuously striving for excellence in banking by offering innovative products and services to the clients ranging from Consumer Banking, Corporate banking, SME Banking, Islamic Banking services to foreign trade financing. Considering the importance of the trade operations, Dhaka Bank Limited had centralized all of its export and import related operations by establishing CPC Trade Operations in the year 2009. From the very beginning of its operations CPC has centrally dealt with all import Letter of Credits, export bills, import payment settlements with the help of well trained personnel who are expert in foreign trade financing.
Besides this, CPC Trade Operations is equipped with the latest technologies like Corporate Softwares that facilitates quick processing of the import and export transactions. The proper use of the instruments of foreign trade financing, abidance to the rules and regulations and strict monitoring has ensured effective and efficient functioning of the trade activities leading to long lasting ties with the importers and exporters which is helping the expansion of trade financing. In the long run CPC Trade Operations will have huge contribution to the economy of Bangladesh through facilitating the inward and outward flows of foreign currencies into and out of the country.
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