Major principle of this report is to analysis Operational Activities of Foreign Exchange Division of EXIM Bank of Bangladesh Limited, Shimrail Branch. Other objectives are identify the problems of Foreign Exchange Activities of EXIM Bank and present the suggestions to solve identified problems. The report covers the organizational structure, background, functions and the performance of the bank.
Objectives of the Study:
- To gather comprehensive knowledge on Foreign exchange activities.
- To identify the problems of Foreign Exchange Activities of EXIM Bank Ltd Shimrail Branch.
- To present the suggestions to solve identified problems.
- The general purpose of this study is to gain practical job experiences and view the application of theoretical knowledge in the real life.
- To explain the Foreign Exchange operation of the Shimrail Branch of EXIM Bank of Bangladesh Ltd.
Historical Background of EXIM Bank Ltd.:
EXIM Bank Limited was established in 1999 under the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman.
This bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the advisor and Mr. Mohammad Lakiotullah as the Managing Director. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth, and excellent management. The authorized capital and paid up capital of the bank are Tk. 1000.00 million and Tk 313.87 million respectively.
The bank has migrated all of its conventional banking operation into Shariah based Islami banking since July/2004.
Corporate Vision & Mission:
Our vision and mission are stated in the following bullets:
- To be the finest bank in the banking arena of Bangladesh under the Shariah guidelines.
- To maintain Corporate and business ethics.
- To become a trusted repository of customers’ money and their financial advisor.
- To make our stock superior and rewarding to the customers/share holders.
- To display team spirit and professionalism.
- To have a Sound Capital Base.
- To provide high quality financial services in export and import trade.
- To provide excellent quality Customer service
This bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. Our people can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to us. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture we belong has not been imposed; it has rather been achieved through our corporate conduct.
Functions of the EXIM Bank Ltd.:
- The main task of the EXIM Bank is to accept deposited from various customers through various accounts.
- Provides loans on easy terms and condition.
- It creates deposit.
- The bank invest it fund in to profitable sector.
- It transfer money by Demand Draft, Pay Order, On-line and Telegraph Transfer etc.
- The bank is doing the transaction of bill exchange, cheque etc. on behalf of the clients.
- EXIM Bank assists in the foreign exchange by issuing LC.
- It brings the increasing power of the dimension of transaction.
- Above all, EXIM Bank helps the businessmen financially by giving discount facility for bill of exchange and by providing the facility of letter of guarantee.
The purpose of our banking business is, obviously, to earn profit, but the promoters and the equity holders are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art, culture and sports of the country. We want to make a substantive contribution to the society where we operate, to the extent of our separable.
Investment / Finance:
- Corporate Finance
- Industrial Finance
- Project Finance
- Syndicate Investment
Mode of Investment
- Bai Muazzal
- Izara Bil Baia
- Wazirat Bil Wakala
- Local Documentary Bill Purchased
- Foreign Documentary Bill Purchased
- Al-Wadia Current Deposit
- Mudaraba Savings Deposit
- Mudaraba Short Term Deposit
- Mudaraba Term Deposit
- One Month
- Three Months
- Six Months
- Twelve Months
- Twenty Four Months
- Thirty Six Months
- Foreign Currency Deposit
- Mudaraba Savings Scheme
- Monthly Savings Scheme(Money Grower)
- Monthly Income Scheme(Steady Money)
- More than Double the deposit in 6 years (Super Savings)
- More than triple the Deposit in 10 years (Multiplus Savings)
- Mudaraba Hajj Deposit
They emphasize on non-fund business and fee based income. Bid bond/ bid security can be issued at customer’s request. The Bank is posed to extend L/C facilities to its importers / exporters through establishment of correspondent relations and Nostro Accounts with leading banks all over the world. Moreover, Consumers can deposit their Telephone bill of Grameen Phone in all the branches except Motijheel and the consumers of Palli Buddut somity of Gazipur can deposit their electricity bill to Gazipur branch.
Performance of the Bank:
The banking business consists of borrowing and lending money from and to money market. As other business must be based operational capital but banks employ comparatively small of their own capital in relation to total value of their transactions. The purpose of capital is primary required to make a reserve accounts providing an ultimate coverage against loses on loan and investment.
In Bangladesh there are many types of bank and EXIM bank of Bangladesh Ltd is formed as a new generation private commercial bank.
They had got leading business elegant and reputed industrialist as its sponsors and the bank will be immensely benefited from the valuable advised of the experienced sponsored of the bank. EXIM bank Ltd. Made commendable in all business arenas like deposit, credit, fund, management, investment and foreign exchange related business. The bank has achieved satisfactory progress in all areas of its operation and earned as operating profit of BDT 1175.8 million.
Capital and Reserve Fund:
The bank started its voyage with an authorized capital of TK.1000 million while its initial paid up capital was TK.225 million subscribed by the sponsors in the year 1999. The capital and reserve of the bank as on 31st December 2006 stood at TK.3111.68 million including paid up capital of TK.1713.75 million. In the year 2006, the bank has issued rights share to strengthen its capital base. In this course the bank has gather an amount of TK.571025 million. The bank also made provision on unclassified investments which is amounted to TK.351.47 million.
|Authorized Capital (TK.) In Million||Year||Paid Up Capital(TK.) In Million|
Deposit is one of the principal sources of fund for investment of commercial banks and investment of deposit is the main stream of revenue in banking business. The total deposit of the bank stood at TK.35032.02 million as on December 2006 against TK.28319.21 million of the previous year which is an increase of 23.70%. This growth rate may be termed as a remarkable achievement for the bank. The present strategy is to increase the deposit base through maintaining competitive rates of profit and having low cost of funds.
|Year||Amount (TK. In Million)|
Total amount of investment of the bank stood at TK.32641.27 million as on December 31, 2006 as against TK.26046.34 million as on December 31, 2005 showing an increase of TK.6594.93 million with growth rate of 25.32%. Investments are the core assets of the bank. The bank gives emphasis to acquire quality assets and does appropriate lending risk analysis and follows all the terms and conditions of CRM (Credit risk Management) while approving commercial and trade investments to clients.
|Year||Amount (TK. In Million)|
Investment (Share & Bonds):
The size of the investment portfolio in 2006 is TK.2233.25 million while it was TK.1633.03 million in 2005. The portfolio comprises Islamic investment bond, shares and prize bonds.
|Year||Amount (TK. In Million)|
During the year, the bank opened 25817 import letter of credit and the import volume stood at TK.49596.73 million with a growth of 19.71% in comparison with previous year.
|Year||Amount (TK. In Million)|
The growth of the export business has significantly been increased by 47.78%. It stood at TK.46234.59 million as of December 31, 2006 against TK.31285.37 million of the previous year.
|Year||Amount (TK. In Million)|
Foreign remittance of the bank stood at TK.343.78 million as of December 31, 2006 as against TK.222.97 million in 2005. Besides, the bank has taken initiatives to make remittance arrangements with some leading exchange house at abroad.
Banking with Shariah Principles:
Export Import Bank of Bangladesh Limited is the 1st bank in Bangladesh who has converted all of its operations of conventional banking into shariah-based banking since July/2004. The Bank offers banking services for Muslims and non-Muslims alike allowing own customers choice and flexibility in their savings and investments. EXIM Bank products are approved by the Shariah Board comprising of veteran Muslims Scholars of Bangladesh who are expert in all maters of Islamic finance.
The process by which Noriba’s investments are designed and executed allows the Bank to offer a combination of Sharia compliance and capital markets expertise that is unique through out the world.
Noriba is committed to the strict adherence to the requirements of the Sharia as a result of the Bank’s sole focus on Sharia-compliant investments and the full supervision of its financial products and transactions by the Noriba Sharia Board.
Noriba experts specifically design each of the Bank’s investment vehicles with the approval of the Noriba Sharia Board. Once the given product or transaction has been arranged, the Noriba Sharia Board carefully screens it for compliance before giving final approval for its implementation. This control mechanism guarantees that all aspects of Noriba’s final products and banking transactions are in adherence with the guidelines of the Sharia.
Bank Operational Area:
As a commercial Bank, they do all traditional Banking business including the wide range of savings and credit scheme products, retail banking and ancillary services with the support of modern technology and professional Excellency. But their main focus is, for obvious reason, on export and import trade handling and the development of entrepreneurship and patronization of private sectors.
EXIM Bank at a Glance
|Figure in crore|
|06.||Investment(Shares & Bonds)||237.70||154.30||163.30||223.33|
|07.||Foreign Exchange Business||3461.96||4931.24||7294.00||9617.51|
|a) Import Business||1926.00||2678.10||4143.20||4949.67|
|b) Export Business||1512.46||2241.84||3128.50||4623.46|
|09.||Loan as a % of total Deposit||80.62%||101.97%||91.97%||93.18%|
|10.||No. of Foreign Correspondent||185||200||222||246|
|11.||Number of Employees||627||768||934||1020|
|12.||Number of Branches||19||28||28||30|
|13.||Return on Assets||3.15%||3.44%||1.65%||1.73%|
FOREIGN EXCHANGE Activities:
Foreign Exchange Department is international department of the bank. It deals globally. It facilities international trade through its various modes of services. It bridges between importers and exporters. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency. This is why this department is called foreign exchange department. The term foreign exchange has different connotations in different contexts. Sometimes it is referred to as the process of conversion of one currency into another, sometimes as the process of transferring money from one country to another. In Bangladesh is has a legal definition too. In terms of section 2(d) of the F.E.R. Act 1947, as adapted in Bangladesh, foreign exchange means foreign currency and includes instruments expressed in foreign exchange, all deposits, credits and balance payable in foreign currency as well as foreign currency instruments such as Draft, TC, Bill of Exchange, Promissory note, and Letter of Credit payable in any foreign currency. The business of foreign exchange is getting increasingly complex and intensely competitive. However, in the backdrop of phenomenal growth of Bangladesh’s external sectors, Foreign exchange business provides a challenge as well as an external opportunity to accelerate growth of bank’s own business. This is the institution that facilities international trade payment as banking channel is the way of settlements. Besides, banks meet the other need of foreign exchange transactions of the people of the country as they are authorized to deal in foreign exchange upon receipt of permission from Central Bank under Foreign Exchange Regulation Act. All exports and imports are executed through the intervention of banks. They make the way through which exporter can get payment from importer. On the other hand they make the payment for the importer done by the people of Bangladesh. Side by side, they provide funded credit facility in execution of International Trade.
Legal Basis of Foreign Exchange Transactions:
Foreign exchange transactions are performed under some legal regulations, as follows:
- Foreign exchange Regulation Act- 1947
- Import and Export Control Act-1950
- Customs Act- 1969
- The Uniform Customs and Practices for Documentary Credit (UCPDC)-1993, Revision and international Chamber of commerce publication no.-500, is also an improvement law for settlement of terms and conditions between exporter and importer in international trade.
- Import policy issued by Ministry of Commerce.
- Export policy issued by Ministry of Commerce.
- International rules issued by International Chamber of Commerce (ICC)/ uniform rules and practices.
- Different foreign exchange circulars issued by Bangladesh Bank.
Functions of Foreign Exchange Department:
Foreign exchange department performs many functions to facilitate the foreign exchange transactions. These ares-
- Facilitating Import Trade.
- Facilitating Export Trade.
- Providing funded and non-funded credit facility.
- Provide Non Commercial Remittance.
- Maintaining Foreign Currency Accounts.
- Selling of Foreign Currency Bond.
- Preparation and Submission of statements.
Import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad. We can simplify import as a means purchase of goods and services from the foreign countries into Bangladesh. Normally consumers, firms and government of Bangladesh import foreign goods to meet their various necessities. Import section helps business and other people to import goods. In international environment, buyers and sellers are most of the cases unknown to each other. So seller always seeks guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’. When a buyer goes to import some goods from a foreign buyer, he request his bank makes payments to the exporter of goods. And the bank recovers the amount from the importer.
Legislative Bonding for Import:
Imports are foreign goods and services purchased by consumers, firms and Governments in Bangladesh. To importer, 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 (CCI & E) provides the registration (IRC) to the importer. Import of goods in Bangladesh is regulated by the-
- Ministry of Commerce in terms of the Import and Export Control Act, 1950.
- Import policy order and the public notice issued by the Office of the Chief Controller of Imports and Exports (CCI & E).
- At present it is regulated by the Importer Policy Order (1997-2002), which was come into effect on June14, 1998. The duration Import policy Order was expanded up to June 2003 by an amendment. And Import Policy directs certain import procedure, which administers the whole activity.
Import section of Foreign Exchange Department facilitates import related banking services concerns to import of goods in cash foreign exchange. But one thing should be mentioned that import section does not deal with ‘Back to Back importation of Goods’. This is supervised by the Export Section.
The main facilities provided by the import section are:
- Opening of Letter of Credit.
- Facilitating payments to the Exporter on behalf of the Importer.
- Providing Funded and Non-funded Credit Facility.
- Issuing Bank guarantee in foreign currency on behalf of Foreign Companies.
Import Registration Certificate (IRC):
The Import Registration Certificate (IRC) is a security document issued under embossing seal and duly signed by authorized officials of CCI & E and to be kept under safe custody. The IRC is required to be renewed every year on payment of usual fees.
The documents to be required for Import Registration Certificate are as follows-
- Income Registration Certificate;
- Nationality Certificate;
- Certificate from Chamber of Commerce and Industry Registered Trade Association;
- Bank Solvency Certificate;
- Copy of Trade license
- Requisite fees.
On receiving application, the respective CCI & E officer will scrutinize the documents and conduct physical verification and issue demand note to the prospective importers to furnish the following papers through their nominated bank-
- Original copy of treasury deposited as IRC fees;
- Assets Certificate;
- Affidavit from first class magistrate;
- Rent receipt;
- Two passport size photograph;
- Partnership deed in case of partnership firms;
- Certificate of Registration, Memorandum and Articles of Association in case of Limited Company.
After scrutinizing and verifying, the nominated bank will forward the same to the respective CCI & E office with forwarding schedule in duplicate through banks representative. CCI & E then issue Import registration Certificate to the applicant.
Purchase Contract between Importers and Exporters:
- Now the importer has to contact with the seller outside the country to obtain the Proforma Invoice / indent which describes goods.
- Indent is got through indenters a local agent of the sellers.
- After the importer accept the preformed invoice, he makes a purchase contract with the exporter declaring the terms and conditions of the import.
- Import procedure differs with different means of payment. In most cases import payment is made by the documentary letter of credit (L/C) in our country.
Letter of Credit:
Letter of Credit is a guarantee or undertaking or commitment to the beneficiary/exporter for making payment issued by the issuing bank on behalf of the importer upon fulfillment of some conditions. As distance involved in international trade, buyers and sellers do not know each other. It is difficult for both the buyers and seller to appreciate each others’ integrity and credit worthiness. Apart from this it is also difficult to know various regulations prevailing in their respective countries regarding export and import. Thus the buyer wants to be assured of goods and sellers want to be assured of payments. Central Banks, therefore assure these things to happen simultaneously by opening letter of Credit guaranteeing payments to seller and goods to buyer. By opening a Letter of Credit on behalf of buyer in favor of seller, commercial banks undertake to make payments to a seller subject to submission of documents drawn on in strictly compliance with Letter of Credit terms giving title of goods to the buyer. It is a conditional guarantee. The Letter of credit thus constitutes one of the most important methods of financing foreign trade.
The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements, however named or described, whereby a bank (“the issuing bank”) acting at the request and on the instruction of a customer (the “Applicant”) or on its own behalf,
- Is to make a payment to or the order of a third party (“The Beneficiary”), or is to accept and pay bills of exchange (Draft’s) drawn by the beneficiary,
- Authorizes another bank to effect such payment, or to accept and pay such bills of exchange (drafts),
- Authorizes another bank to negotiate,
Against stipulated document(s), provided that the terms and conditions of the credit and complied with.
On the other hand Letter of Credit can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed condition include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary letter of credit. The Uniform Customs and Practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (1993) revision, publication no 500 define Documentary Credit.
- Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the applicant) or on its own behalf,
- Is to make a payment to or to the order of a third party (the beneficiary) or is to accept and pay bills of exchange (Drafts) drawn by the beneficiary or
- Authorized another bank to effect such payment or to accept and pay such bills of exchange (Drafts)
- Authorized another bank to negotiate against stipulated documents provide that terms and conditions are complied with.
Parties to a Letter of Credit:
Applicant for the Credit or Buyer (Importer):
The importer or buyer on whose request and on whose behalf the letter of credit is opened is called the applicant. Since the credit is based on the sale contract between the exporter and the importer, the latter has a duty to the exporter to see that the credit opened is as per the term of the sale contract.
Beneficiary or Seller (Exporter):
The beneficiary has the obligation to make export as per the contract and produced the documents as required by the credit. He cannot avail himself of the contractual relationship existing between the banks or between the applicant for the credit and the issuing bank.
If the documents tendered are acceptance by the negotiation bank, but later found to be defective due to some latent defects or falsification, he should reimburse the negotiating bank unless the negotiation was made without recourse.
In a transferable credit, if he requires it to be transferred, he should pay the charges of the transferring bank.
Issuing Bank/ Opening Bank:
The bank that opens a letter of credit, at the request of the importer, is known as Issuing bank. The Issuing Bank is the Buyer’s bank and is also called opening bank. The issuing bank should nominate the bank which is authorized to pay or to accept drafts or to negotiate, unless the credit allows negotiation by any bank.
LC Advising Bank:
A letter of credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of the advising bank, but that bank shall take reasonable care to check the apparent authenticity of the credit which it advises. If the advising bank cannot establish such apparent authenticity, it must inform, without delay, the bank from which the instructions appear to have been received that it has been unable to establish the authenticity of the credit and if it elects nonetheless to advise the credit it must inform the beneficiary that it has not been able to establish the authenticity of the credit.
If the bank elects not to advise the credit, it must inform the issuing bank without delay.
LC Confirming Bank:
When a bank in the exporter’s country adds its confirmation to the credit, it gives an additional undertaking to the beneficiary, in addition to that of the issuing bank, to negotiate documents under the credit. Therefore the relationship of the confirming bank with the beneficiary is similar to that of the issuing bank. If the documents tendered are in conformity with the letter of credit terms and within the expiry time of the credit, it has to make payment against them. The responsibilities and liabilities of the issuing bank discussed below apply, mutatis mutandis, to confirming bank also.
As to the relation of the confirming bank with the issuing bank, the position is same as that of the negotiating bank.
Bill Negotiation Bank:
The bank that authorized to handle (purchased) the documents under the L/C in the exporting country is known as negotiation bank L/C will stipulate either a notified bank to negotiate (restricted L/C) or any bank can negotiate in the seller’s country (unrestricted L/C).
A bank that (as per in the letter of credit) accepts time or usance drafts on behalf of the importer is called the accepting bank. If the bank so nominated accepts the nomination, its responsibility to the beneficiary is not only to accept the drafts drawn, but also to make payments on their due dates.
The bank that effects payment to the beneficiary (as named in the letter of credit) is known as paying bank/ drawer bank. Paying bank must examine all documents with reasonable care to ascertain that these are drawn in accordance with the terms and conditions of the credit.
Bill Reimbursing Bank:
The issuing bank may indicate in the credit the name of a bank, from whom the paying/ negotiating bank can obtain reimbursement. The documents are sent to the bank; the negotiating/ paying bank simultaneously makes a claim with the reimbursing bank for the negotiating/ payment effected. Normally the reimbursing bank would be the bank with whom the issuing bank maintains an account.
Procedure for Opening L/C:
An importer who is desirous to import goods from foreign country will apply to issuing bank for opening L/C and the importer will provide an application mentioning following aspect:
- Full particulars of applicant’s bank account.
- Types of business.
- Historical background.
- Amount of required L/C.
- Terms of payments.
- Name of imported goods.
- Repayment schedule and source of fund.
Accounting treatment in case of L/C opening:
Now if the respective officer find that the application is fit to open an L/C, the following accounting treatment are given-
|Particulars||Debit||Credit||Charges in TK.|
|L/C margin A/C||Cr.|
|Commission A/C on L/C||Cr.||50%|
|VAT||Cr.||15% on commission|
After that, L/C number and the above entries are given in the L/C register. The contra entries stating the liability of the bank and the clients are as follows-
The transmission of L/C is done through tasted telex/ mail/ fax/ swift to advise the L/C to the beneficiary.
Documents Required for Opening L/C:
Import shall submit following documents for opening L/C-
- Valid import registration certificate (commercial/ industrial).
- TIN certificate.
- VAT registration certificate.
- Membership certificate of a recognize Trade Association as per IPO.
- A declaration that the importer has paid income tax or submitted income tax return for the preceding year.
- Performa invoice or indent duly accepted by the importer.
- Insurance Cover Note with Money Paid Receipt covering value good to the imported plus 10% above.
- L/C application form duly signed by the importer.
- Letter of Credit Authorization Form (LCAF) commercial or industrial as the case may be, duly signed by the importer and incorporating. New ITC number at least 6 digits under Harmonized System as given in the Import Trade Control Schedule 1998.
- 10 IMP form duly signed by the importer.
Examination of Opening L/C:
The concerned officer considering the facts mentioning below must carefully check application:
- The term and condition of L/C application are consistence with exchange control and import trade regulation UCPDC, publication-500.
- Illegibility of import goods.
- The L/C is must be open in favor of importer.
- That is signed by the importer and agreed with the terms and conditions.
- Indenting registration number.
- Goods are not of Israel and vassals to be used are not of Israel.
- Insurance cover note with date of shipment.
- Whether IRC is up to date or not.
- Whether IMP form is dully filled up and signed.
- The imported goods are marketable.
Transmitting the L/C:
The L/C is transmitted to the advising bank for advising the L/C to the beneficiary. L/C is generally transmitted through tasted telex or fax. Before transmission a final examination of the L/C contents is necessary for the issuing bank. It is customary to advice a credit to the beneficiary for receiving L/C.
Very often advising bank receive request from the issuing bank to add their confirmation while advising credit to the beneficiary. The advising bank can do it if there is prior arrangement between advising and issuing bank or if it feels that the issuing is repute are reliable institution and good enough to discharge this obligation.
Amendment of L/C:
After opening the L/C some times alternation/amendments to the original terms and conditions become necessary. These amendments may involves changes in (i) unit price (ii) extension of the validity of the L/C (iii) documentary requirements etc. the amendments can be effected only if all the parties concerned i.e. the beneficiary, the importer, the issuing bank and the advising bank have agreed to the amendments. For any amendment, the importer must request the opening bank in writing duly supported by revised indent/ proforma invoice etc. where necessary. The opening bank will then advised the required amendment to the advising bank by cable/telex/post, as instructed by importer. All amendment should be noted in the L/C folder and L/C opening register. L/C amendment commission include postage should be charged to the clients account.
Payment Against Document (PAD):
The issuing bank starts PAD procedures after getting import document from the negotiating banks evidencing to export goods as per L/C. Shipping documents required for creating PAD is mentioned below:
- Original bill of lading.
- Commercial Invoice.
- Certificate of Insurance.
- Certificated of Origin.
- Bill of exchange.
- Pre-shipment inspection Certificate.
- Packing list.
- Clean report of finding (CRF).
Examination of PAD Documents:
Scrutinizing documents is very important for the issuing bank. As after examining all the documents the issuing bank will make payment to the negotiating bank. So any mistake in the examination process may cost issuing bank.
Examining the bill of exchange:
- It is drawn and duty signed by the maker indicating as the beneficiary.
- It is drawn on the importer indicating him drawer.
- L/C number quoted on it.
- Tenors of the draft are strictly in conformity with the terms stipulate in the L/C.
- Amount is identical.
- Amount in words and in figures is same.
- Examining the commercial invoice.
- It is address to the importer.
- It is dated, signed and submitted in required number.
- It must bear detailed description of goods that must tally with L/C and bill of lading.
- Price, quality, quantity etc is corresponded to L/C.
- It must be prepared in the language of L/C.
- Invoice must bear L/C authorization and other relevant number.
- Charges relevant to merchandise are included in the invoice and are permitted by the L/C.
Examination of Transport Documents:
- It is presented in full set of negotiable and non-negotiable copies.
- Date of shipment on the bill of lading.
- Bill of lading must be made out in the name of bank notify the importer.
- Description of goods in the bill of lading must agree with invoice and L/C.
- Port of shipment and destination is as per L/C.
- The shipping company or their agent sings bill of lading.
Examination of Other Documents:
Weight list, inspection certificate, quality certificate, certificate of origin, packing list etc. should agree with L/C terms and condition and also be signed by the appropriate authority. These certificates are usually dated before the date of shipment. Common discrepancies of the import documents and following are the common discrepancies found in the documentary operation:
- Inadequate the number of invoice.
- Submission of documents after expiry of L/C.
- Late shipment.
- Transshipment beyond L/C terms.
- “One Board” endorsement unsigned or not dated on the bill of lading.
- Specifications of goods are not as per terms of L/C.
- Tenor of draft wrong.
- Absence of some documents.
Shipment of Goods:
In the most cases, exports from Bangladesh take place by sea and the steps involved in shipping goods by sea are usually the following:
- Booking of shipping space;
- Shipping instructions;
- Customer formalities;
- Storage of export cargo;
- Payment of port charges;
- Freight payment;
- Loading of export cargo;
- Bill of lading.
Loan against Trust Receipt (LTR):
Sometimes documents are also handed over to the importer against T.R. for clearance of the goods on the clear undertaking that the importer will hold the goods or the sale proceeds there of in trust with him at the disposal of the bank till the entire loan is liquidated.
|PAD or B/E Account||Cr.|
|Interest Account (if any)||Cr.|
Loan against Imported Merchandise (LIM):
In case LMR facility is given, the bank should itself arrange clearance of the goods on payment of import duty, sales tax etc. and store the goods at the banks godown subject to realize on production of delivery order as per arrangement.
|PAD or B/E Account||Cr.|
|Interest Account (if any)||Cr.|
Exports constitute an important element in the country’s gross domestic products as Bangladesh economy moves towards increasing openness. In this situation exports are viewed as the prime mover to increase productivity and creation of employment opportunity, generate employment opportunities and saving and investment.
Unfortunately our export trade is dominated by a few commodities in a narrow market. Such dependence on at limit number of export items targeting a limited market is fraught with great risks. Otherwise stagnancy will set in quickly.
It is important that our export trade must keep pace with the projected GDP growth and make due contribution through increased export earning. In this exercise it is imperative to identify new trust sectors, increased export of higher value added items, diversify product wise, ensure products quality, improve packaging, attain effective productivity. We should aim at marketing quality products at competitive price at the correct time.
The Export Policy 1997-2002 has been designed to operate in the backdrop of the country’s potentials and opportunities of the market economy with a view to maximizing export growth and narrowing down the gap between import payment and export earnings.
Bangladesh exports a huge quantity of goods and services in the direction of foreign households. Currently, readymade garments (RMG) which contribute 75% of total export earning followed by 6% on frozen food, 5% on raw jute and jute products and 4% 0n leather. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries.
A person desirous to export should apply to obtain EXP form. This person submits the following documents:
- Trade License.
- ERC (Export registration certificate).
- Certificate from concerned.
After satisfaction on the documents the banker will issue EXP form to the exporter. Now exporter will be getting shipping and other documents from the shipment procedure. Exporter should submit all these documents along with letter of indemnity to bank for negotiation.
Export Registration Certificate (ERC):
The Chief Controller of Import and Export (CCI&E) makes export registration. For registration, prospective exporters required to apply through Q.E.X.P from the CCI&E along with the following documents-
- Trade License.
- Income tax clearance.
- Nationality certificate.
- Bank’s solvency certificate.
- Asset certificate.
- Registered partnership deed.
This section negotiates the export documents and collects and purchases the export bill. The bank allows two types of credit facilities to the exporter in relation to export credit.
- Pre-Shipment finance
- Post-Shipment finance
Banks in Bangladesh normally provide 75 to 90 percent of export order as pre-shipment finance and 100 percent as post-shipment finance. A brief idea of the both categories is given below:
Pre –shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing raw materials to transportation of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes:
- Cash for local procurement and meeting related expenses.
- Procuring and processing of goods for export.
- Packing and transferring of goods for export.
- Payment of insurance premium
- Inspection fees.
- Freight charges etc.
The advanced made against the shipping documents till the export proceeds are realized falls under the category of “post-shipment finance”, i.e. finance provide after the goods have been shipped. Post-shipment credit ordinarily takes the following shape:
- Negotiation of documents under export L/Cs or firm contract.
- Purchase of foreign bill under D.P. and D.A. Bills.
- Advanced against Foreign Bills under collection.
Documents of Export:
The export L/C requires submission of various documents by the exporter for payment/negotiation. The following important documents are necessary to be carefully collected:
- L/C copy
- EXP form
- Packing list
- Bill of lading
- Bill of exchange
- Certificate of origin
- Commercial Invoice
- Photocopies of ERC.
- Inspection certificate
- Freight certificate in case of CFR contract
Procedure for Collection of Export Bill:
- Foreign documentary bill for collection(FDBC)
- Foreign documentary bill for purchased(FDBP)
- Local documentary bill for collection(LDBC)
- Local documentary bill for purchased(LDBP)
Foreign Documentary Bill for Collection (FDBC):
Exporter can collect the bill through negotiation bank on the basic collection. Exporter in this case will submit all the documents to the negotiating bank for collection of bill from inspector. The exporter will get money only when the issuing bank gives payment. In this connection bank will scrutinized all the documents as per terms and condition mentioned in L/C.
|Head Office A/C||xxxxx|
|Govt. Tax A/C (@ 0.25% of invoice value)||xxxxx|
|Income A/C profit on exchange||xxxxx|
Entry given twice in the register-
- When documents is forwarded to the issuing bank.
- When proceeds realized.
Foreign Documentary Bill for Purchased (FDBP):
When exporter sale all the export documents to the negotiating bank then it is known as FDBP. In this case the exporter will submit all the documents to the bank. The bank gives 60%-80% amount to the exporter against total L/C value.
Reporting to Bangladesh Bank:
At the end of every month reporting of Bangladesh Bank is mandatory regarding the whole months export operation. The procedures in this respect are as follows:
- To fill up the E-2/ P-2 schedule of S-1 category. The whole month import account, quantity, and goods, country currency etc. all is mentioned. Respective IMP forms are also attached with the schedule to fill the E-3 / P-3 for all invisible payment.
- Original IMP is forwarded to Bangladesh bank with mentioning invoice value.
- Duplicate IMP is skipped with the bank along with of entry.
The branch at the request of the original (first beneficiary) may execute transfer of L/Cs to the subsequent beneficiary (second beneficiary). For doing so, the first beneficiary must maintain an accounting relationship with the branch and the branch will verify the first beneficiary signature on the request letter. A L/C can be
transferred only if it is expressly stated, as “transferable” by the issuing bank and transfer is not restricted to any other bank. The L/C can be transferred only on the terms and conditions specified in the original L/C with the exception of L/C amount, unit price, expiry date, presentation time of documents and shipment validity, any of all of which may be reduced or curtailed. In addition, the name of first beneficiary can be submitted for that of the applicant, but if the name of the applicant is specially required by the original L/C to appear in any documents other than the invoice, such requirement must be fulfilled.
A transferable credit can be transferred once only i.e. second beneficiary cannot transfer the L/C to any subsequent third beneficiary (ies) and when transfers are made in part and it should be verified that the original: L/C permits part shipment and the aggregate of such transfer must not exceed the original L/C value.
In our Bangladesh transfer is made by using the photocopy of the original L/C with the following notation,
We do here by transfer full value of USD…… against the Export LC No.….. Dated……
For USD…… in favor of M/S…… of …… For execution of full quantity of goods or following export orders/styles.
|Order/Style No.||Item||Quantity||Unit Price||Shipment Validity||Service Charge Payable|
The negotiating or collecting Bank is requested to remit the above mentioned service charges to our A/C No……. with…… Bank…… Branch at the time of negation of export documents @ prevailing O.D sight (Export) on the date of negation.
Seal and signature of the transferor:
The branch shall verify the seal and signature of the transferor and authenticate the transfer under seal and signature of an authorized officer expressly stating there in that bank does not assume any responsibility/obligation in this behalf. The branch shall check the apparent authenticity of the L/Cs with the L/C advising bank and if needed with the L/C issuing bank before effecting transfer. Particulars of transition are to be recorded in the L/C transfer register. The branch will hold the original LC at there custody. Each and every transfer must be endorsed on the back of this original L/Cs. So as to above transaction are payable by the first beneficiary. The transition bank may refuse to transfer until such charges are paid.
Foreign Remittance Section:
Money transmitted internationally is known as foreign remittance in banking language. In EXIM Bank Ltd. foreign remittance is under foreign exchange department. Foreign remittances play a significant role in contributing to the growth of overall foreign exchange business. EXIM Bank has a rich environment where funds flow from and to different countries. There are two types of foreign remittance:
- Inward Remittance;
- Outward Remittance.
Inward Foreign Remittance:
The Remittance is freely convertible to foreign currencies which are receiving from abroad against which the Authorized Dealers payment in local currencies to the Beneficiaries may be termed as Foreign Inward Remittance.
Sources of Inward Foreign Remittances:
- Export proceeds,
- Remittances by Expatriate Bangladeshi/Bangladesh nationals working abroad,
- Commissions/Fees etc. earned by local business people (indenting commission, recruiting agents commission, export brokers commission),
- Foreign loans and grants, donation and gift.
Cancellation of Inward Remittance:
If any inward remittance already reported to the Bangladesh Bank is subsequently cancelled, either in full or part, because of non-availability of beneficiary or for other reason the Authorized Dealers must report cancellation of inward remittance to Bangladesh bank as an outward remittance of form TM required documents are-
- The date of return in which the inward remittance was reported;
- The name address of the beneficiary;
- The amount of the purchases are effected;
- Reasons for cancellation.
Outward Foreign Remittance:
Remittance from our country to foreign countries is called outward foreign remittance. On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance. The authorized dealers must utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released. Out ward remittance may be made by appropriate method to the country to which remittance is authorized. Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.
Sources of Outward Foreign Remittances:
- Payment of import liabilities,
- Payment of consular fees and commissions etc.,
- Foreign travel quota through travelers cheque/foreign currency,
- Educational expenses for students abroad/medical expenses and other purpose,
- All other payments sent abroad in foreign currency.
Cancellation of Outward Remittance:
In the event of any inward remittance which has already been reported to the Bangladesh Bank on the prescribed return being subsequently cancelled either in part or in full, the authorized dealers must report in cancellation of outward remittance as an inward remittance. Outward foreign remittances are also affected by the Authorized Dealers in the following ways:
- Remittance of profit;
- Remittance of dividend/capital gain;
- Remittance of salaries and saving by expatriates;
- Remittance of royalty/technical fees;
- Remittance on account of training and consultancy;
- Remittance by shipping lines, airlines, courier service companies.
Approval in Bangladesh Bank:
Bangladesh is always in scarcity of foreign exchange and foreign exchange business is restricted can be transferred outside Bangladesh prior permission of Bangladesh Bank. Following documents are required for approval-
- IMP form
- T/M (Traveling and miscellaneous) form
Foreign Currency Account:
All local and foreign banks in Bangladesh, who are authorized by Bangladesh bank to deal in foreign exchange, may maintain FC (Foreign Currency) accounts in the name of Bangladesh nationals or persons of Bangladesh origin working and earning abroad including self employed Bangladesh migrants.
The types of foreign currency accounts are:
- Private Foreign Currency Account;
- ERQ (Export Retention Quota Account),
- NFCD (Non-resident Foreign Currency Deposit Account),
- RFCD (Resident Foreign Currency Deposit Account).
Private Foreign Currency Account:
Foreign exchange earned through business done or services rendered in Bangladesh cannot be put into this account. Credits to Private Foreign Currency Account may be made against inward remittances of foreign exchange in any form or by transfer from another FC account.
The following requirements are mandatory to open Private Foreign Currency Account:
- Is a Bangladesh national or of Bangladesh origin,
- Is ordinary resident abroad, and
- Does not receive any foreign exchange from Bangladesh
ERQ (Export Retention Quota Account):
In general Exporters retention quota is 10% but merchandise including computer software exporter may retain up to 50% of realized FOB value of their export in Foreign Currency A/C. in USD. £. EURO. For exporter items with high import content (such as naptha, furnace oil, bitumen, readymade garments etc.) the retention quota is 10%. Fund from this account can be used, to meet bonafide business expenses, such as business visit abroad, participation in export fairs and prior permission of Bangladesh Bank.
NFCD (Non-resident Foreign Currency Deposit Account):
All non-resident Bangladesh nationals and persons of Bangladesh origin including those with dual nationality and ordinarily abroad may maintain interest bearing time deposit account named NFCD Accounts with the authorized dealers. These accounts may be opened initially with minimum amount of USD 1000 or pound sterling 500 or equivalent.
RFCD (Resident Foreign Currency Deposit Account):
Persons, banks or firms who/which ordinarily reside in Bangladesh may open and maintain Resident Foreign Currency Deposit (RFCD) Accounts with foreign exchange brought in at the time of their return from travel abroad.
Foreign Exchange Activities:
- Employees are not that much motivated to work due to excessive workload and low salary structure relative to other private bank.
- Inadequate human resources are problem for the branch in Foreign Exchange Division to operate its banking activities.
- Lack of physical inspection of the officers in shipments and storehouses while evaluating an L/C materials and goods. A practice of proper inspection can reduce of chance of fraudulent activities in opening L/C.
- In some cases the number of employee engaged in rendering specific services is insufficient.
- Some of the employees have not sufficient knowledge regarding computer (Microsoft office and IT), and don’t have enough skill in English.
- Employees of that department should have fluency in their tasks, so that customer does not feel boring.
- They are not using Data Base Networking in Information Technology (IT) Department. So they have to transfer data from branch to branch and branch to head office by using floppy disk and sure it is not a good system.
- In foreign exchange department it is required to communicate with foreign banks frequently and quickly. To make the process easy modem communication media for example e-mil, Fax and win fax, Internet etc. Should be used. But the bank doesn’t have mass use of this medium of communication.
- Space shortage is another major problem in Foreign Exchange Department.
EXIM Bank of Bangladesh Limited is one of the prospective banks in the banking sectors. It is easier said than done any suggestion & recommendation. Recommendation means to offer some propositions on some specific issues. But as a student of BBA, it is very complicated for me to give any suggestion or advice about EXIM Bank. That’s why the following precautions & suggestions can be adopted to smooth the functions of EXIM Bank –
Foreign Exchange activities:
- Labor unrest will not occur if company give those good wages and do not presser to produce many quantities within short time.
- Though the bank has optimum human resources but additional new human resources are required to improve the overall performance of the bank.
- A proper inspection team, to verify the goods and materials of the applicants, must be ensured to lessen the chance of fraudulent activities in opening L/C.
- Top management need to more trained up their employees about their proper service, to improve the overall performance of the bank.
- Employees should be trained up in needed area and should be hired from related background.
- Problem in communication /relationship with foreign buyers: More personnel have to train up in English language and have to make a well organized customer database for communications.
- Data Base Networking is the most modern technology to transfer data from branch to branch or branch to head oppose and vice versa. So they must use this technology in Information Technology (IT) Department of the bank.
- To make foreign exchange process more prompt the authority should use modern communication system such as e-mail, fax, win fax, Internet etc. Foreign exchange department should be fully computerized that the exchange process would be convenient for both the bankers and the clients.
From the practical implementation of customer dealing procedure during the whole period of practical orientation in EXIM Bank Limited, I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking scholar. Performance of EXIM Bank Limited during the last six years has proved that with strong desire and will power one achieve whatever target he may have. Almost all the leading banks in our country have various extra facilities in offer for the customers in comparison with EXIM Bank Limited but the bank has succeeded in achieving more customer than many other competitors. This has been Possible only because of strong customer relation and excellent customer service.
Success in the banking business largely depends on effective lending. Less the amount of loan losses. The more the income from Credit operations the more will be the profit of the Bank and here lays the success of Credit Financing.
Though there are some drawbacks in implementing Credit facilities in EXIM Bank Limited as per manual, it can be overcome through involvement of more financial expert in the decision making process and utilizing the tools to judge integrity of the customers. Finally it can be argued that though the results achieved so far are not satisfactory, Credit Financing is a modern scientific technique for enhancing EXIM Bank’s strength and there lies the opportunities to make it more effective in the future for their own benefit.
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