Foreign Exchange Business Prime Bank

Foreign Exchange Business [Letter of Credit operation] at Prime Bank Ltd.

Chapter -01

1.1 ORIGIN OF THE REPORTThe title of the report is “Foreign Exchange Business (Letter of Credit Operation) of Prime

Bank Ltd”. The report entails my internship experience at Foreign Exchange Department of

Prime Bank Ltd. (Gulshan Branch).

1.2 OBJECTIVE OF THE STUDY

The objective of the report is to gather practical knowledge and experience about the banking

activities performed by the different officials into the Foreign Exchange Department. The report

is prepared with the purpose of getting an overview of Foreign Exchange Business through LC

operation at Prime Bank Ltd. This study attempts to pursue the following tasks:

To understand the import procedure

To understand the export procedure

To know about the various documents and procedures which are used in banking services

of International Trade.

To gain the depth knowledge of import and export portfolio of the Bank.

To find out the performance of import and export business in recent years.

To recommend actions that may be necessary to redesign the foreign trade procedure of

Prime Bank Ltd.

1.3 SCOPE OF THE STUDY

This study covers the details of Prime Bank’s practices about foreign exchange activities

emphasizing “Activities regarding Import and Export Procedure under Letter of Credit at

Prime bank Ltd”. This study consists the observations and on the job experiences during the

internship period in the Foreign Exchange Departments at Prime Bank Ltd, Gulshan Branch.

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This study also emphasizes on the sequential activities involved and used by Prime Bank Ltd for

foreign exchange transaction. The study also focuses on the impact of the foreign exchange

activities upon the client.

1.4 METHODOLOGY

The report has been prepared basically through the practical work experience at the branch. The

information has been collected from the most credible sources. I have categorized it into two

sections. The first one is Primary Source and the other is Secondary Source. Quantitative and

Qualitative judgments are also applied in this report which has made the study more meaningful

and presentable.

Primary Sources:

Major sources of information were done through the discussion with the officers of

Foreign Exchange Dept. specially Mr. ATM Zakaria, (Assistant Vice President), Mr.

Moshiur Rahman Khan (First Assistant Vice President), Mr. Abdullah Al Mamun

(Principal Officer), Sumya Fayez (Assistant Officer) and other respected officials of that

department.

Informal conversation with the clients.

Practical work experience from different desks of Foreign Exchange Department of the

Branch.

Secondary Sources:

“Annual Reports” of Prime Bank Limited.

Foreign Exchange Guidelines

Periodicals Published by Bangladesh Bank.

Various books. Articles, regarding Foreign Exchange operations.

Articles written on Banking

Websites on Banking and international trade.

Bank Website.

Relevant documents related to the study provided by the officials.

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1.5 LIMITATION OF THE STUDY

Every study has its distinct limitations. Preparing this report I have also faced some certain

limitations which are summarized below:

The main hindrance behind preparing this study was time. The span of the internship

program is only three months. But I have got only two months due to some unavoidable

circumstances. Since Foreign Exchange is a vast area, it is not possible to cover or go

through within this short span of time.

There is also insufficiency of current information, relevant to the study.

Consolidated data related to the study were not available for the current year. So the most

of the information is used from the previous years.

Inaccurate or Contradictory information created huge confusion during preparation of this

study.

Bank secrecy posed a major problem since disclosure of some information has been

restricted.

Relevant documents were not available as it is a technical issue.

Chapter -02

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Prime Bank Ltd --- A Snapshot

2.1 PRIME BANK LTD. [BACKGROUND]

In the backdrop of economic liberalization and financial sector reforms, a group of highly

successful local entrepreneurs conceived an idea of floating a commercial bank with different

outlook. For them, it was competence, excellence and consistent delivery of reliable service with

superior value products. Accordingly, Prime Bank Ltd. was created and commencement of

business started on 17th April 1995. The sponsors are reputed personalities in the field of trade

and commerce and their stake ranges from shipping to textile and finance to energy etc.

As a fully licensed commercial bank, Prime Bank Ltd. is being managed by a highly

professional and dedicated team with long experience in banking. They constantly focus on

understanding and anticipating customer needs. As the banking scenario undergoes changes so is

the bank and it repositions itself in the changed market condition.

Prime Bank Ltd. has already made significant progress within a very short period of its

existence. The bank has been graded as a top class bank in the country through internationally

accepted CAMEL rating. The bank has already occupied an enviable position among its

competitors after achieving success in all areas of business operation. Prime Bank Ltd. offers all

kinds of Commercial Corporate and Personal Banking services covering all segments of society

within the framework of Banking Company Act and rules and regulations laid down by our

central bank. Diversification of products and services include Corporate Banking, Retail Banking

and Consumer Banking right from industry to agriculture, and real state to software.

Prime Bank Ltd., since its beginning has attached more importance in technology integration. In

order to retain competitive edge, investment in technology is always a top agenda and under

constant focus. Keeping the network within a reasonable limit, our strategy is to serve the

customers through capacity building across multi delivery channels. Our past performance gives

an indication of our strength. We are better placed and poised to take our customers through fast

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changing times and enable them compete more effectively in the market they operate.

2.2 COMPANY VISION

Every Company has its own vision. By fixing the vision they can forecast their future growth and

predict their perspective. Prime Bank Ltd has also a vision which states that:

“To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital

adequacy, asset quality, sound management and profitability having strong liquidity.”

2.3 COMPANY MISSION

“To build Prime Bank Limited into an efficient, market driven, customer focused

institution with good corporate governance structure.”

“Continuous improvement in our business policies, procedure and efficiency through

integration of technology at all levels”.

2.4 CORE VALUES:

Prime Bank nurtures a very profile value to all its stakeholders. Basically they maintain four

kinds of core values to its different stakeholders. They are as follows:

For our Customers

To become most caring Bank - by providing the most courteous and efficient service in

every area of our business.

For our Employees

By promoting well - being of the members of the staff.

For our Shareholders By ensuring fair return on their investment through generating

stable profit.

For our Community

By assuming its role as socially responsible corporate entity in a tangible manner through

close adherence to national policies and objectives. and

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Upholding ethical values and best practices

2.5 EXPANSION IN THE GLOBAL ARENA:

The Bank has successfully expanded its services beyond cross border to provide and establish an

efficient banking system globally. It has opened a fully owned subsidiary at Singapore. Prime

Exchange Co. Pte. Ltd., a fully owned subsidiary company of Prime Bank Limited was

incorporated in Singapore on January 06, 2006 and commenced its remittance business with

effect from July 08, 2006 under the remittance license issued by the Monetary Authority of

Singapore (MAS) under section 7A(3) of the Money Changing and Remittance Business Act

(Chapter 187), Singapore.

2.6 ORGANIZATIONAL STRUCTURE:

Prime bank Limited is being managed by highly skilled professionals with long experience in

banking. They constantly focus in understanding and anticipating in customer needs and operate

according to it to survive in the changing market condition of the country.

In the Branch Based Approach, each individual branch is treated as separate identity and is

headed by a branch manager. The branch manager is liable to the top management for that

particular branch. Before starting a fiscal year it is the duty of branch manager to see that targets

are being fulfilled. Profit Targets, deposit targets, and other targets alike are all delegated to these

individual branches.

Given below is an organ gram of an individual branch of Prime Bank for better understanding.

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Head of Branch

Manager in Operation


Fig: 1 Organizational hierarchy of an Ideal Branch (Gulshan Branch)

The Department Based Approach is similar to that of the branch based approach, where each

dept. operates as a separate unit but sometimes collaborates in order operate more efficiently or

solve a common problem. Such department is also treated as separate entity but is much more

specialized in one particular area of business unlike a branch which has to be involved in

multiple tasks. Examples of few other department of Prime Bank Ltd are given below:

Human Resource Department

Financial and Administrative Department

Monitoring And Inspection Department

Marketing

Personal Relation Department

Merchant Banking and Investment Department

Treasury division

International division

General Service Division

Information Technology Department

Credit Division

Card DivisioPrime Bank maintains a strong organizational hierarchy in which every

individual performs their duty very sincerely. The full hierarchy of Prime Bank Ltd. is

given below:

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GB In-Charge SAVP

Cash in ChargeSEO

Forex In-Charge AVP

Credit In Charge FAVP


Deputy managing Director

Senior Executive Vice President (SEVP)

Executive vice president (EVP)

Senior Vice President (SVP)

Vice President (VP)

Senior Assistant Vice President (SAVP)

Assistant Vice President (AVP)

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Managing Director (MD)


Fig: 2 Hierarchy of Prime Bank Ltd.

2.7 PRODUCTS AND SERVICES OF PRIME BANK LTD:

Prime Bank Limited offers various kinds of deposit products and loan schemes. The bank also

has highly qualified professional staff members who have the capability to manage and meet all

the requirements of the bank. Every account is assigned to an account manager who personally

takes care of it and is available for discussion and -inquiries, whether one writes, telephones or

calls.

DEPOSIT SCHEMES

Monthly Contributory Savings Schemes (CSS): Under this scheme Minimum size of

the monthly installment is Tk.500.00 and multiples of Tk.1000.00. Maximum installment

size shall be 25000.00 for live year period. Lump sum amount shall be paid after maturity

or monthly pension shall be paid for the next 5 years according to size of deposit.

First Assistant Vice President (FAVP)

Senior Executive Officer (SEO)

Executive Officer (EO)

Principal Officer (PO)

Senior Officer (SO)

Management Trainee Officer (MTO)

Assistant Officer (AO)

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Trainee Assistant (TA)


Lackhopati Deposit Scheme: Under this scheme size of the monthly installments are

Tk.250.00, Tk.500.00, Tkl285.00, Tk.2400.00 depositor will receive Tk. 1,00,000.00

after a number of period depending on installment size .Higher the installment size lower

will be the maturity period .

Prime Millionaire Scheme: This scheme is similar as Lackhopati deposit scheme only

the installment amounts is larger and at maturity depositor will get 10, 00,000.00.

Education Savings Scheme (ESS): Under this scheme parents can save for their

children's education by paying a certain amount of monthly installment and Lump sum

amount shall be paid after maturity.

Monthly Benefit Deposit Scheme (MBDS): Under this scheme customer can deposit a

fixed amount of money for five years the amount has to be 100,000 or multiple of

100,000 he / she will receive 900 per month as interest on every lac during those five

years.

Double Benefit Deposit Scheme (DBS): Under this scheme a customer can keep a fixed

amount of money for six year end of the maturity period the amount will become

double .The amount has to be multiple of 25000.

Fixed Deposit Receipt Scheme (FDR): Under this scheme customer can devote a fixed

amount of money for one month, three months, six months or twelve months for interest

rate of 7.5%, 11 % or 11.5%.

Current Account: Current Account is a non interest bearing checkable deposit (Demand

Deposit) which allows the owner of the bank accounts to write checks to third parties.

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Savings account: Savings Account is an interest bearing checkable deposit (Negotiable

order of withdrawal) which allows the owner of the bank accounts to write checks to

third parties. Interest rate of Savings Deposit Account is 6.00% for the year 2008.

CARD DIVISION SERVICE

ATM Card: Automated Teller Machine (ATM) card is new concept in modem banking,

has already been introduced to facilitate subscribers 24 hour cash access through a plastic

card. Prime Bank Limited has started their ATM card services from 15 th March 2008 by

opening a ATM booth at Motijheel Branch. After that Prime Bank Limited made an

agreement with Dutch Bangla Bank to use their ATM Booth.

Credit Card: Very stiff competition prevails in credit card market. Many players have

entered the market and competition is growing. Prime Bank Ltd started its credit card

operation in 1999 by introducing Master Card and is now principal member of both

worldwide accepted plastic money network i.e MasterCard and VISA, thus positioned itself

with strong footing within the industry, the risk of loss to credit card customers. Call center

of the Bank provides 24 hours service to the credit card customers.

LOAN/ADVANCE PRODUCTS:

Loan and advances have primarily been divided into two major groups:

Fixed term: These are the loans made by the Bank with fixed repayment schedules Fixed

tern loans are categorized into three based upon its tenure which is defined as follows:

Short term : Up to 12 months

Medium term : More than 12 and up to 36 months

Long Term : More than 36 months

Continuing Loans: These are the loans having no fixed repayment schedule, but have an

expiry dale at which il is renewable on satisfactory performance of the customer.

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Furthermore, all categories of loans are accommodated under the following prime

sectors:

i Agriculture: Credit facilities to the customers of doing agro business falls under this category.

ii. Term Loan to Large &. Medium Scale Industry: This category of advances

accommodate the medium and long term financing for capital formation of new Industries or for

an existing units who are engaged in manufacturing of goods and services.

iii. Term Loam to Small & Cottage Industries: These are the medium and long term loans

allowed to small & cottage manufacturing industries. No short term or continuous credits will be

included in this category.

iv. Working Capital: Loans allowed to the manufacturing units to meet their working capital

requirements, irrespective of their size - big, medium or small, fall under this category. These are

usually continuous credits and as such fall under the head "Cash Credit"

v. Export Credit: Credit facilities allowed to facilitate export of all items against Letter of Credit

and/or confirmed export orders fall under this category. It is accommodated under the heads

"Export Cash Credit (CCC)", Packing Credit (PC), Foreign Documentary Bill Purchased (FDBP)

etc.

vi. Commercial Lending: Short term Loans and continuous credits allowed for commercial

purposes other than exports fall under this category. It includes import financing for local trade,

service establishment etc. No medium and long term loans arc accommodated here. This

category of advance is allowed in the form of (i) Loan against Imported Merchandise (LIM), (ii)

Loan against Trust Receipt (LTR), (iii) Payment against Documents (PAD), (iv) Secured

Overdraft (SOD), (v) Cash Credit etc. for commercial purposes.

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TYPES OF CREDIT FACILITIES: Depending on the various nature of financing, all

the credit facilities have been brought under two major groups; (a) Funded Credit and (b)

Non-funded Credit. Under non-funded credit, there are basically two major products

namely Letter of Credit and Letter of Guarantee.

Under Funded Credit, there are the following products:

Loan (General): Short, Medium & Long term loans are allowed to

individual/firm/industries for a specific purpose. But this loan for a definite period and

generally repayable by installments falls under this type. These are mainly allowed to

accommodate financing under the categories (I) Large & Medium Scale Industry and (II)

Small & Cottage Industry.

Housing Loan (Commercial): Loans allowed to individual/enterprises for construction

of house for commercial purpose only fall under this type. The amount is repayable by

monthly/quarterly installments within a specified period.

Home Loan: Loans allowed to individuals for purchase of apartment or construction of

house for residential purpose fall under this type. The amount is repayable by monthly

installments within a specified period.

House Building Loan (Staff): Loans allowed to the employees of PBL for purchase of

apartment/construction of house shall be known as House Building Loan (Staff) or HBL

(Staff).

Lease Financing: Lease Financing is one of the most convenient sources of acquiring

capital machinery and equipment whereby a customer is given the opportunity to have an

exclusive right to use an asset usually for an agreed period of time against payment of

rental.

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Consumer Credit Scheme (CCS): It is a special credit scheme of the Bank to finance

purchase of consumer durable by the fixed income group to raise their standard of living.

The loans are allowed on soft terms against personal guarantee and deposit of specified

percentage of equity by the customers. The loan is repayable by monthly installments

within a fixed period. The CCS is becoming more and more favorable to consumers

having different needs. Under CCS the following loans are available for the customers at

the bank in every branch.

Household Loan.

Doctors Loan.

Any Purpose Loan.

Travel Loan.

CNG Conversion Loan.

Advance against Salary.

Education Loan.

Marriage Loan.

Hospitalization Loan.

SOD (Financial Obligation): SOD (Financial Obligation) is allowed to individuals/firms

against financial obligations (FOR, MBDS, and Scheme Deposits of PBL or similar

products of other banks). This is a continuous loan having usual maturity period of 1

(one) year and renewable for further periods at maturity.

SOD (General): SOD (General) is allowed to individuals/firms for miscellaneous

purpose. This is a continuous loan having usual maturity period of I (one) year and

renewable for further, periods at maturity.

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SOD (Work Order): Advances allowed against assignment of work order for execution

of contractual works falls under this type. This advance is generally allowed for a definite

period and specific purpose. It falls under the category "Others".

SOD (Export): Advance allowed for purchasing foreign currency for payment of Back to

Back (BTB) L/C liability where the exports do not materialize before due the date of

import payment. This is an advance for temporary period and categorized "Export

Finance".

PAD: Payment made by the Bank against lodgment of shipping documents of goods

imported through L/C falls under this type, ft is an interim advance connected with

import and is generally liquidated against payments usually made by the customer for

retirement of the documents towards release of imported v consignment from the customs

authority.

LIM: This is funded credit facility allowed for retirement of shipping documents and

release of goods imported through L/C taking effective control over the goods by pledge

in go downs under Bank's Jock & key. This is a temporary advance connected with

import which is known as post-import finance and falls under the category "Commercial

Lending".

LTR: Advance allowed for retirement of shipping documents and release of goods

imported through L/C falls under this type. The goods are handed over to the importer on

trust with the arrangement that sale proceeds will be deposited to liquidate the loan

account within the specific time.

ECC: Funded credit facility allowed to a customer for export of goods falls under this

type and is categorized as "Export Cash Credit". The advances must be liquidated out of

export proceeds within ISO days.

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Packing Credit (P.C.): Advance allowed to a customer against bills under BTB L/C

and/or firm contract for processing/packing of goods to be exported falls under this type

and is categorized as "Export Credit". Packing Credit must be adjusted from proceeds of

the relevant exports within 180 days.

FBP: Payment made to a customer through Purchase or Foreign Currency

Cheques/Drafts falls under this type. This temporary advance is adjustable from the

proceeds of the cheque/draft.

Beside those services Prime Bank also maintains foreign currency account and serve the

Bangladeshi and foreign nationals residing home and abroad. Different foreign currency

accounts maintained by the bank are as under:

Non Resident Taka Account

Resident Foreign Currency Deposit Account

Non Resident Foreign Currency Deposit Account

Wage Earners development Bond

Chapter -03

Foreign Exchange Business [Letter of Credit operation] atPrime Bank Ltd.

The export and import business is now are executed through the intervention of commercial

banks. Banks make the way through which the exporter can get payment from importer. Foreign

exchange is the department of commercial banks which facilitates importers and exporters in

their trades. It is very significant department in the financial sector of the country especially in

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the developing countries. Bangladesh bank has some regulations regarding the foreign exchange

to maintain for the authorized dealer. Authorized dealer is the dealer of the foreign currency who

is authorized by the Bangladesh Bank to exchange foreign currency. Prime Bank Ltd has ---------

branches which are authorized by the Bangladesh Bank to exchange foreign currency.

The Basic functions of foreign exchange department are:

Facilitating Import Trade

Facilitating Export Trade

Provided funded and non funded credit facility

Providing non commercial remittances

Maintaining foreign currency accounts

Selling of foreign currency.

The above functions are done by three sections:

Import Section

Export Section

The Foreign Remittance Section

Now the division of foreign exchange department is stated below in a pictorial format:

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Foreign Exchange


Fig: Foreign Exchange Department of Prime Bank Ltd.

3.1 FOREIGN EXCHANGE TREND AT PRIME BANK LTD

The study is based on the current Foreign Exchange Trend for Prime Bank Ltd. It deals with

Export, Import and Remittance services that the bank provides, giving us the current trend of

business in each of this area's. In addition in-depth analysis of statistical data covering the types

of commodities, amount of foreign currency that is being traded has also been covered in this

report. But first let us take a look at the role of foreign trade in Bangladesh.

Foreign Trade plays an important role in the economic advancement of every nation. So the

government of almost all developing countries including Bangladesh focuses on the import and

export relations of foreign countries. In our country, the foreign trade is controlled by

Bangladesh Bank under the Import and Export Control Act, 1950. Here any importer and

exporter who are not registered with CCI &E are not allowed to import the goods in the country

or export goods to other countries. While the foreign Exchange Business was becoming more

complex and hounded by more rules and regulations, the L/C is one type of undertaking that

Import Section Export Section Foreign Remittance Section

Foreign ExportLocal Export

Direct Export Export through Back to Back

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could reduce the risk and legalize the contract between buyer and seller. And through the L/C,

the contract between the importer and exporter is given a legal shape by the Authorized Dealer-

the bank .As the banks are included in the process, the contract becomes more reliable for both

the importer and exporter to both the parties. While through the L/C a reputed bank guarantees

the payments for imported goods on the behalf of the importer, the exporter gets the security for

payment .Therefore; the Letter of Credit constitutes one of the most important methods of

foreign trade. All documentary credit covering imports into Bangladesh are subjected to the

provisions of UCPDC500 (Union Customs and practices for documentary credit 1993 revision

ICC Publication 500). We can see the achievement of foreign exchange division during the year

2008 and 2007 in a diagram with financial data: (See Appendix-A; Page )

3.2 OPERATIONAL PROCESSES IN PRIME BANK’S

FOREIGN EXCHANGE DEPARTMENT

The International Division placed at the Prime Bank's head office at Motijheel is the backbone of

all international transaction that is conducted through the various branches of the bank. A total of

42 branches of Prime Bank have the license to carry "• out international trade functions. Each of

these AD branches have foreign exchange department whose sole purpose is to carry out cross

border transaction demanded by the customers.

The functions of such Foreign Exchange Department can be divided into three sections:

(a) Import Section

(b) Export Section, and

(c) The Foreign Remittance Section

The following is a brief description of each of these sections.

Import Section

This section deals with the import of foreign commodities into Bangladesh. It starts with

the opening of an L/C till the payments arc made to the foreign exporters. The import

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section is in turn is divided into two divisions. One division looks after Sight L/C and

another one looks after Back to Back L/C. The Basic difference between these two types

of L/C is that, sight L/C requires at sight payment for the imported items, the buyer

should pay within three days of documents arrival. And on the other hand, (the issuance

period for Back to Back credit can range from two months to even a year depending on

the L/C terms.

Export Section

All Export departments of Prime Bank's branches are equipped with facilities that would

help an exporter ship their good beyond the nation's boundary, thus earning foreign

currency for the country. And majority of such customers for Prime Bank Ltd are

involved in the Ready Made Garment sector with only a few exporting other different

commodities.

Foreign Remittance Section

Foreign remittance can be stated as the purchase and sale of freely convertible foreign

currency as admissible under Exchange Control Regulations of the country. Inward

remittance is the purchase and outward remittance is the sale of foreign currency. Later

this section will be discussed.

3.3 ONCEPT OF LETTER OF CREDIT

A letter of credit is an instrument issued by a bank to a customer placing at the letters disposal

such agreed sums in foreign currency as stipulated. An importer is a country requests his bank to

open a credit in foreign currency in favor of his exporter at a bank in the letters country. The

letter of credit is issued against payment of amount by the importer or against satisfactory

security.

The L/C authorizes the exporter to draw a draft under is terms and sell to a specified bank in his

country. He has to hand over to the bank, will the Bill of exchange, shipping documents and such

other papers as may be agreed upon between the exporter and the importer. The exporter is

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assured of his payment because of the credit while the importer is protected because documents

in respect of export of goods have to be delivered by the exporter to the paying bank before the

payment is made.

In the Import Policy Order 2003-2006 Letter of Credit denoted as - '"Letter of Credit" means a

letter of credit opened for the purpose of import under this Order' The expression

"Documentary Credit^)" and "Standby Letter(s)” means any arrangements, however

named or described, whereby a bank ("the issuing bank") acting at (he request and on me

instruction of ;i 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, Or

authorizes another bank to effect such payment, or to accept and pay such bills of

exchange Draft(s),Or

authorizes another bank to negotiate,

Against stipulated document(s), provided that the terms and conditions of the Credit arc

complied with.

The uniform customs and practices for documentary Credit (UCPDC) published by

International! Chamber of Commerce (2007) revision, publication no, 600 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 it's 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

Authorize another bank to effect such payment or to accept and pay such bills of

exchange (Drafts)

Authorize another bank to negotiate against stipulated documents provide that terms and

conditions are complied with.

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3.4 TYPES OF LETTER OF CREDIT

There are many types of Letter of Credits that are used in different countries of the world. But

International Chamber of Commerce (ICC) vides their UCPDC- 600, which denotes only two

types of LETTER OF Credits; mentioned:

Revocable Letter of Credit

A revocable credit may be amended or cancelled by the issuing bank at any moment and without

prior notice to the beneficiary. This type of letter of credit can be revoked or cancelled at any

time without consent of, or notice to the beneficiary. The buyer maximum flexibility, as it can he

amended or cancelled without prior notice to the seller up lo the moment of payment but the

issuing bank at which the issuing bank has made the credit available. In the modern banking the

use of revocable credit is not widespread.

Irrevocable Letter of Credit

An irrevocable credit is a documentary credit, which cannot he revoked, varied or

changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller

(Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit).

Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent

on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of Credit both the

Issuing and Conforming Bank have some liability.

3.5 SOME SPECIAL LETTER OF CRERDIT

Revolving Letter of Credit

Revolving L/C can be used when goods are to be delivered in installment at specified intervals.

The amount available at any one time is equivalent to the value of one partial delivery. A

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revolving credit can be cumulative or non-cumulative means that amount from unused or

incompletely used portions can be carried forward to subsequent period.

Standby Letter of Credit

Stand by credit are encountered principally in the US. Under the laws of most US states, banks

are prohibited from issuing regular quarantines, so credits are used instead. In Europe, too the

use of this type of credit is increasing by virtue of their documentary credit, stand-by credit are

governed by the UCP. However, their function is that of a grantee.

Back to Back Letter of credit:

The Back to Back letter of Credit is a wing of Export department at the advising bank on behalf

of beneficiary. If the beneficiary exports readymade garments products then he may have to open

this letter of credit for import of raw materials. It is a sort of Pre-shipment finance before export

of products.

Transferable Letter of Credit:

Transferable credit is particularly well adapted to the requirements of international trade. A

trader who receives payment from a buyer in the form of a transferable documentary credit can

use that credit to pay his own supplier. This enables him to carry out the transaction with only a

limited and lay of his own funds. The costs of the transfer are usually charged to the trader and

the transferring bank is entitled to delete them in advance.

Red Clause

In the case of a red clauses credit, the seller can obtain an advance for an agreed amount from the

correspondent bank, goods that are going to be delivered under the documentary credit. On

receiving the advances, the beneficiary must give a receipt and provide a written undertaking to

present the required documents before the credit expires. The advance is paid by the

correspondent bank, but it is the issuing bank that assumes liability. If the sellers does not present

the required documents in time and fails to refund the advance, the correspondent bank debits the

issuing bank with the amount of the advance plus interest. The issuing bank, in turn, has reveres

to the applicant, who therefore bears the risk for the advance and the interest accrued.

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Green Clause

The clause which is printed /typed in green is an extension of Red “Red Clause”. This clause

authorizes the negotiating bank to grant advance to the beneficiary for storage facilities at the

port in addition to the earlier stated pre shipment advances.

The following types of Letter of Credits arc used in the Prime Bank. Gulshan Branch:

Cash or Sight Letter of Credit:

The most commonly used credits are Cash Letter of Credit or sight payment credits. These

provide for payment to be made to the beneficiary immodestly after presentation of the

sstipulated documents on the condition that the terms of the credit have been complied with. The

banks are allowed reasonable time to examine the documents.

Deferred Letter of Credit:

A deferred letter of credit is a credit in which the seller will be paid on a fixed or determinable

future time. The buyer is obligated to pay the face amount at maturity.

The only difference between cash Letter of Credit and deferred letter of Credit lied in the terms

of payment. Payment under deferred Letter of Credit is made after certain days of presentation of

the export bill.

Deferred Letter of Credit may be opened for the following cases:

Items Period

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Industrial Raw Materials (For own use) Maximum 180 Days

Back to Back Imports Maximum 180 Days

Agricultural Implements & Chemical Fertilizer Maximum 180 Days

Capital Machinery Maximum 360 Days

Coastal Vessel Maximum 360 Days

Life Saving Drugs Maximum 360 Days.

Acceptance Payment at Maturity:

With an acceptance credit payment is made in the form of a tern bill of exchange drawn on the

buyer, the issuing Banker the pendent bank. Once he has fulfilled the credit requirements, the

beneficiary can demand that the bill of exchange be accepted and returned to him. Thus the

accepted bill takes the place of a cash payment. Bill of exchange drawn under acceptances credit

usually has a term of 60-180 days.

The purpose of an acceptance is to give the importer time to make payment. It he sells the goods

before payments fall due, he can use the proceeds to meet the bill of Exchange in this way, he

does not have to borrow money to finance the transaction.

3.6 PARTIES INVOLVED IN LETTER OF CREDIT:

MAIN PARTIES:

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I. The issuing Bank:

Issuing Bank is the bank which opens / issues a L/C on behalf of the importer. It is also called

importer’s/ buyer’s bank.

II. The Confirming Bank:

Confirming is a bank which adds its confirmation to the credit and it is done at the request of

issuing bank. The confirming bank may or may not be the advising bank.

III. The Beneficiary

The exporter in whose favor the credit is opened and to whom the letter of credit is addressed is

known as the beneficiary. As the seller of goods he is entitled to receive payment which he does

by drawing bills under the letter of credit (L/C). As soon as he has shipped the goods and has

collected the required documents, he draws a set of papers and presents it with the documents to

the opening bank or some other bank mentioned in the L/C.

OTHER PARTIES:

I. The Applicant:

The importer at whose request a letter of credit is issued is known as the applicant or buyer. On

the strength of the contract he makes with the exporter for the purchase of some goods that the

letter of credit is opened by the opening bank.

II. The Advising Bank:

Advising Bank is the bank through which L/C is advised to the exporter. It is a bank situated in

the exporter’s country and it may be a branch of the opening bank or a correspondent bank. It

may also assume the role of confirming bank and /or negotiating bank depending upon the

conditions of the credit.

III. The Negotiating/Paying Accepting Bank:

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The bank which negotiates the bill and pays the amount to the beneficiary is referred to the

Negotiating Bank. It has to carefully scrutinize the documentary credit before negotiation in

order to see whether the documents apparently and in order to see whether the documents

apparently and in order. The advising bank and negotiating bank may or may not be one and

same. Sometimes it can be the confirming bank.

IV. Reimbursing Bank:

The Reimbursing or paying bank only pays the drafts drawn under the credit but undertakes no

opening bank, by debating the latter’s accounts with it if there is such an account or by any other

measured up, between the two bankers. As soon as the beneficiary has received payment for the

draft, he is out of the picture and the rest of the operation concerns only the paying bank and the

opening bank.

Chapter -04

Import Procedure through Letter Of Credit Operation of Prime Bank Ltd.

Import is the process of purchasing goods and services from foreign countries into Bangladesh. It

is the flow of goods and services purchased by economic agents staying in the country from

economic agents staying abroad. Individuals, firms and Government of Bangladesh import

foreign goods to meet their various necessities.

In ease of international trade, buyers and sellers are mostly unknown to each other. Therefore,

seller always seeks guarantee for that is payment of his goods exported and bank plays the role

exactly at this phase. Bank gives export guarantee that it will pay for the goods on behalf of the

buyer. This guarantee is called Letter of Credit. Thus, the contract between importer and exporter

is given a legal shape by the banker through 'Letter of Credit'. When a buyer goes to import some

27


goods from a foreign buyer, he requests his bank to make payments to the exporter of goods, and

the bank recovers the amount from the importer. The import procedure under L/C is discussed

below:

4.1 LEGISLATION OF IMPORT POLICY:

Imports are foreign goods and services purchased by consumers, firms &

Governments in Bangladesh. According to Import and Export Control Act, 1950, the Office of

Chief Controller of Import and Export (CCl & 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 Import Policy Order (2003-2006), which was come into

effect on March 14, 2003. And Import Policy directs certain Import Procedure, which

administers the whole activity.

Import section of Foreign Exchange Department facilitates import related banking services

concerned to import of goods in cash foreign exchange. 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.

Receive and Scrutinize of Export Documents sent from beneficiary’s country.

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4.2 GENERAL CONDITIONS OF IMPORT OF GOODS

Import Trade Control Schedule Number

For import purpose, use of ITC Number (H.S. Code) with at least six digits corresponding to the

classification of goods as given in the Import Trade Control Schedule I98.S, based on the

Harmony Commodity Description and Coding System, shall be mandatory. But in cases where a

particular aim has been classified under a H. S. Code Number (having more than six digits). The

seven Digit H.S, Code published by Bangladesh Bureau of Statistics may also be mentioned in

the Letter of Credit Authorization Form, Letter of Credit and other relevant paper within a

bracket in addition to normal H. S. Code as mentioned above. No bank shall issue Letter of

Credit Authorization form or open Letter of Credit without properly mentioning I. T. C. number

(H. S. Code) thereon.

NOC (No Objection Certificate) On the basis of ROR (Right of Refusal)

A. No Objection Certificate on the basis of Right of Refusal (ROR) form any authority shall not

be required for import of any freely importable item by any Public Sector agency. However, in

case where a public sector agency is required to import banned/restricted items included in the

Control List, prior permission of the Ministry of Commerce .shall have to be obtained on the

basis of ROR issued the Ministry of Industries or by Sponsoring Ministry/Division, or by both as

the case may be.

B. In case of import of banned/restricted items for approval projects financed under foreign aid

the concerned Government Department/Agency will approach the Chief Controller of the Import

and Export directly for necessary permission together with a list of items duly certified under

proper seal and signature giving "description, quantity/number, price and H.S. Code Number

against each item required to be imported. The details about the aided project and specific

provision of the relevant contract and other necessary information shall also have to be furnished

along with the list of the items. The Chief Controller shall issue permission/permit on the basis

of above documents.

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Restriction regarding source of procurement of goods

a. Goods from Israel or goods originating from that country shall not be importable. Goods are

not also importable in the flag vessels of that country.

b. All kinds of import from and export to Serbia and Montenegro, fragments of former Socialist

Republic of Yugoslavia, shall be banned.

Pre-shipment inspection

Unless otherwise specified, pre-shipment inspection of imported goods shall not be obligatory in

case of import by private sector importers.

Shipment of Bangladesh Flag Vessels

Subject to waiver specified below shipment of goods shall not be made on Bangladesh

Hug vessels:

a. Imports of goods up to maximum twenty metric tons in case of single individual consignee or

up to maximum 100 (one hundred) metric tons in case of group import may be made in non

Bangladeshi flag vessels. However the Director General of Shipping may notify general waivers

in the following cases, such as (1) shipment of goods from foreign ports which are not visited by

Bangladeshi Vessels, and (2) import of goods on the basis of specific agreement which provides

C & F (Cost & Freight) contract. In all other eases a certificate of waiver shall be obtained from

the Director General of Shipping of Importation of goods in non-Bangladeshi flag vessels, [f

there appears to be possibility of any Bangladeshi Hag vessels, visiting a port with in next seven

days, waiver shall be given within twenty-four hours of application for waiver. Otherwise, it will

be considered that waiver has been given. However, the specific condition of compulsory

shipment of goods on Bangladeshi flag vessels, or the condition of obtaining certificates of

30


waiver form the Director-General of Shipping shall not apply in cases of import under such

foreign aids, loans or grants which contain specific provisions regarding shipment of goods.

b. In case of import and export of goods by export oriented industries shipment may be made in

non-Bangladeshi Flag vessels.

Import at competitive rate

a. Import shall be made at the most competitive rate and importers may be recruited, at any time,

to submit documents regarding the price paid or to be paid by them.

b. In case of import under United Commodity Aid in the Private sector, goods shall be imported

at the most competitive rate by obtaining quotations from a minimum of three suppliers indenters

representing at least two countries abroad. This condition shall however not apply for opening of

I .Letter of Credit up TK. One lac. For import at most competitive rate by the Public Sectors the

condition mentioned at Para 27(8) of this order shall apply.

Import on C & F and FOB (free on Board) basis

All imports by sea, air and land route shall be made either on C & F or FOB basis. However in

ease of import on FOB basis the concerned importer shall have to properly comply with the

circular issued by Bangladesh Bank in this regard. Before opening L.C necessary insurance

cover note shall have to be purchased form the Shadharan Bima Corporation or any other

Bangladeshi insurance company. Unless there are specified provisions in the relevant loan

agreement/projects agreement concluded with the foreign donors for import of CIF (Cost,

Insurance & Freight) basis, no import shall be allowed on C1F basis without prior approval from

the Ministry of Commerce. However, Bangladesh nations, living abroad, for sending goods

against their earned foreign exchange and foreign investors, for sending capital machines and

raw materials against their equity share portion shall be allowed on C1F basis.

Import by Mentioning "Country of Origin"

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a. In all cases of import, "country if origin shall be mentioned clearly on goods,

package/container. A certificate regarding "country of origin" issued by the concerned

Government agency/approved authority/organization of the exporting country must be submitted,

along with import documents to the Customer Authority at the time of release of goods.

However, the provisions of "country of origin" shall not be applicable to coal and export oriented

garments industries. In case of this cotton import, it shall not be required to mention the country

of origin on each bale. But "country of origin" shall be mentioned in the phyto sanitary

certificate. Besides, 100% export oriented industries, which arc recognized by Custom Authority,

shall be waived from the restriction of "country of origin" subject to the conditions imposed by

the Foreign Exchange Regulation Act, Bangladesh Bank and Commercial bank,

b. In case of import of Limestone, in different consignments/lot by the rope-way or by river, as

raw-materials for Chattak Cement Factory, "country of origin" certificate from the exporting

country's Government/approved authority/organization shall be submitted once to the customs

authority at the time of release of goods, instead of each consignment/Jot for the quantity

mentioned in Letter of Credit, in case of river-way and as per supplied carrying list as case of

road-way.

4.3 INSTRUCTIONS ISSUED BY BANGLADESH BANK FOR

OPENING AND OPERATION OF L/C FOR IMPORT OF

GOODS

All Letter of Credits and similar undertakings covering imports into Bangladesh must be

documentary Letter of Credits and should provide for payment to be 'made against full

sets of onboard (shipped) transport documents (BL, AIB, TR etc.) showing dispatch of

goods covered by Credit to a destination in Bangladesh;

They must ensure that they deal only with known customers having a place of business in

Bangladesh and can be traced easily if any occasion arise for this purpose;

32


They should establish Letter of Credit against specific authorization on behalf of their

own customers who maintain accounts with them with and know to be participated in the

trade;

It is not permissible to open to clean or revolving credits;

They are allowed to open divisible, transferable Letter of Credits for import into

Bangladesh under cash LCAF (Letter of Authorization Form);

It is not permissible to open Letter of Credits in favor of beneficiaries in countries from

which import into arc banned by the component authority;

Letter of Credits to be opened only against firm contract between the Applicant and

beneficiary. Bankers should sec documentary evidence, before opening Letter of Credit,

that a firm order for the goods to be imported has been placed and

accepted;

The full description of goods to be imported along with unit price and quantity to be

given in the Letter of Credit;

Confidential report of the exporter to be obtained by the bank, where the amount of Letter

of Credit exceeds TK. 2,00,000 in case of import against pro forma invoices issued direct

by foreign supplier and TK. 5,00,000 against indent issued by local agents of the

suppliers;

Payments against discrepant documents may be made after the goods have been cleared

from the customs on the basis of the locative LCAF;

Advanced remittance against import may be made after getting prior permission from

Bangladesh Bank where the goods arc of specialized or capital nature.

4.4 DOCUMNTS REQUIRED FOR OPENING OF L/C:

L/C application and agreement Form (Bank's prescribed application form) with adhesive

stamp of Tk. 150 (Flexible) [From June 3rd 1998]

Letter of Credit authorized Form (LCAF)

CIB.

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Proforma Invoice (Approved by BRTC in case of Mobile Set)

Import Registration certificate. Tax Identification Number, VAT (IRC renew)

Membership Certificate.

Last tear income tax assessment.

Harmonized System Code (HS Code)

Charged Documents.

Under Charged Documents the following letters are required:

o Demand Promissory Note.

o Letter of Disbursement

o Letter of Agreement

o Letter of Authority.

o Letter of Undertaking

o Letter of Continuity.

o Letter of Revival

o Letter of Guarantee. (Signature without Seal)

Some Exemption:

No IRC required for importation of capital machinery for setting up new industry. Only

BOI approval required.

“Country of origin” issued by government/competent body. Trade body CO is not

required in case of importation of raw materials for Coal & RMG industry

4.5 MARGIN AND OTHER CHARGES

Before issuing Letter of Credit, bank asks the applicant to deposit Letter of Credit margin

according to the terms of sanction and other necessary charges which includes commission,

handling charges, foreign correspondence charge, telex/SWIFT charge etc, as per terms and

conditions of sanction.

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Before issuing Letter of Credit Bank asks the applicant to deposit the following, as per the terms

of the sanction:

Letter of Credit Margin As per Government. Circular

Commission As per internal policy (Letter of Credit

value .005 for first quarter, Subsequent

Quarter .003

Document Handling Charge 1500

SWIFT Charge 3500

Courier Charge (except India)

Courier (India)

1500

300

VAT 15% on Commission and SWIFT charge

Margin charged against any particular Letter of Credit depends upon the Item or Goods of the

import. Margin varies between nil to 100%. Generally the higher value of margin, the higher it

means that Bangladesh Bank discourages to import that goods or items. Some goods are

imported at 100% margin, as per the circular of 14th November, 2001

4.6 ISSUING THE LETTER OF CREDIT

In this stage, the issuing bank fills the bank-specified-form for issuing Letter of Credit. Generally

a Letter of Credit contains the following information and terms and conditions:

Charges;

Country of origin of goods;

Currency and amount;

35


Date and place of the expiry of the Documentary Credits ;

Description of goods and quantity ;

Documents required for negotiation;

Instruction for negotiating bank;

Last date of shipment;

Letter of Credit Authorization Form (LCAF) number, IRC (Import Registration

Certificate) number and Harmonized System (HS) code;

Mode of Carrying -Air/Ship/Truck;

Name and address of beneficiary ;

Name and address of the advising bank;

Name and address of the applicant;

Name of the issuing Bank and Branch;

Negotiating bank preferably freely negotiable in any bank;

Number of Letter of Credit and date of opening ;

Payment Term-Sight

Period of Negotiation ;

Period of presentation ;

Port of Loading and port of Discharge;

Reimbursing Bank and payment mode;

Terms and conditions regarding Transshipment and Partial Shipment;

Depending on the specific provision in the underlying sales-contract (mentioned below), it may

be necessary to incorporate one or more of the following additional terms in the Letter of Credit-

Whether the pay of the bank charges is on account of the opener or seller

Whether short from of Bill of Lading (B/L) is acceptable

Whether, in case of bulk import, charter-party Bill of Lading (B/L) is acceptable or not

Whether shipment by chartered vessel is allowed, the following causes must be stipulated

in the Letter of Credit.

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Shipping documents must include copies of Charter-party agreements.

Bill of Lading must be signed by named carrier or his authorized agent.

4.7 DIFFERENT MEANS OF PAYMENT

Importer settles the means of payment with the seller after making the purchase contract. Import

procedure differs with relation to different means of payment. In our country in most cases, the

Documentary/Letter of Credit makes import payment. Purchase Contract contains which

payment procedure has to be applied.

a) Cash in Advance: Importer pays lull, partial or progressive payment by a foreign DD, MT or

TT. After receiving payment, exporter will send the goods and the transport receipt to the

importer. Importer will take delivery of the goods from the transport company.

b) Open Account: Exporter ships the goods and sends transport receipt to the importer. Importer

will take delivery of the goods and makes payment by foreign DD, MT, or IT at some specified

date.

c) Collection Method: Collection methods are either clean collection or documentary collection.

Again, Documentary Collection may be Document against Payment (D/P) or Document against

Acceptance (D/A). The collection procedure is that the exporter ships the goods and draws a

draft/ bill on the buyer. The exporter submits the draft/bill (only or with documents) to the

remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the

draft/bill (with or without documents) and a collection instruction letter to the collecting bank.

Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of

the draft. The title of goods is released to the importer upon full payment or acceptance of the

draft/bill.

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d) Letter of Credit: Letter of credit is the well-accepted and most commonly used means of

payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon

submission of some stipulated documents and fulfilling the terms and conditions mentioned in

the letter of credit.

4.8 TRANSMISSION OF LETTER OF CREDIT PAYMENT

The Letter of Credit duly signed by the authorized persons of the bank is then sent to the

advising bank. There are three modes of sending the Letter of Credits which are as follows:

A. By Mail/Courier

Letter of credit can be sent to the advising bank by mail /courier.

B. By TELEX:

It was practiced earlier in the other branches, but from the very beginning of the Gulshan branch

it did not transmit Letter of Credit though Telex.

C. By SWIFT:

SWIFT Stands for Society of World Wide Inter bank Financial Telecommunication. This is

special format maintained round the world. Through this facility party can communicate within

few minutes with other party staying any part of the world. Prime Bank Limited, Gulshan Branch

Provides this facility to the clients. The advising bank verifies the authenticity of the Letter of

Credit.

Prime Bank has corresponding relationship or arrangement throughout the world by which the

Letter of Credit is advised. Actually the advising bank does not take any liability if otherwise not

requested.

4.9 RECEIPT OF DOCUMENTS

After opening the Letter of Credit the next step would be to await shipment followed by

negotiation of documents by a bank abroad. The beneficiary of the Letter of Credit (supplier),

38


after effecting shipment of the goods as per Letter of Credit terms, prepare or collect necessary

documents as required under the terms of Letter of Credit and presents the drafts to the

negotiating bank along with the supporting documents for negotiation.

The negotiating bank negotiates the draft if the documents are found in order as per terms of the

Letter of Credit, pays the beneficiary. The negotiating bank will reimburse itself either by

debiting Prime Bank's Account, if any, maintained with them (the NOSTRO Account) or will

seek reimbursing bank mentioned in Letter of Credit, if there is no account. Simultaneously, the

bank will send the documents to Prime Bank. The nature of documents has to be sent by the

negotiating bank will depend primarily on the terms of the Letter of Credit and secondly the sales

contact between the buyer and seller. However, generally the following documents are asked to

send:

Bill of Lading or Airway Bill or other evidence of shipment (e.g. Railway Receipt, Truck

Receipt, Barge Receipt)

Certificate of Origin;

Commercial Invoice;

Draft or Bill of Exchange;

Inspection of Survey Certificate;

Marine Insurance Policy;

Packing List;

Quality Control Certificate.

4.10 SCRUTINY OF DOCUMENTS

On receipt of the documents, the branch shall immediately set itself to the task of .scrutinizing

the documents, What they would ensure is that the documents received from the negotiating

bank are drawn strictly in conformity with the terms of the Letter of Credit and respond to the

requirement of the underlying Letter of Credit in every respect, examination of the documents

generally includes the following points:

39


Completeness of the documents;

Consistency of the documents with each other;

Compliance with the Uniform Customs and Practices for Documentary Credits (UCPDC)

issued by the International Chamber of Commerce, Paris.

One of the basic principles of documentary credit is that all parties deal with document and not

with goods (Articles 6 of UCPDC-600). That is why the documents should be scrutinized

properly. If any discrepancy in the documents is found, that is to be informed to the party. A

checklist may be followed for examining the documents.

In the UCPDC the Standard for Examining of Documents is mentioned as follows:

a) Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain

whether of not they appear, on their face, to be in compliance with the terms and conditions of

the Credit. Compliance of the stipulated documents on their face with the same terms and

conditions on the Credit shall be determined by international standard banking practice as

reflected in these Articles. Documents which appear in their face to be inconsistent with one

another will be considered as not appearing on their face to be in compliance with (he terms and

conditions of the credit. Documents not stipulated in the credit will not be examined by banks. If

they receive such documents, they shall return them to the presenter.

b) The Issuing Bank, the Confirming Bank, if any or a Nominated bank acting on their behalf,

shall each have a responsible time, not to exceed five banking days following the day of receipt

of the documents, to examine the documents and determine whether to take up documents and

inform the party from which it received the documents accordingly.

c) If a credit contains conditions without stating the document(s) to be presented in compliance

there with, bank will deem such conditions as not stated and will disregard them.

40


4.11 LODGMENT

After the scrutiny the following steps are taken step-by-step to process for lodgment of import

documents received form the negotiation bank. Lodgment means retirement of funds. Usually

payment is made within five days after the documents have been received. If the payment is

become deferred, the negotiating bank may claim interest (LIBOR) for making delay. However,

after receiving the documents Gulshan branch authority contacts with an importer, in which

procedure they want to collect the documents. If requested PAD is facilitated for twenty one days

only.

Lodgment Constitutes the Followings:

Conversion of foreign currency amount of the bill and the foreign bank charges separately into

Taka by applying Bills Collection (B.C.) selling rate ruling on the date of lodgment is done. If

forward exchange was, the booked rate is applied.T24 Payment against Documents (PAD) is

created by Debiting PAD Account and Crediting I lead Office Account Full particulars of the

documents are entered in the prescribed PAD Register allotting a consecutive serial number in

the register. If the forward exchange rate is booked then the booked rate is applied. Payment

against Documents (PAD) is created by Debiting PAD Account and Crediting Head Office

Account. Full particulars of the documents are entered in the prescribed PAD Register

allotting a consecutive serial number in the register.

Documents are endorsed by putting seal and signature.

ETCA "Exchange Transaction Credit Advice" is sent to the Head Office along with a

prescribed statement to provide them credit for the payment from their overseas account

through Prime Bank Limited General Account.

Head Office (International Division) in receipt of the IIJCA and the statement will

respond the entry by debit to branch account (through Prime Bank Limited General

Account) and contra credit to NOSTRO Account of the negotiating bank abroad.

41


To arrange necessary fund for payment, a requisition is sent to the International

Department.

As the T.T & O.D rate is paid to the ID, the difference between these two rates remains

as exchange gain for the Branch.

As soon as above formalities are completed the importers are served with PAD bill

intimations for retirement of concerned import document. A letter of intimation

(P.A.D. intimation) regarding receipt of the documents should be sent to the applicant

with a request to lake delivery of the documents on settlement of all dues against it and

mentioning the maturity date of P.A.D.

4.12 RETIREMENT OF THE DOCUMENTS

On receipt of cost memo/lodgment voucher the importer pays the necessary amount. This stage

of the documentary credit operation is known as “Retirement of Import Bills”. The branch will

prepare the retirement voucher to reflect the amount of cost and other charges to be collected

from the importer, adjustments of margin and PAD Account. Thereafter the documents may be

handed over to the importer against proper acknowledgement after certification and

endorsement. The certifications by authorized personnel of the bank are as follows:

The invoice is certified by the authorized officer of the bank with the exchange rate as

applied in lodgment;

The Bill of Exchange received from negotiating bank on issuing bank by the beneficiary;

The Transport Documents evidencing the carrying of goods as per Letter of Credit term

has to the endorsed by the AD branch.

On receipt of intimation, the importer is given necessary instructions with regard to retirement of

the bill, disposal of the shipping documents and clearance of the goods from the

42


Customs -authorities. The importer may ask the bank to retire the bill by debiting his account or

may request for the providing LIM or LTR facility, if arranged earlier.

On intimation the importer approaches with a letter for retirement of the document against full

payment with up to dale interest and charges payable. Hank prepares cost memo in printed form

on account of the concerned party giving details head of charges payable.

As the vouchers are passed and necessary entries are given in PAD Ledger endorsements arc

made fewer than two authorized signature of the Bank’s officers (P.A. Holder). Then the

documents are delivered to the importer.

4.13 DELIVERY OF SHIPPING DOCUMENTS

If the bill is to be realized by debit to (he importer's account, the documents are handed over lo

the importer to his duly authorized clearing und forwarding agent for clearance of the goods

form customs at his own account.

4.14 PAYMENT TO THE FOREIGN BANK IMPORT OF GOODS

Negotiating Bank is authorized to Debit Head Office Account (PBL) directly, if the account is

maintained with them. Negotiating Bank is authorized to obtain reimbursement claim form

foreign correspondent with which account is maintained by Head Office (PBL)

Where reimbursement is provided subsequent to the receipt of documents, an authority Letter is

to send to correspondent abroad with whom account is maintained by Head Office to make

payment to the Negotiating Bank to debit of PBL account maintained with them for the amount

of the documents.

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4.15 IMPORT PORTFOLIO OF PRIME BANK LTD.

Import portfolio consists of the goods or items are being imported through the bank, total letter

of credit opened by the bank, volume of goods etc.

In Our Country fast moving consumer goods to Capital machinery are imported. There are

basically two types of importer. They are as follows:

Industrial Importer : Industrial importer basically imports raw materials for further

processing. They sell the finished goods to the abroad or in Bangladesh. Other than

raw materials they imports “Capital Machinery” for different industrial purpose.

Commercial Importer: Commercial importers import finished goods. They import

those goods directly for selling into the market. But they are very limited in number.

Through this branch the majority of the goods imported are raw materials by the

industrial users.

Now we can see from the following table that how many commodities are imported by

this branch:

Name of the Commodities

Industrial Import Commercial Import

Industrial Raw Materials

Yarn

Dyes

Aluminum Ingot

Chemicals

Pharmaceutical Raw Materials

Mobile Phone

Diesel generator

Laboratory Reagents

Spare Parts Gas Pressure Regulator

Air Cooler

Toiletries

44


Pharmaceuticals Packing materials

Capital Machinery

Passenger Elevator

Lighting Fixture

Food Products

Reconditioned Vehicle.

Printing Ink.

As the most numbers of Importers are Industrial Importers. The percentage of imported raw

materials is the maximum volume of imports all over the year. We can easily trace the

percentage of total L/C opened at this branch at 2006& 2007 through the following two Pie

Charts, where Industrial Raw Materials secured almost half of the L/C, and the remaining

secured different percentages according to the demands of those years.

(See Appendix B and Appendix C at Page no: )

In the branch I have also observed the frequency of imported goods. The Industrial Raw

Materials Always stayed at the top position. But the most interested thing is that the next

frequent item of imported good is “Mobile Phone”. The importation of mobile phones through

this branch is done only by one company which is Electra Telecom BD Ltd. Electra is the

authorized dealer of Samsung Mobile Phone. The frequency of imported capital machinery is

very low, but the value of import of capital machinery through each L/C is very high compared

to all other imported goods. The total scenario will be transparent through a graph:

(See Appendix-D at page no: )

Chapter -05

Export Procedure through Letter Of Credit Operation of Prime Bank Ltd.

45


Creation of wealth in any country depends on the expansion of production and increasing

participation in international trade. By increasing production in the export sector we can

improve the employment level of such a highly populated country like Bangladesh. Bangladesh

exports a large quantity of goods and services to foreign households. Readymade textile

garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main

goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest

sector that exports the lion share of the country's export. Bangladesh exports most of its

readymade garments products to U.S.A and European Community (EC) countries. Bangladesh

exports about 40% of its readymade garments products to U.S.A. Most of the exporters who

export through PBL are readymade garments exporters, They open export L/Cs here to export

their goods, which they open against the import L/C opened by their foreign importers.

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the

local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the

exporter. Prime Bank Ltd as an authorized dealer (AD) deals a lot of letter of credit on behalf of

beneficiary. Here Prime Bank Ltd acts as an advising or negotiating bank which advise the L/Cs.

Now the whole process of export in pictorial format is given below:

Receiving L/C from buyer’s Bank through an advising Bank in Bangladesh

Pre-shipment finance (Back to Back L/C, PC)

Certification of EXP form by Authorized Dealer

Shipment of goods by Exporter and submission of export docs to negotiating Bank

Scrutinizing Export Document by negotiating Bank

Are the document in order?Ask the customer to remove discrepancies

No

Registration with CCI&E

46

Ye

s


Fig: Export procedure in pictorial format

5.1 DOCUMENTS REQUIRED FOR EXPORT TRANSACTION

There are two types of document for export transaction. They are Substantive Document and

auxiliary document. The name of the documents under these two categories is given below:

Substantive Document:

o Draft or Bill of Exchange.

o Commercial Invoice.

o Bill of Lading or Airway Bill.

o Marine Insurance Policy.

Auxiliary Document:

o Packing List.

No

Negotiate documents Yes

No

Send the docs for collection

Dispatch the docs and claim Reimbursement

Are the discrepancies removed?Inform opening Bank of the discrepancies

Do they allow Negotiation?

Check whether the Nostro A/C is credited or not

Ye

s

Lodgement of FDBP

No

Send Reminder to L/C issuing Bank

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o Consular Invoice.

o Certificate of Origin

o Quality Control Certificate.

o GSP Certificate.

o Inspection Certificate.

Other documents and formalities: For Export of jute, jute goods, tea and tobacco, an exporter, in addition to Export

Registration Certificate, needs a separate license to be issued by the concerned agencies.

Sanitary certificate is required for all livestock and plants and plant products (except fruit

and vegetable) certifying that they are free of injurious insects, pests and diseases.

5.2 REGISTRATION OF EXPORTERS

Under the export policy of Bangladesh the exporter has to get valid Export registration

Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to

renew every year. The ERC number is to incorporate on EXP forms and other papers

connected For obtaining ERC, intending Bangladeshi exporters are required to apply to the

controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports,

Dhaka/ Chittagong/ Raishahi/ Mymensingh/ Sylhet/ Comilla/ Badshal/ Bogra/ Rangpur/

Dinajpur in the prescribed form along with the following documents:

a. Nationality and Assets Certificate-

b. Memorandum and Article of Association and Certificate of Incorporation in case of

Limited Company-,

c. Bank Certificate

d. Income Tax Certificate

e. Trade License etc. with exports.

5.3 SECURING THE EXPORT ORDER:

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After getting ERC Certificate the exporter may proceed to secure the export order. He can do

this by contacting the buyers directly or through agent.

In this purpose the exporter may get help from:

a. License Officer

b. Buyers Local Agent

c. Export Promoting Organization

d. Bangladesh Mission Abroad

e. Chamber of Commerce (local & foreign)

f. Trade Fair etc.

5.4 SIGNING THE CONTRACT & RECEIVING LETTER OF

CREDIT:

After communicating buyer, exporter has to get contracted (writing or oral) for exporting

exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and

marks, inspection and arbitration etc.

After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly

stating terms and conditions of export and payment.

The following are the main points to be looked into for receiving/ collecting export proceeds by

means of Documentary Credit-.

The terms of the L/C are in conformity with those of the contract"

The L/C is an irrevocable one, preferably confirmed by the advising bank;

The L/C allows sufficient time for shipment and negotiation.

(Here the regulatory framework is UCPDC-500, ICC publication)

Terms and conditions should be stated in the contract clearly in case of other mode of payment:

(a) Cash in advance-,

49


(b) Open account,

(c) Collection basis (Documentary/ Clean)

(Here the regulatory framework is URC-525, ICC publication)

5.5 EXPORT FINANCING:

Financing exports constitutes an important part of a bank's activities. Exporters require financial

services at four different stages of their export operation. During each of these phases exporters

need different types of financial assistance depending on the nature of the export contract.

1. Pre-shipment credit

2. Post-shipment credit

1. Pre-shipment credit:

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to

the actual shipment of the goods for export. The purpose of such credit is to meet working

capital needs starting from the point of purchasing of raw materials to final shipment of goods

for export to foreign country. Before allowing such credit to the exporters the bank takes into

consideration about 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-

a. Cash for local procurement and meeting related expenses.

b. Procuring and processing of goods for export.

c. Packing and transporting of goods for export.

d. Payment of insurance premium.

e. Inspection fees.

f. Freight charges etc.

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An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted

export letter of credit in form of the followings-.

a. Export cash credit (Hypothecation)

b. Export cash credit (Pledge)

c. Export cash credit against trust receipt.

d. Packing credit.

e. Back to back letter of credit.

f. Credit against Red-clause letter of credit.

5.6 POPULAR FORM OF PRE SHIPMENT CREDIT:

5.6.1 Packing Credit:

Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting

him to buy, process, manufacture, packs and ships the goods. Generally for movement of goods

from the hinterland areas to the pots of shipment the Banks provide interim facilities by way of

packing credit.

This type of credit is sanctioned for the transitional period starting from dispatch of goods till the

negotiation of the export documents. Practically except for single transaction, most of the pre-

shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular

exporters for a particular period. The drawings are required to be adjusted fully once within a

period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may

also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on

revolving basis. But in no case the borrower would be allowed to exceed individual credit limit

fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by

the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export

documents.

5.6.2 Charge Documents for P.C:

Banker should obtain the following charge documents duly stamped prior to disbursement:

51


Demand Promissory Note

Letter of Arrangement

Letter of Lien of Packing Credit (On special adhesive stamp)

Letter of Disbursement

Packing Credit Letter

5.6.3 Additional Documents for P.C.

Letter of Partnership along with Registered Partnership Deed in case of Partnership

Accounts.

Resolution of the Board of Directors along with Memorandum & Articles of association in

case of Accounts of Limited Companies. In case of Corporation, Resolution of the Board

Meeting along with Charter.

Personal Guarantee of all the Partners in case of Partnership Accounts and all the

Directors in case of Limited Companies.

An undertaking from the Directors of the Public Limited Company to obtain prior clearance

from the Bank before declaring any intend/final dividend.

5.6.4 Back to Back Letter of Credit (BTBL/C):

Bangladesh is a developing country. After receiving order from the importer, very frequently

exporters face problems of scarcity of raw material. Because, some raw materials are not

available in the country. These have to be collected from abroad. In that case, exporter gives

lien of export L/C to bank as security and opens an L/C against it for importing raw materials.

This L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin.

Sometimes there is provision in the export L/C that the importer can use the certain portion of

the export L/C amount for importing accessories that are necessary for the making of the

product. Only in that case, BTB is opened.

5.6.5 Payment of Back to Back LC:

52


Client gives the payment of the BTB L/C after receiving the payment from the importers. But in

some cases, client sells the bills to the PBL. But if there is discrepancy, the PBL sends it for

collection.

In case of BTB L/C, PBL gives the payment to the beneficiary after receiving the payment from

the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit

Foreign Currency Account) where Dollar is deposited in national rate.

For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate).

Generally LIBOR rate fluctuates from 5% to 7%.

A schedule named Payment Order; Forwarding Schedule is prepared while making the

payment. This schedule contains the followings:

Reference number of the beneficiary's bank and date.

Beneficiary's name.

Bill value.

Payment order number and date.

Equivalent amount in Taka.

5.6.6 Entitlement of BTB LC as per Import Policy Order 2006 – 2009

BTB LC entitlement of garments items are assessed on the basis of value addition to be made

depending on the category of garments in line with the import policy in order, which are as

under:

Knit Garments : Value addition at least 20%

Woven Garments ( Non Quota) : Value addition at least 20%

Woven Garments (Quota) : Value addition at least 20% for FOB value of

exportable goods up to US$.40/Dz

High value Garments ( Non Quota) : Value addition at least 10% for FOB value of

exportable goods at least US$.60/Dz

High value Garments (Quota) : Value addition at least 15% for FOB value of

exportable goods at least US$.60/Dz

53


2. Post Shipment Credit:

This type of credit refers to the credit facilities extended to the exporters by the banks after

shipment of the goods against export documents. Necessity for such credit arises as the exporter

cannot afford to wait for a long time for without paying manufacturers/suppliers. Before

extending such credit, it is necessary on the part of banks to look into carefully the financial

soundness of exporters and buyers as well as other relevant documents connected with the export

in accordance with the rules and regulations in force. Banks in our country extend post shipment

credit to the exporters through-.

Negotiation of documents under L/C

Foreign Documentary Bill Purchase (FDBP)-.

Advances against Export Bills surrendered for collection;

Negotiation of documents under L/C:

The exporter presents the relative documents to the negotiating bank after the shipment of the

goods; a slight deviation of the documents from those specified in the L/C may raise an excuse to

the issuing bank to refuse the reimbursement of the payment already made by the negotiating

bank. So the negotiating bank must be careful prompt, systematic and indifferent while

scrutinizing the documents relating to the export.

Foreign Documentary Bill Purchase (FDBP):

Some clients of the bank always enjoy credit facilities against their export documents. They

submit the bill of export to bank for collection and payment of the BTB UC. In that case, bank

purchases the bill and collects the money from the exporter. PBL subtracts the amount of bill

from BTB and gives the rest amount to the client in cash or by crediting his account or by the

pay order.

For this purpose, PBL maintains a separate register named FDBP Register. This register

contains the following information:

54


Date

Reference number (FDBP)

Name of the drawer

Name of the collecting bank

Conversion rate

Bill amount both in figure & in Taka.

Export form number

Export L/C number

Advances against Export Bills surrendered for collection:

Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or

when the documents, even though drawn against an L/C contain some discrepancies. The bank

generally negotiates bills drawn under L/C, without any discrepancy in the documents, and the

exporter gets the money from the bank immediately. However, if the bill is not eligible for

negotiation, the exporter may obtain advance from the bank against the security of export bill. In

addition to the export bill, banks may ask for collateral security like a guarantee by a third party

and equitable/registered mortgage of property.

5.7 CERTIFICATION OF EXP FORM BY AUTHORIZED

DEALER:

Before lodging the EXP Forms with the customs/ Postal authorities, the exporter should get

copies of forms certified by an AD. Now the AD will see and ensure that each set of the forms is

duly filled in. Thereafter, they will record full particulars of the in the Export Register. In order

to avoid any loss of foreign exchange to the country, AD shall not certify any EXP form unless

they have satisfied the following:

I. Arrangements made for realization of export proceeds within the prescribed period.

55


II. The Exp form is either signed either by the exporter or one holding valid legal power

of attorney from the exporter.

III. For delay in repatriation of export proceeds the exporter as well as the AD and its

officials certifying the export form render themselves liable to punitive action under

the FER act. Therefore in their own interest both exporters and the Ads should be alert

and active in ensuring timely repatriation of export proceeds.

5.8 MAKING OUT AND DELIVERY OF SHIPPING

DOCUMENTS:

In case of export of goods, full payment for which the value has been received by the

exporter in advance through the AD, the bill of lading and other documents may be

endorsed by the AD in favor of foreign importers and the same may be sent directly to the

importers abroad by the AD

Sometimes the shipping documents may reach after the arrival of the exported goods to the

importer’s country. This cause inconveniences and involves payment of demurrage. at the

port of destination due to delay in receipt of the shipping documents. To overcome this

problem, shipping company may at the request of negotiating bank in Bangladesh issue

Telegraphic Delivery Order on their agents. A copy of this document duly authenticated by

the shipping company or agents should be passed on to the relevant AD. The AD then

sends his instruction of telegraphic transfer to hid overseas correspondence to hand over it

to the consignee and stating the amount of the consignee before the delivery order is

released. The usual shipping documents are Bill of Lading, Invoice etc which can be

dispatched to the correspondent bank as well.

5.8.1 Submitting of Documents to the AD

The exporter must submit all the exp documents to the AD. The EXP documents are four in

number. Bank only works with the three copies. The copies are :

1. Original: Retained by customs and forward to Bangladesh bank.

56


2. Duplicate: Submit to Bangladesh bank with 14 days of shipment through AD along

with invoice.

3. Triplicate: Submit to the Bangladesh bank after realize the export proceeds with the

usual monthly returns.

4. Quadruplicate: Copy retained by AD for record.

5.9 SCRUTINY OF DOCUMENTS:

The authorized dealer scrutinizes the documents very carefully. Because, they have to report it to

the Bangladesh Bank at the interval of every fifteen days in a month. The following process is

done by the authorized dealer for scrutiny of the documents.

On receipt of the EXP form and documents covering exports the AD compares the

authorized signature with the specimen signature of the duly authorized officer of the

shipping company to ensure the genuineness of the documents.

The AD should also compare the relative bill and /or documents with the relative form and

satisfy itself that the declaration made on the form is correct and the amount for which the

bill is drawn or the invoice is written is not less than the invoice value stated on the form.

If the difference between the value stated on the form and the amount of the bill is small

the AD may accept bill /documents for collection. The details of such adjustment must be

given on the relative form and must be authenticated by the AD under its stamp and

signature.

After negotiation of the bill or acceptance of the documents for collection, the ADs

should complete the certificates in this behalf on the space provided on the duplicate

copies of the EXP form.

If the payment is received in foreign currency or nonresident taka account of a bank

branch correspondent abroad the Ads shall certify on the reverse of the triplicate copy of

the form retained with them and forward it to Bangladesh Bank with the usual return. The

quadruplicate will be retained by the AD for record.

5.10 DEDUCTION OF CHARGES:

57


Commissions, brokerage or other trade charges due to be paid to foreign importers or agents by

the exporters in Bangladesh relating to the particular shipment may be deducted from the relative

bill or the amount of the sale proceeds or remitted from Bangladesh after the full proceeds have

been realized only up to a maximum of 5% by deduction from the invoice value of the goods. If

the rate exceeds then special order must have to be granted from Bangladesh Bank with some

condition.

5.11 FOREIGN CURRECY EXCHANGE RETENTION

QUOTA: (FCERQ)

Foreign Exchange retention quota is a system where authorized dealer retained a certain

percentages of the total exported or billed amount for meeting up the emergency need of the

customers.

Merchandise exporters are entitled to a foreign exchange retention quota of 40% of

repatriated value F.O.B value of their exports.

Foreign exchange out of the retention quota may be maintained in FC accounts with the

concerned Ads in US Dollar, Pound Sterling, Deutschemark or Japanese Yen upon the

realization of the export proceeds. Balances in these accounts may be used by the

exporters for bonafide purposes. The purpose may be the following:

o Business Visits Abroad.

o Participation in Export Fairs and Seminars,

o Establishment and maintenance of offices abroad.

o Import of raw materials.

o Machineries & Spares etc.

But Foreign Exchange from the exporter’s retention quota cannot be used for investment abroad

by the exporter.

Foreign Exchange out of exporter’s retention quota may also be kept as interest bearing

renewable term deposits with the concerned Ads in Bangladesh in US dollar, Pound

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Sterling, DM or Japanese Yen, with minimum balances of US$ 2000, or1500 Pound or

equivalent.

5.11.1 TREATMENT OF FCERQ AT PRIME BANK LTD:

Prime Bank Ltd., Gulshan Branch maintains different amount in export retention quota based

on the negotiation with the customers or sometimes the department head assumed a particular

amount or the full amount that are transferred to the export retention quota.

The bank maintains its record regarding the bill amount and the realized amount in the

Master L/C file. In that file a separate column is created named FCERQ. After realization of

export proceeds a particular amount is transferred, which may be stated in Export Proceed

Realization Sheet or may be negotiated by the customers later.

5.12 SHIPMENT ON F.O.B. TERMS:

Generally goods are exported on F.O.B terms to the exporter’s country. It means that buyers pay

the carriage when goods pass the ship. The AD should verify that the bills of lading freight has

not been prepaid in Bangladesh. All cases where fright or insurance has been paid in Bangladesh

but export documents are made out on FOB basis should be reported to the Bangladesh Bank.

5.13 SHORT SHIPMENTS OR OVER SHIPMENTS:

If the amount of bill value and Invoice value differs, at that time short/over shipment arises. If

the invoice value is greater than bill value then over shipment arises and if it reverses then Short

shipment arises. The reason may be:

The differ of quantity shipped than original amount but the rate may be same.

The total price of the goods may be increased or decreased.

In all cases of short shipments, the exporters should give notice of short shipment on the

prescribed form in duplicate to the Customs who will forward a certified copy of the notice to the

59


Bangladesh Bank. The notice should bear the number and date of the relative EXP form in

respect of which goods have been short shipped.

5.13.1 TREATMENT OF SHORT SHIPMENT AT PRIME BANK LTD:

Prime Bank at first checks the difference between Bill Value and Invoice value. If

difference arises then the bank attaches the certificate with duplicate as well as at

triplicate after proceeds realization and then reports it to the Bangladesh Bank.

5.14 LODGEMENT OF FDBP:

Lodgment of FDBP (Foreign Documentary Bill Purchase) is nothing but purchase of L/C taking

the loan facility provided by the advising or other bank to the exporter against the document and

L/C keeping them as mortgage. The loan facility is given up to a certain percentages of the L/C

Value. In case of Purchase of the L/C by the advising bank or other negotiating bank the bank

will keep a signed copy of guarantee paper named “Set of Charged Documents.” This provides

guarantee that the signed person on that will be liable for amount mentioned in L/C with

maturity with due care and diligence. This is only requirement for the valued client in certain

case. For safety the bank may seek for other necessary documents which must be supported by

the exporter. In this case different collateral has also been taken as for security.

Prime Bank Ltd in case of all the application of regarding FDBP uses Temenous Globus

(T24), which, purchases and receives the bill at fully automatic system.

5.15 VERIFICATION OF PROCEED REALIZATION

CERTIFICATE: (PRC)

Sometimes exporters are required to submit to the various Government agencies evidence of

export and of realization of export proceeds. In such cases, Proceeds Realization Certificate may

be issued by the ADs in the prescribed form after getting them authenticated by the Bangladesh

Bank.

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Prime Bank Ltd at the last phase of its documentary work, Check the PRC from its

record of Quadruplicate EXP form very carefully and make necessary amendment. After

that necessary amendment it submits the certificate to the Bangladesh Bank. In this way

all the documentary work related Letter of Credit is completed

5.16 EXPORT PORTFOLIO OF PRIME BANK LTD.

Export Portfolio consists of the items exported, the value of export bills that Prime Bank gets

from issuing banks from foreign countries as well as Bangladesh. Various sorts of commodities

are exported abroad through Prime Bank Ltd. But Readymade Garments consist of most of the

foreign exports. Other exported items are shrimp, jute and jute goods, leather tobacco, ceramic

tiles, fresh vegetables, tempered coated glass, bone crust, betel- nut etc.

There are two modes of export payments that are practiced in foreign trade worldwide. They are

1. Sight Bill: In this bill the exporters are paid at sight for the products they just exported.

2. Usance Bill: In this bill the exporter gets payment after a certain period of time

depending on the L/C terms and condition. This bill is usually for raw materials or semi

finished products that are exported from Bangladesh and once the goods reach in final

destination they are employed for further processing.

From the table we can realize the actual scenario about the values of export bills for the year

2006 & 2007 (See Appendix E page no: )

Foreign Export: In the branch foreign export activities play a vital role in the export

division. About 75% of the total export comes from this section. At this branch majority of

the foreign exports are “Ready made garments.”

Local Export: Local export indicates that goods are exported within the boundaries of

Bangladesh. Local exports consist 25% of the total export as it is not very common practice

in Bangladesh. “Yarn and Accessories” are the main commodities of the local export at this

branch.

61


Chapter -06

Foreign Remittance Section of Prime Bank Ltd.

The functions of this department are outward and inward remittances of foreign exchange from

one country to another country. In this process of providing this remittance service, it sells and

buys foreign currency.

6.1 Modes of Foreign Remittances:

The remittance process involves the following four modes:

Cash Remittance:

The bank sells dollar/pound for using the abroad by purchaser. The maximum amount of

such sell is mentioned in the Bangladesh bank publication of "Convertibility of Taka for

current transactions In Bangladesh". They can purchase dollar from resident and nonresident

Bangladeshi or foreigner. Most dollars purchased cones from realization of Export Bill of

Exchange.

Traveler's Cheque:

Traveler's cheques are useful to persons, who frequently traveled abroad this bank issue

Traveler's cheque of AMEX. Customers can en-cash the TC in abroad from the drawer’s

bank. Customers buy TC for use in abroad. But some leave may be remained unused. The

customer can surrender these unused leaves against payment of equivalent amount. Generally

it takes 21 days for collection of TC and customers can draw cash after one month.

Telex Transfer:

Bank also remit fund by tested telegraphic massage via its foreign correspondence bank in

which it is maintaining its NOSTRO account. In the same manner, it makes payment

62


according to telegraphic massages of its foreign correspondence bank from the corresponding

VOSTRO account.

Foreign Demand Draft:

Bank issues demand draft in favor of purchaser or any other according to instruction of

purchaser. The payee can collect it for- the drawer bank is which the issuing bank of demand

draft holds it NOSTRO account. Bank also makes payment on DD drawn on this bank by its

foreign correspondence bank through the VOSTRO account.

6.2 SCENARIO OF FOREIGN REMITTANCE OF PRIME

BANK LTD:

Prime Bank Ltd maintains strategic initiative to handle this department. The bank has already

added a good number rural and semi urban branches with the existing network to ensure wider

reach and coverage.

For purchase of foreign currency through Prime Bank Limited, an application must be made to a

specific AD branch and Bangladesh Bank. The application form is called IMP () form if the

purpose is import payments or for other purposes, the TM Form is used such as request for

foreign currency in case of dollar. T.C (Traveler cheque) Foreign Demand Draft (F.D.D),

Telegraphic Transfer (T.T).etc, If the bank is empowered to approve the application, it affects the

sale of foreign exchange. And if the transaction requires prior Approval from Bangladesh Bank,

the T.M form is forwarded to Bangladesh bank. In Prime Bank, (the mode of remittances are

bank draft, mail transfer and taka remittances.

Inward Remittances: Inward Remittances include the TT, FDD, purchase of bills and

drafts under L/C, purchase of foreign currency, etc. But the most significant amount in

the inward remittances of Prime Bank Limited is the remittances from wage earners. The

63


bank maintains proper records of ail inward remittances and provides particulars as

required by the Exchange Policy Department of Bangladesh Bank in Returns.

Outward Remittances: The outward remittances include M.T, Draft, sale of Foreign

Exchange under L/C and against Import Bills, etc .To facilitate foreign exchange

transaction, and each bank maintains accounts with foreign banks in principal financial

centers. Prime Bank also have NOSTRO Accounts for dollar payments and other

currency accounts for payment in currencies like pound, yen, rupee , etc, The Bank has a

list of foreign correspondents and arrangements with their agencies in Bangladesh. When

deciding which correspondent (reimbursing bank in case of import) is to be chosen for

payment, the list is used.

6.2.1 Some Measures of Improving this department performances

1. Prime Bank Ltd. has arranged 24 (twenty four hours leading exchange companies and banks

including the global money transfer giant Western Union as a principal agent.

2. Establishes wide variety of branches from where remittance flow may be received easily.

3. Introduction of ATM as the alternate delivery channel increase in the number of remittance

arrangements with leading overseas exchange companies and banks.

4.The Bank’s fully owned exchange company in Singapore have ensured sustain inflow of

foreign remittances supplementing export receipts making import payment without depending

on the volatile foreign exchange market.

From the following diagrams we can easily identify the pie chart dictates the Country wise

Inflow Remittances from January to December 2007 and a line diagram dictates that Inflow

of foreign remittance trend (2003-2007)

(See Apendix F & Appendix-G)

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From the Pie Chart, we can see that most inflow of remittance comes from the UAE because we

supply manpower at vast size in the Middle East which is 29% and the next highest remittance

comes from UK (Europian Country) which is 23%.

In the Line Diagram, we see the remittance jumps from 3688 to 15050 at the year 2005-2006,

which is very much positive of our economy. But we see steady growth from the year 2006-2007

as overall financial recession is going on all over the world.

Chapter -07

Recent Performance of Prime Bank Ltd at Foreign Trade

Bangladesh is an underdeveloped country. Its financial structure is still not sound. It depends

many also many donor agencies like IMF, World Bank and so on. So this is a Import oriented

country. Though facilities of different export incentives are getting available but the balance of

trade is always is in negative side. As a result our national reserve is in shortfall situation.

Though this position in financial sector different banks are doing well in serving both the

importers and exporters as well. They are now able to such condition which is better congenial

environment to the Import & Export business.

Prime Bank ltd is one of those banks whose performance in this area is satisfactory. From the

financial data 2007 (as 2008 is not available to the Public) Total import and export business

transacted were TK 70,616 million and Tk 51,316 million respectively. The growth rate of the

import business is 34%. On the other hand the growth rate of export is 23%. The growth of

foreign trade has given the bank a new dimension to go forward. This growth rate is very much

effective in meeting the L/C commitments. The Export and Import Business are contributed by

its corporate clients

On the remittance side there is also a sign of increasing growth rate. As the world is facing at

severe financial crisis the growth of the overall remittance will be a milestone to the banking

industry. Foreign Currency Balances with banks outside the country maintaining NOSTRO

accounts are also accelerated with the bank’s efficient management policy.

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From the table and the bar diagram it is very evident that in foreign trade it proves the most

efficient performance ever. According to an official Year 2008 will be an another milestone

regarding its overall performance especially in foreign trade. The overall performance regarding

foreign trade operation from the year 2003-2007 are placed in the table.

(See Appendix-H page: )

7.1 Some Incoterms used in Foreign Trade :

01. EXW : EX works Buyer arranges carriage from seller’s premises. Risks n Cost transfers to buyer.

02. FCA : Free Carrier Buyer arranges carriage at named place. Risks n Cost transfers to buyer.

03. FAS : Free Alongside ship Buyer arranges carriage from alongside ship. Risks n Cost transfers when goods placed alongside ship.

04. FOB Free on Board Buyer arranges carriage. Risks n Cost transfers when goods pass ship.

05. CFR Cost and Freight Seller arranges carriage. Risk transfer when goods pass ship. Cost transfer at destination port

06. CIF Cost, Insurance and Freight

Seller arranges Carriage and Insurance.Risk and cost transfer at destination port

07. CPT Carriage Paid to Seller arranges carriage. Risk transfer when goods delivered ship. Cost transfer at destination port.

08. CIP Carriage and insurance paid

Seller arranges Carriage and Insurance.Risk and cost transfer at destination port

09. DAF Delivered at Frontier Seller arranges Carriage. Risk and cost transfer when goods delivered at frontier.

10. DES Delivered EX Ship Seller arranges Carriage. Risk and cost transfer when goods at buyer’s disposal on ship.

11. DEQ Deliver Ex Quay Seller arranges Carriage. Risk and cost transfer when goods at buyer’s disposal on quay.

12. DDU Delivery duty Unpaid Seller arranges Carriage. Risk and cost transfer when goods at buyer’s disposal

13. DDP Delivery duty paid Seller arranges Carriage and Duty. Risk and cost transfer when goods at buyer’s

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disposal.

Chapter -08

Reccomendation

Though Prime Bank is providing a very efficient Foreign Exchange services, there is also room

for improvement to provide their services even better and of international standards. Some

recommendations that the Bank may benefit from are given below:

Upgrade the Online Banking Services

Prime Bank is among the few banks in Bangladesh, which provides the online banking services

to its customers. By using the modern banking services, a Prime Bank customer can withdraw or

deposit an amount of cash under the Prime Bank account no matter in which branch the actual

account exist. This service gives its customer huge flexibility. However, there is sonic leaking in

[heir online bunking services. PBL should pay attention to this issue.

Automation

Prime Bank has already brought software called Temenos Globus and Oracle specialized for

(Import and Export Letter of Credit entry) famous core banking software, which is now being

implemented to all of its branches. However, the employees are still struggling to conduct

foreign exchange services through this software because of its complexity. As a result, valuable

time and energy are being wasted while conduction such foreign exchange services. Some

further simplification and modification of this software might actually help the bankers to work

more efficiently in providing international trade services like Export, Import and

Remittance.

Increase the number of Nostro Accounts:

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Nostro Accounts are Foreign Currency accounts that the banks hold with foreign banks operating

in different courtiers. If they increase the number of such account then, payments for L/C could

be easily made through those accounts rather than forwarding the foreign currency through other

foreign banks, which results in higher expenses.

Increase the Limit on L/C Value

Every L/C has limits on its total value, imposed on them according to the Bangladesh Banks

regulations, and based on the risk factors. However, the Bank still has the authority to make

some changes to the limit within a certain specified range. If Prime Bank become more flexible,

than it can open more L/C's with higher values thus increasing their profitability; however in this

case there will be more risk, d

Reduce the Rate of Interest on LTR

Payments for L/C's could also made through pre-arranged credit facilities that the customer may

have with the Bank. Usually, the rates of interest on these -credits are excessively high which

actually discourage the customers. Reducing interest on such credit facilities would actually

induce the clients to do more global trade thus increasing the banks profit as well as the well

being of the country's Economy.

L/C margin

A customer is required to pay the bank a certain percentage of the total L/C value in advance

before opening an L/C, which is called L/C margin. If Prime Bank Limited reduces the rate of

margin then perhaps they can attract more customers. At the moment, companies with good

relationship with the bank only benefits with lower-margin level over others.

Reduce Charges

In order to do any kind of foreign trade whether be it Remittance, Export or even Import charges

are applicable everywhere. Charges includes: SWIFT charges (Charge for sending the L/C

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electronically), Document Handling Charges, Stamps Charges as well as VAT. Prime Bank will

be able to attract more customers by reducing these charges.

Encourage to open smaller L/C value

Being a well reputed Bank, PBL no longer wants to conduct smaller L/C request coining form

SME's. As a result, they are disregarding a huge number of potential customers. The bank now

pays more attention to big customers and if their attitude toward smaller business does not

change soon, they might fall far behind its competitor.

Expansion of its Network outside Dhaka and Chittagong

The bank has not been effective in increasing the number of branches outside Dhaka and

Chittagong. Most of Prime Bank's braches are targeted at the city people only; they have not

concentrated of the rural people too much. That's why the company could not capture a large

portion of the market as well as market share. The authority of the bank needs to take this into

consideration not only for them but also for the poor rural people

8.1 CONCLUSION

This report is prepared based on the knowledge and experienced gathered while working in

the Prime Bank Ltd, Gulshan Branch. Every points and recommendations are made

observing the facts and figures during my internship program. Working and getting involved

in this bank is really a great pleasure for me. Again I want to thank to all of the officials of

the branch who have given me appropriate opportunities to apply theoretical knowledge in

the practical field.

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During the internship program I was assigned to work in the Foreign Exchange Department

of Prime Bank Ltd of that branch. In that division I especially involved to observe the Letter

of Credit Operation operated by the import & export department. No matter whatever the

challenges are in the area of Foreign Trade, the bank is fully equipped to face any obstacle.

For the last 5 Years they have hold the number one position in the Bangladesh Banks

CAMEL’s rating and hopes to be on top this year as well.

As the economy of Bangladesh is swelling and the import-export is one of the major sector

that plays important role in the economy, Prime Bank Ltd always have played its role in

making a difference in the banking sector. The total condition of Import and Export though

L/C is showing a positive trend in the last five years. It is undoubtedly a positive though the

world is going on a global financial challenge. .If the bank reduces the margin of opening

L/C then it will be able to attract more customers. On the other hand they should take the

opportunity to open the L/C in smaller amount to encourage the SMEs sector. Along with

maintaining standard level of services Prime Bank is playing a leading role in the economic

development of the country. Its contribution to the economy along with high level of

corporate social responsibility is providing it a way to move ahead and grow faster and better

than others.

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Foreign Exchange Business Prime Bank

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foreign exchange

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