Foreign Trade Operation Of Bank Asia Limited And Its Impact On Economy

3.0 Foreign Trade Operation:

Foreign trade operations in Bank Asia Limited are segmented in to 3 (three) separate departments depending on their nature of trade flow. Import Department Export Department & Remittance Department

3.1 Import Department

International Business, merely Import & Export are conducted by three means, such as: 1. Advance T.T. 2. Sales Contract 3. Letter of Credit (L/C) Out of the said three means, buyers & sellers of international arena are felt secured to deal with L/C.

3.1.1 Letter Of Credit (L/C)

Letter of credit (L/C) can be defined as a Credit Contract whereby the buyers bank is committed (on behalf of the buyer) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of credit. The Uniform Customs & practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (1993) Revision; Publication No. 500 defines Documentary credit: Any arrangement, however named or described, whereby a band (the issuing bank), acting at the request and on the instructions of a customer (the Applicant) or on its own behalf, (1) 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, (2) Authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Drafts),

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(3) Authorizes another bank to negotiate, against stipulated document(s), provided that the terms and conditions are complied with. From the above definition it can be said that letter of credit is Banks written undertaking given to exporter, for payment of certain type of money on behalf of the importer for delivery of particular goods by the beneficiary to the applicant.

3.1.2 Why Bank is involve in L/C:

The following are the prime reason for involving Bank in L/C transaction: 1. For Expediting the International Business. 2. To act as a media between Applicant & Beneficiary. 3. To secure the Beneficiarys payment. 4. To protect Money laundering. 5. To compliance with laws of international, importer & Exporters Rules & regulation.

3.1.3 Types of L/C:

Documentary Credits may be either: (i) (ii) Revocable or Irrevocable.

Revocable Credit: A revocable credit is a credit, which can be amended or cancelled by the issuing bank at any time without prior notice to the seller. Irrevocable Credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. An irrevocable credit can be either confirmed or unconfirmed depending on the desire of the seller. This sort of credit is always preferred to revocable letter of credit. Sometimes, Letter of credits are marked as either with recourse to drawer or without recourse to drawer.

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3.1.4 Special Documentary Credit:

(i) Revolving Credit: The revolving credit is one that provides for restoring the credit to the original amount after it has been utilized. How many times it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative. (ii) Transferable Credit: A transferable credit is one that can be transferred by the original beneficiary in full or in part to one or more subsequent beneficiaries. Such credit can be transferred once only, unless otherwise specified. Fractions of a transferable credit can be transferred separately, provided practical shipments are not prohibited. (iii) Back-to-Back Credit: The back-to-back credit is a new credit opened on the basis of an original credit in favor of another beneficiary. Under the back-to-back concept, the seller as the beneficiary of the first credit offers it as security to the advising bank for the issuance of the second credit. The beneficiary of the back-to-back credit may be located inside or outside the original beneficiarys country. (iv) Red Clause Credit: A Red Clause Credit is a credit with a special condition incorporates into it that authorizes the confirming Bank or any other Nominated Bank to make advances to the Beneficiary before presentation of the documents. Under the above credit, the opening bank is liable for the pre-shipment advances made by the negotiated bank, in case the beneficiary fails to repay or deliver the documents for negotiation. (v) Standby Credits: The Standby Credit is a Documentary Credit or similar arrangement, however named or described, which represents an obligation to the Beneficiary on the part of the Issuing Bank to: (1) Repay money borrowed by the Applicant, or advanced to or for the account of the Applicant; (2) Make payment on account of any indebtedness undertaken by the Applicant; or (3) Make payment on account of any default by the Applicant in the performance of an obligation. (vi) Sight L/C: At Sight which basically means that the payment will be made within three days of receiving the documents. However if there is

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some mismatch of documents with the agreement then the payment will be deferred for discrepancy. (vii) Usance: It means that the payment for the items will be done after some time. In usual cases the payment is after 120,160,180 or 360 days as per the instructions on the L/C. (viii) Restricted L/C: This L/C restricts the name of the negotiating bank from which the transactions will occur.

3.1.5 Parties to a Letter of Credit:

The parties are; The issuing bank, The confirming bank, if any, and The beneficiary.

Other parties that facilitate the Documentary Credit are: The applicant, The advising bank, The nominated paying/ negotiating/ accepting bank, and The transferring bank, if any.

Opening/ issuing bank: The bank that issued the L/C and makes the payments after receiving all the documents. This bank maintains the correspondence with all the other involved banks and parties too. It is also called the importers/ buyers bank. Confirming bank: A bank which adds its confirmation to the credit and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. If the Advising Bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, he becomes the Confirming Bank, in addition, becomes liable to pay for documents in conformity with the L/Cs terms and conditions. Exporter/seller/beneficiary: This party is the beneficiary from whom the imported items are acquired and to whom the payments will be made to, after fulfilling the necessary requirements. Exporter is the party in whose favour the L/C is established.

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Applicant: The person who request/instructs the opening bank to open a L/C. he is also known as importer/buyer/consignee. An importer imports goods from the exporter abroad. Also known as the applicant who initially applies for the L/C. Advising/notifying bank: It is the bank (Normally the exporters bank), which is usually the foreign correspondent of Importers bank through which the L/C is advised to the supplier. If the intermediary bank simply advises/notifies the L/C to the exporter without any obligation on its part, it is called Advising Bank. It is a bank situated usually in the exporting country and it may be a branch of the opening bank or a correspondent bank. It may also assume the role of confirming and/or negotiating bank depending upon the conditions of the credit. Negotiating bank: The Bank that negotiates the bill of exporter drawn under the credit is known as Negotiating Bank. It has to carefully scrutinize the documentary credit before negotiation in order to see whether the documents apparently are in order or not. The advising bank and the negotiating bank may or may not be the same. If the advising bank is also authorized to negotiate the bill drawn by the exporter, he becomes the Negotiating Bank. Sometimes it can also be the confirming bank. Paying/accepting bank: A Bank that accepts time or unasked drafts on behalf of the importer is called an Accepting Bank. The Issuing Bank can also be the Accepting Bank. It is the bank on whom the bill will be drawn (as per conditions of the credit). It is nominated in the credit to make payments against stipulated documents complying with the terms of the credit. Reimbursing bank: This is the bank with whom we maintain a Nostro

Account and from which the issuing bank will advice to make the payment to the beneficiarys bank. The issuing bank can give the reimbursement bank, Reimbursement Authority to pay, accept draft or negotiate as the case may be by debiting our Nostro Account to make the payment to the negotiating bank.

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Transferring bank:

the bank which will transfer the L/C being instructed

by the original beneficiary. Details regarding the rights and obligations of the different parties involved in the documentary credit operations may be had from UCPDC, 500.

3.1.6 Who can import:

The importers those who are registered with the office of the Chief Controller of Import and Export (CCI & E) can import goods from abroad. The private sector importers require obtaining Import Registration Certificate (IRC) issued by CCI & E to become an importer. Government/ Semi-government/ Sector Corporations do not require to obtain IRC for import of goods.

3.1.7 Terms of payment of L/C:

At Sight: presentation of stipulated documents. It means that L/C value is payable on

At 60/90/180/360 days Sight: It means that L/C value is payable after 60/90/180 or 360 days on receipt of documents by the Issuing Bank. These types of L/Cs are commonly known as usance L/C or Deferred Payment L/C.

3.1.8 L/C Execution:

The whole process of L/C execution can be divided into three basic processes. These are given below: a. Pro-forma Invoice 1. Conveyance of L/C 2. Shipment of goods. 3. Payment Mechanism a. Notification by Beneficiary Bank. b. Making payment. b. Opening of L/C c. Communication between Issuing and Advising Bank. d. Contact between Advising and Exporter.

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Now these procedures are given below through an example, which may help to reveal facts in a much proper way: Conveyance of L/C:

Under this step the L/C is opened and then it is conveyed form the importer to the exporter. Basically this process with the whole documentation of L/C. it consists of four major parts. These are given below: Pro-forma Invoice/ Indent: Buyer/ importer becomes interested in importing goods or services from the exporter after receiving his (exporters) price quotation. This type of price quotation is available usually in websites, magazines or any indenting firms. Based on the price quotation, importer sends a letter declaring his interest on type of product, price, quality and other conditions. If the exporter accepts this letter then this is known as Pro-Forma Invoice. This procedure is known as Indent when it is done through the help of any indenting intermediary firm. Opening of L/C: In this step the importer opens an L/C account with a bank. This bank of the importer is also known as the Issuing Bank. In our example the issuing bank is Bank Asia Limited. For opening any L/C account any bank usually considers the following conditions: The customer must have an account with the bank and the bank should have a good perception about his potential payment capacity. Tax Identification Number (TIN) VAT Certificate Import Registration Certificate (IRC) The customer who opens the L/C should be a firm.

Communication between Issuing and Advising Bank: In this step the Issuing Bank communicates with the Advising Bank. An advising bank is usually a large bank, which has affiliation with the Issuing Bank. In the example the advising bank is American Express Bank. In this example Bank Asia sends the details of the L/C opening customer, Proforma invoice along with their own acceptance.

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Contact between Advising Bank and Exporter: After receiving information from issuing bank, the advising bank makes contact with the exporter and informs that the advising bank has received an L/C in favor of the exporter for the export amount. The advising bank also assures that if any party fails to pay, the advising bank will take the responsibility of paying the exporter. The advising bank sends the exporter with all details for the particular contact with the importer with proper identification of importer, goods, price of the goods and other relevant details.

The whole process of conveyance of L/C is given graphically below:

Buyer Applicant Importer

Pro-forma Invoice

Seller Beneficiary Exporter

Inden t Indenting firm

Bank Asia L/C issuing Bank Opening Bank

AmEx Bank Correspondence Bank Advising Bank

Fig 1: Flow chart of L/C Transaction

Shipment/ Transportation of goods:

After having the assurance, the exporter takes the initiative to fulfill the contract. In this period the exporter can take loans or other financial helps from the bank to meet the expenses of raw materials, processing and other productive purposes. When the product is manufactured according to the contract then the exporter sends the goods to the shipping company for transportation. After the goods are

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properly shipped the documents are transferred to the beneficiary / exporters bank. In our example, the exporters bank is Baltimore Bank. From a graphical viewpoint shipment level may look like the following:

Buyer Applicant Importer

Pro-forma Invoice

Seller Beneficiary Exporter

Inden t Indenting firm

Shipping documents

Sea port or Air port or Rail Station.

Shipment of Goods

Fig 2: Flow chart of L/C Transaction Payment Mechanism:

Baltimore Bank Negotiating Bank Beneficiarys Bank.

In this level the payment for the L/C is made. The process is described below:

Notification by beneficiary: When exporter submits the shipping documents, the Beneficiary Bank will notify Bank Asia that it has received the documents and will request him to make payment. In some special case the Baltimore Bank may deliver the documents to Bank Asia along with the notification.

Making payment: After the notification Bank Asia will make payment to a reimbursement bank, here the reimbursement bank HSBC Bank. After Bank Asia makes the payment it will pay the amount Baltimore Bank.

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Buyer Applicant/ Importer

Pro-forma Invoice

Seller Beneficiary/ Exporter

Inden t Indenting firm

Paymen t Shipping
Docume nt

Bank Asia Limited L/C issuing Bank Opening Bank

Request for Payment Deliver Documents

Baltimore Bank Negotiating Bank/ Beneficiarys Bank. Paymen t

Paymen t HSBC Reimbursing Bank

Fig 3: Flow chart of L/C Transaction

3.1.9 Mechanism of L/C:

1. Inception: At the inception stage, Buyer and seller concludes a sales contract providing for payment by documentary credit. As per requirement of the contract, the seller sends a Proforma invoice to buyer. Buyer accepts it by putting a signature and submits to his/her Bank called Issuing Bank along with other necessary documents to issue a credit in favor of the seller (beneficiary). Instruction/ application for issuing a credit should be made by the buyer (importer) in the issuing banks standard form. The credit application, which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the necessary conditions are contained in the

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application form and sufficient condition to be fulfilled by the buyer for opening a credit, the opening bank then proceeds for opening the credit to be addressed to the beneficiary. 2. Opening of L/C: The importer applies for opening of L/C with the below mentioned

documents/papers. In his application the Importer offers to deposit certain amount of L/C value as margin. Before getting permission for opening L/C, An importer should compliance with the following criteria: One Current Account in the respective Branch. Up to date valid IRC (Import registration Credit Letter), which was duly issued by CCI&E.

TIN (Tax identification Number) VAT Reg. Certificate CIB (Credit information Bureau) report and net worth of the potential customer from Bangladesh Bank The Branch may also get information regarding the particular prospect from other financial institution or Bank, if and when necessary.

After fulfilling all of the above-mentioned criterias positively, the Branch will welcome the particular importer to open L/C; Consequently, The importer will be forwarded the following documents for getting L/C: 1. 2. 3. 4. 5. A forwarding letter for opening L/C. Trust Receipt Demand Promissory note. Letter of continuity. IMP form. 2 copies a) One copy (Original) for Bangladesh Bank b) The other copy (Duplicate) for Applicant Bank copy, which is used for Exchange control purpose, Bill of entry or Invoice certified purpose. 6. 7. Stamp (Amount TYK.150/=) LCA form. 5 copies:

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i. 1st one for exchange control purpose should be sent to Bangladesh Bank. So the back page is duly endorsed named: L/C Endorsement and bill Endorsement. ii. 2nd copy is for custom purpose, when the customer approach for retire document this LCA form should enclosed along with other documents. iii. 3rd one for statistical purpose. iv. 4th one for CCI&E office purpose. v. 5th one is office copy 8. Proforma Invoice/Indent. (If supplier has no direct agent in importing country then they issued proforma invoice other wise indent.) Importer has to sign in the proforma invoice as acceptance. 9. Insurance cover note.

10. Money receipt. 11. Insurance Ga form. The said no. 2,3,4 and 5 are provided by the Branch to the clients through completion of necessary formalities and then the importer submits all the said documents to the respective officer for opining L/C. after receiving the above documents the respective officer has to perform the following responsibilities: 1. Verify the signature. 2. Scrutinize the receiving documents whether any discrepancy is existed or not. If no 3. Check the clients account whether sufficient amount of money are available or not. (if yes then proceeds for Preparing L/C) if no 4. Request the client to deposit money in his account. if completed, then 5. Prepare a draft L/C based on given proforma invoice/indent. 6. Verify it by the authorized officer. if O.K. 7. Finalization of L/C 8. Make 5 (Five) copies in favor of six different names. Such as: i. Advising Bank Copy ii. Beneficiarys copy iii. Applicant copy. iv. Office copy for master file v. Office copy for respective file. 9. Put a signature by two authorized Officer. and

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After completing all the formalities Applicant Bank issues an L/C as per Guideline of Bangladesh Bank Exchange control Manuel. Accounting procedure for opening L/C: After finalization of L/C, the following journal will has to be posted in the liability register:

Contingent Liability: Customer Liability on L/C Bank Liability on L/C The following are debited from applicant account : Party A/c Margin on L/C Commission VAT (15% of commission on L/C) Postage Stamp Stationary Others L/C Transmitting: The issuing Bank dispatches the L/C copy by the three means, such as: Mail SWIFT (Society for worldwide international financial transaction) TELEX (TELEX is a defunct instrument now) -DR -CR -CR -CR -CR -CR -CR -CR - DR - CR

If there is mandatory PSI (Pre-shipment inspection) item or PSI clause in the L/C, then One Xerox L/C copy should has to sent to Respective PSI Company along with the following documents 3. Advising of L/C: Forwarding letter. Xerox copy Proforma Invoice/Indent. Xerox copy of insurance cover note. Xerox copy of TIN (duly attested) Xerox copy of VAT (duly attested).

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L/C Issuing Bank dispatches the L/C (Advising Banks copy along with Beneficiarys copy) to the Advising Bank, which is the corresponding bank of the issuing bank. On receipt of L/C from the issuing bank, advising bank confirms authentication of the signatures or test number of the L/C. after authentication, advising bank forwards the original L/C to the beneficiary keeping duplicate copy for their record. Adding Confirmation: The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. Add the confirming Bank gives confirmation. An Add confirmation letter contains the followings: L/C No. L/C amount Items to be imported, etc.

4. Amendment of Credit: Parties involved in a L/C particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation the credit should be amended. Bank Asia transmits the amendment by tested telex to the advising bank. In case of revocable L/C, it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable credit, it can be neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. In case of irrevocable documentary Credit, if both Parties supposed to any change in the documentary credit then they forwarded their consent to the applicant Bank in proper way. Frequent amendments in the L/C: If any change occurred than charge will be taken accordingly and Amendment copy Value of the L/C Increase or decrease Shipment date Change. Negotiation date extend. Port of Shipment Change. Acceptance of third party document. Transshipment & Partial Shipment Expire date extend etc. should be sent to Advising Bank, Beneficiary, Applicant, and for official purpose.

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If the said L/C is under PSI clause, then one copy will has to send to PSI Company along with revised proforma Invoice and Forwarding Letter. L/C Cancellation: If Buyer & Seller reach in consensus for not to continuing their contract, then the applicant of that L/C approaches to issuing Bank to do so. Consequently, a letter from the beneficiary as an acceptance of cancellation of L/C should be submitted to Applicant Bank. 5. Shipment of goods: Then, the beneficiary being satisfied with the terms and conditions of the credit arranges shipment of goods within the stipulated period. The beneficiary receives bill of lading from the shipping company. 6. Preparation and submission of documents: The seller or beneficiary has to present some documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. The beneficiary prepares some documents and obtains some documents from different sources as per L/C terms. Generally the following documents are prepared/ obtained in connection with shipment of goods: Bill of exchange Bill of lading/ air way bill/ truck receipt Commercial Invoice Packaging List Pre-shipment Inspection Certificate Certificate of Origin Other documents s per L/C Margin A/c Customer A/C Customer A/C L/C cancellation Charge Account Payable Bank Liability A/c DR CR DR CR CR DR 5. Accounting cancellation: Procedure for

The beneficiary submits the documents with original L/C within stipulated period to the bank. 7. Reimbursement of bill value:

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On receipt of reimbursement claims from the Negotiating Bank, the Reimbursing Bank honor that claim by debit to issuing banks A/C maintained with them. Before debit to A/C, the Reimbursing bank must ensure that the issuing bank authorized them to honor the claim. 8. Lodgment of Import bill: After some period, the Issuing bank receives documents from the Negotiating Bank. At this stage, the Issuing Bank officials check whether these documents have any discrepancy or not. Here, Discrepancy means the dissimilarity of any of the documents with the terms and conditions of L/C. If the documents are found in order, the bill value is converted into Taka with B.C. Selling rate effective on the date of lodgment. In the mean time, necessary vouchers are prepared. Particular of the documents are enlisted in the Bill Register. Issuing Bank informs the importer with a request to take delivery documents by paying bill value including other charges. In the first phase of the lodgment, Issuing Bank is to receive the necessary shipping documents from the Negotiating Bank or Beneficiarys Bank. The following are as usual shipping document, which is received by the issuing Bank from Negotiating Bank or Beneficiarys Bank: a. Bill of Exchange: is an instrument by which sellers can obtain the payment from their Buyers for the invoice value of Goods. b. Commercial Invoice: Total description of the Goods including Total quantity, Unit Price and total Value of the Goods. c. Packing List: Including: total net weight & Gross Weight of the invoiced Goods. d. Bill of Lading: Documents duly manually sign by the Master of the Vessel or their authorized agent, which declare that the recept the particular goods mentioned on the paper. e. Analysis Certificate: Total composition of the Goods with percentage. f. Beneficiary Certificate g. Shipment Advice h. Phytosanitory Certificate. (Food Grains) i. j. Radiation Certificate. (Food Grains) Other documents (differ from case to case)

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After receiving the shipping documents along with forwarding schedule from the Negotiating Bank or Beneficiary Bank, the respective officer of the issuing Bank carefully scrutinizes the documents as per L/C terms & conditions. After scrutinizing the shipping Salient element for scrutinizing: 9. Retirement of import Bill: The importer makes payment of the bill value including interest (from the date of negotiation to the date of payment) and other charges excluding margin deposited at the time of opening of L/C. issuing Bank hands over the documents to the importer by necessary endorsements (where necessary). On receipt of documents, the importer clears the good from the port through his Clearing Agent by paying Tax, VAT and other port charges. The following steps should be followed for retirement: 1. Bill of Exchange: A) Special Crossing B) Receive payments endorsement on the lower part of the B/E and duly sign by the authorized person. 2. Invoice Value Certified in Foreign currency as well as local currency. 3. CRF (Clean Report of Findings) duly attested by the authorized person. 4. Bill of lading duly endorse by the authorized person. 5. All of the pages of the shipping documents should be putted PAD seal. After Completion preparation for retirement of Shipping Documents, The Office inform the applicant to perform necessary formality to retire the Documents for releasing the goods from customs. L/C Expiration Date. Shipment date L/C Value and Bill of Exchange Value. Signature of the Beneficiary in the Bill of Exchange. Invoice Value & Bill of Exchange Value. Manual Signature of authorized agent on B/L. The number of document as per L/C. Country of Origin Certificate. TIN, VAT, LCAF No. in each & every documents. Proper endorsement in the Commercial Invoice & Packing List By Respective PSI Co. etc. documents meticulously if there are any discrepancy are found the Issuing Bank immediately inform importer by written to seek his acceptance of documents despite discrepancy. the L/C If the Bank importer protest refuses to accept the documents, issuing to discrepancy the Negotiating

Bank by cable or telex.

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Accounting Treatment for retirement: The Importer can make payment as per invoice value by cash. In that case the Accounting Procedures are as follows: 1. Reversal Entries: Bank Liability A/C Customer Liability A/C 2. PAD loan A/C Corporate Office A/C 3. Cash A/C PAD Loan A/C DR CR. DR CR DR CR

The Importer can make payment as per invoice value by Applicant account Transfer. In that case the Accounting Procedures are as follows: The said first two journals are same & the 3rd journal will be as follows:

Party A/C PAD Loan A/C

DR CR

If the Applicant enjoy the LTR Facility then The said first two journal is same & the 3rd journal will be as follows:

LTR A/C PAD Loan A/C

DR CR

10. Settlement of L/C: Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. These are: Settlement by payment: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied, the paying bank makes payment to the beneficiary and in case this bank is other then the issuing

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bank, then sends the documents to the issuing bank. If the issuing bank is satisfied with the requirements, the paying bank from the issuing bank obtains the payment.

Settlement by acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by a daft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner. Settlement by Negotiation: This settlement procedure starts with the

submission of documents by the seller to the negotiating bank accompanied by a draft on the issuing bank or any other drawee, at sight or at tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner. 11. Payment of L/C: Usually L/C payments are made under 4 separate arrangements: 1. At Sight Basis: Under this system. If negotiating Bank found that the negotiating Shipping documents are in order than they debit the NOSTRO A/C of the Applicant Bank immediately. 2. Collection Basis: Under this system, Negotiating Bank seeks our acceptance to settle the particular Claim. Merely when any discrepancy is existed in the Negotiating Shipping document, then they add a clause in their forwarding schedule that If accepted, then authorized to claim reimbursement and also mentioned the discrepancy in the last line of the said letter.

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3.

Upon Basis: Under this system, settlement of Claim is totally depends upon the importers acceptance. This system is applicable where there is a rapport relationship between Applicant & Beneficiary. In this case, The supplier sent the shipping documents through negotiating Bank to the issuing Bank, the issuing Bank informs the importer. If the importer accepts the said document then issuing Bank duly informs negotiating Bank to settle the supplier claim. system Reimbursing Bank clause is not applicable. 4. Deferred Payment: L/C payment will be settled after the duration mentioned in the L/C. the duration will have to strictly follow the Bangladesh Bank Guideline. Under this

After settlement of claim, Applicant Bank should has to submit various statement to the Bangladesh Bank time to time. Collection of Bill of Entry: After receiving of the imported goods, it is responsibility of the importer to deposits Bill of Entry immediate after import and Applicant Bank should has to submit it Bangladesh Bank within 120 days.

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3.2 Export Department

3.2.1 Functions of export department:
Scrutiny of Export Shipping Documents. Follow-up for realization of Export Proceeds. All Correspondence relating to Export Department. Compliance of Audit & Inspection. Advising of Export L/Cs to the beneficiary. Authentication of L/C and Amendments from other Correspondent Bank. Transfer of Export L/C to the 2 nd Beneficiary & issuance of notice of transfer to L/C issuing Bank. Recording of Export L/C particulars in Export L/C Transfer Register. Realization of transfer changes. Issuance of proceeds realization certificates. And other works as & when directed by the manager and Sub-Manager. Certificate of EXP Forms. Posting of Tickets. Lodgment of Export Bills (FBP, FDBC, IBP & IBC). Preparation of tickets elating to negotiation of documents. Negotiation of Inland Bills. Maintenance of all records related to FBP, FDBC and Inland Bills. Balancing of FBP, FDBC, and IPB & A/R Export A/Cs. Preparation of statement and all returns to Bangladesh Bank and Head Office (Weekly/ Monthly/ quarterly).

3.2.2 Export Bill Scrutiny:

Scrutinizes the export bill on the following points: General: Late shipment. Late presentation. L/C expired. L/C overdrawn. Partial shipment or transshipment beyond L/C terms.

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0 Bill Of Exchange: Amount of bill differs with Invoice. Not drawn on L/C issuing bank not signed. Tenor of B/E not identical with L/C Full set not submitted Invoice: Not issued by the beneficiary Not signed by the beneficiary Not made out in the name of the Applicant Description, Price, quantity, sales terms of the goods not corresponds to the credit. Not marked one fold as original Shipping marks differs with B/L & packing list.

0
0 Packing List: Gross weight, net weight, & measurement, number of cartoons/ packages differs with B/L. Not marked one fold as original. Not signed by the beneficiary. Shipping marks differs with B/L. Bill of Lading/Air Way Bill : Full set of bill not submitted. B/L is not drawn or endorsed to the Order Of BA. Shipping on Board, Freight Prepaid or Freight Collect etc. notations are not marked on the B/L. B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L. Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel. Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of lading). Short Form B/L. Charter party B/L. Description of goods in B/L not agrees with that of Invoice, B/E & P/L. Alterations in B/L not authenticated. Loaded on deck. B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages. 0 Others: Non-Negotiable documents not forwarded to buyers or forwarded beyond L/C terms. Inadequate number of Invoice, Packing List, & others submitted. Short shipment certificate not submitted.

3.2.3 Export Finance:

0
Export finance can be of two types: Pre-shipment credit & Post shipment credit

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Pre-shipment credit usually takes the following forms: Overdraft against hypothecation of exportable commodities. Overdraft against Trust Receipt (T.R.) Packing Credit (P.C.)

Post shipment Credit refers to credit facilities extended to export after actual shipment of goods against shipping documents. It is usually provided in the following ways. Bill negotiation / purchase. Bill for collection.

Bill Negotiation / Purchase: The most usual method of financing exporters at the post-shipment stage is negotiation of documents under L/C. Here the bank acts as negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents generally include a) Bill of Exchange b) Bill of lading c) Insurance policy d) Invoice e) Certificate of origin, etc. The documents are to submit within the period mentioned in the L/C. The documents are sent to the L/C opening branch with a forwarding letter. Then the branch claim reimbursement from the issuing bank or from the reimbursing bank. On negotiation/ Purchase of the export bills, the exporter is paid the value of the bill (converted into Bangladesh Taka at the ruling bill buying rates).

3.2.4 Types of L/Cs issued by export department:

In the Export section, two types of L/C s are opened Back to Back L/C Export L/C

3.2.4.1 Back-to-Back L/C: Back to Back letter of credit may be defined as a credit which is opened at the instruction and request of the beneficiary of the original Export L/C on the basis of strength of that L/C. Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back to back L/C arrangement. Back-to-Back L/C is of two types. Foreign back letter of credit Inland back-to-back letter of credit

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A back-to-back L/C is opened against an irrevocable L/C opened bank having reasonable period of validity to cover shipment of merchandise after completion of validity to cover shipment of merchandise after completion of the manufacturing process. The export L/C is lien marked with the back-to-back L/C issuing branch. Import L/C is opened on issuance basis covering usance of not more than 180 days. The import L/C is opened for 75%-85% of the value of Export L/C. the payment is normally made form the proceeds of export bills negotiated after shipment. Procedure of Opening Back-to-Back L/C: The following papers/documents are required to submit by the exporter to the bank for opening foreign back-to-back L/C. L/C Authorization forms duly filled and signed. (See Appendix B) Indent/ pro forma invoice Imp-form.

Along with the above papers / documents, original export L/C is to be submitted by the exporter. On receipt of these documents the bank scrutinizes the terms and conditions of the export L/C. after getting approval from head office through Credit Section, The particulars of the L/C are entered in the L/C opening register. Payment of Back-to-Back L/C: In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank. 3.2.4.2 Export L/C: The other type of L/C facility offered by BA is Export L/C. 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 exports 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 garment products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garment products to U.S.A. Most of the exporters who export through BA are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

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Formalities for export L/C: The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows, ERC: The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCIE). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports. Obtaining EXP: After having the registration, the exporter applies to the Bank with the trade license, ERC, and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter. Securing the Order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this. Signing of the Contract: While making a contract, the following points are to be mentioned: Description of the goods Quantity of the commodity Price of the commodity Shipment Insurance and marks Inspection Arbitration

The following points are to be looked for, 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.

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The L/C allows sufficient time for shipment and a reasonable time for registration. If the exporter wants the L/C to be transferable, divisible and advisable, he should ensure those stipulations are specially mentioned in the L/C.

Procuring the Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. Registration of Sale: This is needed when the items proposed to be exported are raw jute and jute goods. Shipment of Goods: The following are the documents normally involved at the stage of shipment, Arbitration EXP Form Photocopy of registration certificate Photocopy of the contract Photocopy of the L/C Customs copy of ERF Form for shipment of jute goods and EPC Form for raw jute. Freight certificate from the bank in case of payment of the freight at the port of lading is involved. Railway receipt, Berg Receipt or Truck Receipt. Shipping instructions. Insurance policy.

After those, exporter submits all these documents along with a Letter of Indemnity to BA for negotiation. An officer scrutinizes all the documents. If the document is a clean one, BA purchases the documents on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP). Procedure for FDBP: After purchasing the documents, the bank gives the following

entries, FDBP A/C Customer A/C Debit Credit

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(Before realization of proceeds) Head Office A/C FDBP A/C (Adjustment after realization of proceeds) Debit Credit

A FDBP Register is maintained for recording all the particulars. The salient contents of a FDBP register are Date, Ref. No. (FDBP), Name of the Party (Drawer), Drawee, Name of collecting Bank, EXP Form no., Export L/C no., etc. FDBC: The bank forwards the documents for collection due to the following reasons, If the documents have discrepancies. If the exporter is a new client. The banker is in doubt.

Foreign documentary bills for collection (FDBC) signify that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entries are given: Head Office A/C Clients A/C Government Tax A/C value Postage A/C Income A/C profit on Exchange Credit Credit Debit Credit Credit @ T.T. Clean @ O/D sight @ 0.25% of Invoice

After passing the above vouchers, an Inter Branch Exchange Trading Debit Advice is sent for debiting the NOSTRO account. An FDBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds. Export bill scrutiny sheet: By the Export Bill Scrutiny Sheet the bankers scrutinize the details of a L/C before make the payment. Here the details refer as Exporter's name, Presentation date of documents, L/C no., Expiry date, L/C amount available. Moreover the banker also look after the date within which the documents to be presented, Bill of lading, Shipment date in

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the L/C, Invoice number and date, Export L/C no, date, issued by, Liability position, Discrepancies, and Calculation of Bill amount (Exporter's Retention Quota, Commission, and Margin).

3.2.5 Settlement of Local Bills:

Settlement of local bills is done in the following ways, The customer submits the L/C to BA along with the documents to negotiate. Bank official scrutinizes the documents to ensure the conformity with the terms and conditions. The documents are then forwarded to the L/C opening bank. The L/C issuing bank gives the acceptance and forwards an acceptance letter. Payment is given to the customer on either by collection basis or by purchasing the document. A LDBP (Local Documentary Bills Purchase) register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register.

3.2.6 Mode of Payment of Export Bills under L/C:

The most common methods of payment under a L/C are as follows, 0 1 2 Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to himself in addition to other documents, that the bank negotiates. 3 4 Deferred Payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No Bill of Exchange is involved. In Bank Asia, payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T. clean rate. The difference between the two rates is the exchange trading for the branch. 5 Sight Payment Credit: In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporters presentation of the documents.

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Acceptance Credit: In acceptance credit, the exporter presents a bill of

exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

3.2.7 Advising L/C:

When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

3.2.8 Inland Letter of Credit (ILC):

ILC means L/C within the same country. These types of L/Cs are opened when the seller does not believe the buyer though they are of the same country and also in the cases where the sales contract is of a big amount.

3.2.9 Reporting To Bangladesh Bank:

As per Bangladesh Bank regulation every bank has to send statement regarding foreign trade in daily/weekly/monthly/quarterly/half yearly/yearly. In fact branches send statements showing the export-import scenario to Corporate Office then it is the responsibility of the Corporate Office to consolidate all the branches statements and send it to Bangladesh Bank. At the end of every month, the reporting regarding the following information is mandatory: Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import, category of goods, currency, country etc. Filling of E-3/P-3 schedule for all charges, commission with T/M form. Disposal of IMP form, which includes, Original IMP is forwarded to Bangladesh Bank with invoice and Indent. Duplicate IMP is kept with the Bank along with the bill of entry/ Certified Invoice. Triplicate IMP is kept with the Bank for office record. Quadruplicate is kept for submission to Bangladesh Bank in case of imports where documents are retired.

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3.2.10 Earnings from Foreign Trade department:

In foreign trade media of transaction is foreign exchange so exchange gain is the main source of revenue of this department. Other than this while playing the role of an issuing bank, Bank Asia earns revenue from the applicant in the following sources: Commission from 0.3% to 0.5%. Telex charge Interest charge if any loan facility is provided.

Incase Bank Asia acts as advising bank it receive certain amount of commission from the Beneficiary. If the beneficiary is a client of Bank Asia then the commission will be 1000/-. If the client doesnt hold an account relationship with Bank Asia then the charge will be 1500/-. When Bank Asia acts as a exporter bank it receives following charges from the beneficiary Commission of .2% or 1000/- which ever is higher. Courier or Telex charge.

Incase of any amendment Bank Asia charges extra commissions; 0 Amendment charge tk.500/- in case of inland L/C & tk.1000/- in case of foreign L/C as tk.500/- extra will be taken for SWIFT charge. Postage charge tk.20/- only incase of inland L/C.

3.3 Foreign Remittance Department:

Bank Asia Ltd. provides facilities to transfer fund from one country to another country which is known as foreign remittance. Only authorized dealer (AD)

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branches of the bank are allowed to provide foreign remittance services. Without this license the respective branch will not be able to do any activity with other countries. People holding foreign currency accounts (both resident and nonresident) will be able to do banking through the facilities of the authorized dealer bank branch. Bank Asia Ltd. acts as both remitting bank (Who is sending remittance) and beneficiary bank (who receives remittance) as per the customers service requirement. Two types of remittance transaction is dealt by Bank Asia; Out ward remittance Inward remittance

3.3.1.1 Instruments of Foreign remittance: Foreign Draft- this is a demand draft denominated in foreign currency. Travelers cheque Telegraphic Transfer(TT)

3.3.1.2 Outward Remittances: Usually people traveling abroad require foreign currency. Bank Asia provides both cash foreign currency and Travelers Cheque (T.C.). There are some common documentation incase of outward remittance in the form of cash and TC. Filling up T/M (Travel & Miscellaneous) form by the customer with sign. Valid passport. Confirm ticket Visa page

Remittance department has to comply with the Central banks regulation regarding sending remittance outside of the country. Such as Central bank has set up a limit of carrying USD per person- per year. Which is $1000 for adults to travel within SARCC countries and $ 500 for children again except SARCC country this amount is $ 3000 for adults and $1500 for children.

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By another act of Bangladesh bank; if any customer requires USD amounting more then two thousand he/she has to fill up a C form. In which his/her particular reason for asking more USD is mentioned. Bank can issue excess USD after the approval given by Bangladesh Bank. Generally people ask for demand draft for immigration processing fees or foreign university admission fees. Documentation incase of Foreign Demand Draft: Copy of valid passport Immigration processing papers. If the customer is processing through any agency, a letter from that agency is required. Filling up T/M form.

Bank Asia provides demand draft service in three major currencies those are USD, CAD & GBP. Banks fees for issuing DD Endorsement----------------------200/= per passport. Issuing TC----------------------------1% of the USD amount. Issuing Demand Draft-------------$10 converted into taka at Mid rate for every DD. +15% VAT on commission received by the Bank. 3.3.1.3 Inward remittance: Bank Asia receives inward remittance from different sources, those are Wage Earners remittance Foreign grant Clients commission or consultancy fees.

Incase of inward remittance bank receives commission in foreign currency. 3.3.1.4 Earnings from foreign remittance department: In any sorts of foreign remittance transaction branchs benefit is the exchange gain. Such as in case of issuing demand draft in foreign currency; Branchs exchange gain = Customers payment at TT/OD selling rate payment to corporate office at mid rate. On the other hand incase of inward remittance exchange gains are earned as follows;

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Branchs exchange gain = payment to customers at TT clean rate for buying foreign remittance payment to head office at Mid rate. This spread differs instruments to instruments based on commercial interest charge, handling and communication charge.

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