Internship Report on Dhaka Bank Essay Example

the helps and suggestions of all the executives and officials of the DBL, Ktg. Branch without whose helps my internship program would have not been possible. I am mentioning some names of officials who were my source of motivation and with whom I was in touch: Mr. Mohammad Ali (in charge, foreign exchange & Credit), Mrs. Hasina Begum Mr. Naimul Ahsan Mr. Tarek I am grateful to my supervisor Mr. Md. Rizwan Ahmad for his cordial supervision and support to prepare this report. SAIDUL ALAM EXECUTIVE SUMMARY We’ve entered into a new dynamic millennium of 21st century.

It is very fascinating to observe how organizations are implicated to shape them for a new arena. Especially we know banks are directly in action to up-grade the economic position of countries every time. I conducted and experienced the internship from that approach. Surely the Banking sector contributes vastly and rapidly to the development of business as well as the economy. This paper summarizes the principal findings of research that sought to provide a comprehensive understanding of the product for liability of Dhaka Bank and its distinctive features from the others.

The methodology used was of major importance in obtaining data that are grounded largely in the personal experience of managers, but also in documentary evidence and in direct observation by myself. The purpose of the study was to investigate the feasibility of its products for liability, what are the contextual factors that affect the customers to deal with the products, and also how they react. All kinds of service provided by a Bank are closely related to the customer/ client. A Bank is called the businessman of others money.

Since a customer is a very important factor for the Bank.

Every Bank should try to satisfy their customer by providing their various types of service. A banker should know about the customer needs & wants to achieve their ultimate goals. For this reason Dhaka Bank tries hard to satisfy their customer through their products and services due to establish their own business in the most competitive business world. Chapter One: Introduction INTRODUCTION The subject of foreign exchange is rather difficult one. For it is highly technical and strictly governed by regulations which change frequently.

During the last two decades, there has been turmoil in the field of international money market resulting in various changes in international monetary system; even now changes are made off and on. This report deals with the precise theory and practice of foreign exchange with a limited study of foreign exchange operation of Dhaka Bank Limited, Khatungonj Branch. Dealings in Foreign Exchange in one of the main activities of the bank’s Treasury Division. As the DBL Ktg Branch deals in both import & export business, this report will concentrate its discussions on those practices which are related with import & export business.

OBJECTIVES OF THE STUDY This report has been prepared aiming to describe the following: • The basics of Foreign Exchange • Import procedures • Export procedures • Details of documentary credit • Securitization, lodgment and retirement of L/C • Post Import Financing • Exchange Rate determination • Financial results summary on foreign business. Methodology The internship program was basically executed by observing the daily activities of the officers and working with in progress. The following methods and sources have been used

in preparing this report: Methods: 1. Personal observation 2.

Personal Interview 3. Questionnaires 4. Telephonic Interview 5. File inspection Sources: • Internal Records • Library Sources: SCOPE Internship is a field project for a student of Business Administration of final year that gives the student a chance to apply business theory in practice in any organizational environment. The key functional area of any Bank is Corporate Banking, Personal Banking, International Trade & Foreign Exchange, Lease Finance, Capital Market Services, Marketing and Personnel. There are also various operations, which have to be performed to run a Bank successfully.

It will overview all sectors in resize form. In my report I tried to touch all area of Banking operations in Dhaka Bank but the scope of Internship as per proposal is as follows: • Short history of the Bank • Description of the general banking operations • Credit disbursement policy • Credit disbursement criterion • Credit application & evaluation process • Credit payment process • Monitoring process • Credit collection process • Action against defaulters • Previous statistical data on credit management Limitations I’ve tried my best level to make the report fruitful in seeking its prime objectives as outlined.

Nevertheless, my study has able to reach its ultimate target due to the following shortcoming: • Time constraint. • Professional accountability of the branch personnel’s in disclosing numerical data. • Professional work pressure of the branch personnel’s. • Broader aspect of the topic selection. • The survey was done only for the Chittagong market. As a result of this the implication of the findings of the report will be applicable only within Chittagong. However, I have tried my best to

make this report fruitful and resourceful in the face of these constraints. Chapter Two: Brief Corporate picture of

DHAKA BANK LIMITED CORPORATE PROFILE Name of the Company: Dhaka Bank Limited Legal form: A public limited company incorporated in Bangladesh on 6th April 1995 under the Companies Act, 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. Dated of Commencement: 5th July 1995. Registered office: Biman Bhaban (1st Floor) 100 Motijheel C/A, Dhaka-1000, Bangladesh. Swift Code: DHBLDBBH E-mail: dhakabank@bdonline. info Web Page: www. dhakabankltd. com Auditors: ATA Khan Co. Chartered Accountants. Managing Director: Shahed Noman Company Secretary: Arham Mosudul Huq.

HISTORICAL BACKGROUND Bangladesh economy has been experiencing a rapid growth since the '90s. Industrial and agricultural development, international trade, inflow of expatriate Bangladeshi workers' remittance, local and foreign investments in construction, communication, power, food processing and service enterprises ushered in an era of economic activities. Urbanization and lifestyle changes concurrent with the economic development created a demand for banking products and services to support the new initiatives as well as to channelize consumer investments in a profitable manner.

A group of highly acclaimed businessmen of the country grouped together to respond to this need and established Dhaka Bank Limited in the year 1995. The Bank was incorporated as a public limited company under the Companies Act. 1994. The Bank started its commercial operation on July 05, 1995 with an authorized capital of Tk. 1,000 million and paid up capital of Tk. 100 million. The paid up capital of the Bank stood at Tk. 663. 83 million as on 31 December, 2004. The total equity (capital and reserves) of the Bank as on  December 31, 2004

stood at Tk. 2,817. 80 million.

The Bank has 28 branches across the country and a wide network of correspondents all over the world. The Bank has plans to open more branches in the current fiscal year to expand the network. The Bank offers the full range of banking and investment services for personal and corporate customers, backed by the latest technology and a team of highly motivated officers and staff. In it’s effort to provide Excellence in Banking services, the Bank has launched Online Banking service, joined a countrywide shared ATM network and has introduced a co-branded credit card.

A process is also underway to provide e-business facility to the bank's clientele through Online and Home banking solutions. Dhaka Bank Ltd. is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments. MISSION Dhaka Bank’s mission is to be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking.

VISION At Dhaka Bank, inspiration is drawn from the distant stars. The bank’s team is committed to assure a standard that makes every banking transaction a pleasurable experience. The bank’s endeavor is to offer the valued customers razor sharp sparkle through accuracy, reliability, timely delivery, and cutting edge technology, and tailored solution for business needs, global reach in trade and commerce and high field on the bank’s investment. The bank’s people, products and process are aligned to meet the demand of its discerning customers.

The bank’s goal is to achieve a

distinctive like the luminaries in the sky. The DBL’s prime objective is to deliver a quality that demonstrates a true reflection of its vision – Excellence in Banking. VALUES ? Customer Focus ? Integrity ? Team Work ? Quality ? Responsible citizenship ? Respect for the Individual STRATEGIES • To achieve synchronized and steady growth of the bank. • To utilize all available resources to develop various plans, policies and procedures and implement them. • To utilize a team of professional employees.

GOALS • To develop a realistic mobilization plan. • To develop appropriate leading risk assessment system. • To develop an effective system to make good advances. • To develop recruitment, compensation, training and orientation plan. • To develop a plan for offering better customer services. OBJECTIVES • To build up a low cost fund base. • To make sound loan and investment. • To meet capital adequacy requirement at all advances. • To ensure 100% recovery of all advances. • To ensure a satisfied workforce. 5 YEARS FINANCIAL HIGHLIGHTS | | (Figures in million Taka) | |  |  |2000 |2001 |2002 |2003 |2004 | |Actual-2003 |66. 77 |201. 64 |289. 39 | |6. 75 |6. 04 | |Budget-2004 |82. 0 |220. 00 |300. 00 | |9. 55 |7. 50 | |(Head Office) | | | | | | | |Our Achievement |84. 64 |195. 61 |290. 41 | |6. 83 |7. 61 | |Up to December ‘04 | | | | | | | |Achievement (%) |102. 9% |. 89% |96. 80% | |71. 52% |102. 27% | |(Up to December) | | | | | | | Chapter Four: Foreign Exchange Dealing

Section 1 Basics of Foreign Exchange MEANING of FOREIGN EXCHANGE F oreign Exchange refers to the process by which the currency of one country is converted into the currency of another country.

In banks, when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. The term Currency as stated above includes not only such notes and coins as are legal tenders, but also bank balances and deposits in foreign currency and instruments, credit instruments which are capable of being used as currency, such as, bill of exchange, promissory notes, letter of credit, travelers cheques, drafts, airmail transfer, telegraphic transfers and all other instruments which convey to holder a right to wealth. Foreign exchange” means foreign currency and includes- 1. all deposits, credits and balances payable in any foreign currency and any drafts, traveler cheques, letters of credits and bills of exchange or drawn in local currency but payable in any foreign currency; and 2. any instrument payable, at the option of the drawee or holder thereof or any other party thereto, either in local currency or in foreign currency or partly in one and partly in the other.

Foreign exchange is concerned with the settlement of international indebtedness, the methods of effecting the settlements and the instruments used in this connections, and the variation in the rates of exchange at which the settlement is made. Administration of F/E in Bangladesh: Foreign Exchange Regulation Act, 1947 was adapted in Bangladesh immediately after independence to regulate certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion.

However, a

few provisions have been added under the foreign exchange regulation (Amendment) ordinance, 1976. The Act has 27 sections and a number of sub-sections. The main objectives of the Act are to conserve the limited foreign exchange resources and to ensure that the available foreign exchange is utilized only for priority requirements in the economic and financial interests of Bangladesh and the maintenance of the proper accounting of foreign exchange receipts and payments.

Under the Act, the responsibility and authority of administration of foreign exchange is vested by the government with the Bangladesh Bank. Bangladesh Bank reviews the exchange control measures from time to time and revise the instructions on policy and measures, whenever necessary through different Foreign Exchange (FE) circulars. Authorized Dealers: In exercise of the powers conferred by of the Foreign Exchange Regulation Act, 1947 certain schedule banks are authorized by Bangladesh Bank to deal in foreign exchange, the selected branches of the bank can transact such businesses.

They are known as “Authorized Dealers”. These Authorized Dealers have generally been delegated powers to – • buy foreign exchange from the customers without limits, • sell foreign exchange against imports authorized under Import Policy of the country, • provide forward exchange covers in respect of eligible transactions, • sell foreign exchange for travel overseas at the prescribed quota and • sell foreign exchange to customers to cover remittances of various nature.

Authorized dealers are required to bring the foreign exchange regulations to the notice of their customers and ensure compliance with the regulations by the customers in their day to day dealings. Authorized Dealership License: Bangladesh Bank issues licenses to deal in foreign exchanges empowered by the Foreign

Exchange Act, 1947.

Licenses to deal in foreign exchange are normally granted only to schedule banks who have offices in Bangladesh, after being satisfied that they have adequate number of stuff/officers properly trained in handling foreign exchange transactions and will be able to comply with the requirements of the administration of exchange control. However, license can at any time be withdrawn by Bangladesh Bank if the bank in whose favor it is issued fails to conduct its business to the satisfaction of the Bangladesh Bank. Central bank may issue general licenses or licenses with authority to perform limited functions only.

The authorized dealers must maintain adequate and proper records of all foreign exchange transactions and furnish such particulars in the prescribed returns for submission to the Bangladesh Bank. Guidelines governing F/E: 1. Bangladesh Bank Guidelines For Authorized Dealers - Volume I - Volume II 2. Import Policy issued by the Ministry of Commerce. 3. Export Policy issued by the Ministry of Commerce. 4. The Uniform Customs and practice for Documentary Credits (UCPDC) 5. Uniform Rules for Bank to Bank Reimbursement (URR) 525. 6. Public Notice, Time-to-Time Issued by Bangladesh Bank.

Section 2 Means & Methods for Settlement of International Payment T he Banks which maintain foreign exchange departments are the main channels through which international payments are made. Such banks may have branches in different countries and at every branch they have substantial balances in the currency of that country to settle the payment. If a bank has no branch at a centre it keeps balance with some other bank which is prepared to act at its agent in exchange dealings. Banks acting as agents of other banks

are called “correspondents”. Foreign Account of Banks:

In order to effect foreign exchange transactions, banks maintain accounts in their own name in various foreign currencies, with banks overseas. These accounts are credited with the claims receivable overseas in the respective currency of the country concerned, and debited with the payments denominated in the respective currency of the country in which the accounts are maintained. NOSTRO ACCOUNT: “Nostro” is a Latin word meaning “OURS”. So Nostro account means “Ours” account. Nostro accounts are just reflection or mirror accounts showing the position as it obtains in the foreign currency account with each correspondent bank.

In the Nostro account, the bank will show the foreign currency accounts of each transaction and alongside the respective items the domestic currency equivalents are indicated. When the bank makes a purchase of foreign currency, the Nostro account will be credited by the foreign bank. When it makes a sale it will result in a debit in the Nostro account. In the mirror account the purchase will be debited and sale credited. The Nostro account reflects what the foreign correspondent owes to the bank and what the home bank owes to the foreign bank. Example: If Dhaka Bank Ltd. maintains a current account with the Bank of Manhattan, N.

Y. in dollar, the account is considered as the Nostro Account of Dhaka Bank Ltd. VOSTRO ACCOUNT: The “Nostro” account is termed as “Vostro” account by the correspondent bank. The word “Vostro” means “YOURS”. A Vostro account or “Your Account” is also called a local currency account. Foreign banks maintain current accounts in domestic currency with local banks and such accounts are called Vostro accounts. Generally Vostro

accounts are maintained by foreign correspondent banks on a reciprocal basis to effect payment as well as receive payments on behalf of their clients. Example:

A bank in London may open an account with a Bangladeshi Bank and draw drafts on the account. The Bangladeshi bank on presentation of drafts to it would pay to the debit of the foreign bank’s account with it. For exchange control purposes such accounts are known as “non-resident bank accounts”. LORO ACCOUNTS: Similarly, a foreign bank’s account of any third party, whether in foreign currency or in home currency, is referred to as a “Loro” or “THEIR” account. For example, a payment made by one bank to another for account of a third bank is for the credit of the “Loro” account of the third bank.

CREDIT INSTRUMENTS: There are many types of credit instruments used in making foreign remittances. They differ chiefly in the speed at which money can be received by the creditor at the other end after it has been paid in by the debtor at his end. These are namely: - Telegraphic Transfer (T. T. ) - Mail Transfer (M. T. ) - Banker’s Draft - Bill of Exchange - Letter of Credit (L. C. ) - Stock Draft - Personal Cheques/Dividend Warrants etc. - SWIFT Section 3 Import Procedure Import Procedure (Steps Involved): (as observed by L/C issuing bank) . Procurement of IRC from the concerned authority. 2. Signing purchase contract with the seller. 3. Requesting concerned bank (importer’s bank/issuing bank) to open an L/C on behalf of the imported favoring the exporter/ seller/ beneficiary. 4. The issuing bank collects information about the importer from Credit

Information Bureau (CIB) of Bangladesh Bank and other concerned authorities. 5. The issuing bank also collects information about the exporter from negotiating bank and other concerned organizations in order to ensure the shipment. 6.

The issuing bank opens the L/C in accordance with the instruction/request of the importer and request another bank (advising bank) located in the seller’s/exporter’s country to advise the L/C to the beneficiary. (The issuing bank may also request the advising bank to confirm the credit, if necessary. ) 7. The advising bank advises/informs the seller that the L/C has been issued. 8. As soon as the exporter/seller receives the L/C and is satisfied that he can meet the L/C’s terms and conditions, he is in a position to make shipment of the goods. 9.

After making shipment of goods in favour of the importer, the exporter/seller submits the documents to the negotiating bank for negotiation. 10. The negotiating bank scrutinizes the documents and if found OK, negotiates the documents and sends the said documents to the L/C issuing bank. 11. After receiving the documents the L/C issuing bank also examines the documents and if found OK, makes payment to the negotiating bank. 12. If discrepancies is found in the documents, bank has to inform both the negotiating bank and the importer about the discrepancies within 5 days of receiving the documents.

In this case, L/C issuing bank is not bound to make payment unless the importer is satisfied with the discrepancies and requests bank to proceed. 13. The L/C opening bank then requests the importer to receive the documents on payments. 14. The importer after paying all dues receives the documents from the L/C

issuing bank and then releases the imported goods from the port authority. Import procedure from importer’s side: 1. To open an account with a Bank. 2. To get IRC (Import Registration Certificate) from CCI. 3. To get TIN (Tax Identification Number). 4.

To procure Pro-forma Invoice / Indent (In case of some selective items, approval from concerned authority to be needed). 5. To place formal request to the Bank to open L/C. 6. To fill up the L/C Application Form mentioning required various clauses. 7. To sign LCAF (It may be registered or not). 8. To get Insurance Cover Note with money receipt. 9. To sign IMP. Submitting all the papers to the bank for opening L/C and get the copy of the L/C. Before retirement of documents he must have to procure a VAT Certificate to take delivery of goods from the Custom Authority.

After taken delivery of imported goods from the Custom Authority the imported deposit the Bill of Entry to the Bank which ensure that goods have entered into the country. According to the Imports and Exports Act, 1950 as adopted in Bangladesh, any one willing to carry import business needs registration with the licensing authority, i. e. Chief Controller of Imports and Exports (CCI). Procedures for getting IRC: To get an Import Registration Certificate (IRC) on has to apply to the CCI along with following documents: i) If an Individual: Questionnaire form duly filled in and signed. . Trade License (valid) b. Nationality Certificate c. Bank Solvency Certificate d. T. I. N. Certificate e. Required Amount of Registration Fee. ii) If Partnership Firm:a. Application b. Partnership Deed. c. Trade License d. Bank Solvency

Certificate e. T. I. N. Certificate f. Required Amount of Registration Fee. iii) If Private Ltd. Co. :a. Application b. Memorandum and Articles of Association c. Trade License d. Bank Solvency Certificate e. T. I. N. Certificate f. Required Amount of Registration Fee. iv) If Public Ltd. Co. :a. Application . Certificate of Registration with the Registrar of Joint Stock Companies. c. Memorandum and Articles of Association c. Certificate of Commencement of Business d. Trade License e. T. I. N. Certificate f. Required Amount of Registration Fee. On receipt of application along with relative documents, the CCI and its regional offices scrutinizes the documents and conducts physical verification (if considered necessary) and on being satisfied, requests the applicant to pay fees towards registration through treasury challan.

After submission of the above documents and payment of requisite fees, if the documents are found in order and the CCI is satisfied, the IRC is issued to the applicant-importer. The IRC is a security document issued under embossing seal and duly signed by authorized officials of CCI and to be kept under safe custody. The IRC is required to be renewed every year on payment of usual fees. Licensing for Imports: Most imports into Bangladesh require a license from the licensing authority. Commercial Banks have been entrusted with the responsibility of licensing imports in both industrial and commercial sectors.

Licensing is done by commercial banks by means of a specially designed form known as Letter of Credit Authorization Forms (LCAF). LCAF are security documents printed by the respective bank. The following documents are required to be submitted by the importer to his banker for licensing: 1. The LCAF properly filled

in quintuplicate signed by the importer. 2. L/C Application duly signed by the importer. 3. Purchase contract, i. e. indent for the goods issued by an indenter or pro-forma invoice as the case may be. 4. Insurance cover note. 5.

Membership Certificate from a recognized Chamber of Commerce and Industry or Town Association or registered Trade Association. 6. Proof of payment of renewal fees for the IRC. 7. A declaration, in triplicate, that the importer has paid income-tax or submitted income-tax return for the proceeding year. 8. In case of public sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity and other terms and conditions against the imports. 9.

Any such documents as may be required as per instruction issued/to be issued by CCI from time to time. On receipt of the LCA Form and the other documents, the bank should carefully scrutinize the documents and lodge the same in their respective registration books and duly verify the signature of the importer put on LCAF. Registration of LCAF with Bangladesh Bank: If foreign exchange is intended to be bought from the Bangladesh Bank against an LCAF, it has to be registered with Bangladesh Bank’s Registration Unit located in the concerned area office of the CCI.

For such registration the LCAF, duly filled in and signed by the importer and authenticated by the Authorized Dealer, shall be submitted by the Authorized Dealer to the concerned Registration Unit. The Unit will put a registration number on all the copies and emboss a security seal. However, registration is not required for import of goods by Government departments, local authorities

and statutory bodies, recognized educational institutions and hospitals. In addition, registration is not required for import of goods which do not involve remittance of foreign exchange. Items like medicines, reading materials etc. an be imported without registration by the actual users within monetary limits and subject to usual conditions as prescribed in the Import Policy Order. L/C Application Form: L/C application form is a sort of an agreement between customer and the bank on the basis of which letter of credit is opened. This is a printed form bearing stamps of prescribed amount in accordance with Stamp Act in force. It stipulates the conditions governing the letter of credit, contains an undertaking by the customer to make funds available in his account with the bank when bills would be presented under credit. Section 4

Documentary Credit or Letter of Credit (L/C) Definition of L/C: A letter of credit (L/C) or documentary credit can be defined as a ‘Credit Contract’ whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s 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. 00 defines Documentary credit as follows: “Any arrangement, however named or described, whereby a bank (the “Issuing bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on its own behalf, i. is to make a payment to or to the order of

third party (the beneficiary), or is to accept and pay bills of exchange (Drafts) drawn by the Beneficiary, or ii. authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Drafts), iii. authorizes another bank to negotiate, against stipulated document(s), provided that the terms and conditions are complied with.

Why an L/C: In international trade, because of distance involved, buyers and seller don’t know each other. It is difficult for them to appreciate each other’s integrity and credit worthiness, and beside this, it is also difficult to know various regulations prevailing in their respective countries regarding imports and exports. Thus the buyer wants to be assured of goods and seller wants to be assured of payments. Commercial banks, therefore, assure these things to happen simultaneously by opening letters of credit guaranteeing payments to seller and goods to buyer. Parties to a Letter of Credit:

There are a number of parties involved in a L/C and the right & obligations of the different parties also differ from each other. The involved parties are named below: 1. Applicant (Importer/Buyer) 2. Issuing Bank 3. Beneficiary (Exporter/Seller) 4. Advising Bank 5. Confirming Bank 6. Negotiating Bank 7. Reimbursing Bank A brief description regarding the above parties have been given below: Applicant (importer/buyer) is the party who requests/instructs the issuing bank to open a L/C. Issuing Bank is the bank which opens/issues a L/C on behalf of the importer.

It is also called the importer’s/buyer’s bank. Beneficiary is the exporter/seller of the goods in whose favour the L/C is issued. Advising/Notifying Bank is the agent bank of the issuing bank in the country of the seller, and

is responsible for verifying the genuineness of the credit by checking of signatures or telex test keys. it should be noted that the rules say the advising bank bust take “reasonable care” in such verification, and since reasonable care has yet to be defined it may well be that more than simple checking of signatures would be required in certain circumstances.

Advising bank 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. Confirming Bank is a bank which add 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. Negotiating Bank is the bank which negotiates the bill and pays the amount to the beneficiary. 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. Sometimes it can also be confirming bank. Paying/ Reimbursing Bank is authorized by the issuing bank to pay the claims made by the negotiating bank in respect of payments made under credits expressed in a currency which is neither that of the exporting country no the importing country. Types of L/C: Documentary Credits may be either: i) Revocable, or, ii) Irrevocable. Revocable Credit: A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notice to the seller.

This form of credit gives the buyer maximum facility but

it does not adequately protect the beneficiary. Since it offers little security to the seller, it is hardly ever used in foreign trade. Irrevocable Credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be amended or canceled 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. Special Documentary Credit: Article 6 of the Uniform Customs (Publication 500) provides that all credits should clearly indicate whether they are revocable or irrevocable. In absence of such indication, the credits shall be deemed to be irrevocable. Other types of L/Cs are described below: 1) Confirmed and Unconfirmed Credits: An irrevocable credit may be confirmed or unconfirmed. A confirmed L/C is one which has been confirmed by the advising bank.

The issuing bank sends the credit through his branch or correspondent bank located in the beneficiary’s country with a request to add its confirmation to the credit. If the advising bank adds confirmation to the L/C it becomes a confirming bank and the L/C is a confirmed credit. Confirmation constitutes a definite and legal undertaking on the part of the confirming bank that it will duly honor the payment or acceptance, as the case may be, on presentation of stipulated documents provided the terms and conditions of the credit are satisfied.

A confirmed L/C gives greater protection to the exporter and it is the best form of credit available to the exporter.

On the other hand, when the advising bank does not add its confirmation but merely forwards the credit to the beneficiary, the L/C remains unconfirmed. Such an L/C is called irrevocable unconfirmed credit. The advising bank at its own discretion may or may not negotiate the bills. However, in practice the documents tendered under an irrevocable credit, though unconfirmed, are readily negotiated by banks in all countries as the risk involved in such a transaction is very limited. 2) Revolving Credit:

The revolving credit is one which provides for restoring the credit to the original amount after it has been utilized. To suit the special requirements of importers who require regular and continuous payments to their suppliers, revolving credits are issued by banks. 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. 3) Restricted L/C: The issuing bank may restrict the negotiation of documents under the L/C to a specified bank in the exporter’s country. The L/C contains a provision “Negotiation restricted to…Bank”.

The exporter may submit the documents for negotiation to the bank specified in the credit. If the exporter’s bank is not the negotiating bank under the credit, it may still purchase the documents, depending upon the credit enjoyed by the customer with his bank. The exporter’s bank which purchases the documents has to present them to the negotiating bank, to whom the L/C is restricted, to obtain payment. 4) 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. Fractions of a transferable credit can be transferred separately, provided partial shipments are not prohibited. 5) Back to Back Credit: The back to back credit is a new credit opened on the basis of an original credit in favour of another beneficiary. Sometimes the beneficiary (seller) of the original L/C is not in a position to supply the goods to the buyer even under a transferable credit as he may have to purchase them (or raw and packing materials for them) from another supplier or manufacturer after making payment to them.

In such a situation a “back to back credit” or “countervailing credit” or “credit and counter credit” arrangement is used. According to the back to back concept, the seller- as the beneficiary of the first credit- manages to open another credit for the supplier or manufacturer of the goods on the strength of the first credit. The two credits, operates “back-to-back”, the one being issued on the security of the other. Thus, a back to back credit transaction involves two separate credits, wherein the beneficiary of the first credit becomes the applicant of the second credit.

The beneficiary of the back to back credit may be located inside or outside beneficiary’s country. The amount of back to back credit must not exceed the amount of original credit and the items/goods must be relevant to the original credit. 6) Anticipatory Credits: The anticipatory credits make provision for pre-shipment payment, to the beneficiary in anticipation of his effecting the shipment as per L/C conditions. 7) Credit “With” or “without Recourse”: Letter of Credit may mention whether bills to be drawn under them are to be “with

recourse” or “without recourse”.

In a “with recourse” bill, in the event of refusal by the drawee to honor the bill, the negotiating bank may demand refund of money from the drawer. So, in a “with recourse” credit, the beneficiary may have to face the possibility of repaying the money to the bank which has negotiated his bill if the importer and the opening bank refuse to meet the bill. Section 5 Operation & Settlement Mechanism of L/C Mechanism of L/C: The following diagram brings out clearly the operation & settlement mechanism of letter of credit. [pic]

The following five major steps are involved in the operation of a documentary letter of credit: 1. Issuing 2. Advising 3. Amendment (if necessary) 4. Presentation 5. Settlement. 1. Issuing a L/C: Before issuing a L/C, the buyer and seller located in different countries, concludes a ‘sales contract’ providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank – the issuing bank – to issue a credit in favour of the seller (beneficiary). Instruction/Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s 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’ contained in the application form and ‘sufficient conditions’ 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. Advising a L/C: Advising through a bank is a proof of apparent authenticity of the credit to the

seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed.

Before forwarding, the advising bank has to verify the signature(s) of the officer(s) of the opening bank and ensure that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export. In such act of advising, the advising bank does not undertake any liability. Accounting Procedures: As soon as a letter of credit is opened, the following vouchers are passed in the books of the opening bank: DR – Customers liability on L/C CR – Banks liability on L/C Margin and Bank charges:

Margin commission, postage and cable charges are recovered from the party by passing entries as under: DR – Party’s A/C CR – Margin A/C on L/C CR – Commission CR – Postage CR – Cable charges. 3. Amendment of Credit: Parties involved in a L/C, particularly the seller and the buyer, can not 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. In case of revocable credit, it can be amended or canceled by the issuing bank at any moment and without prior notice to the beneficiary.

But in case of irrevocable credit, it can neither be amended nor canceled without agreement of the issuing bank, the confirming bank (if any) and the beneficiary. 4. Presentation of Documents: The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present

the documents evidencing dispatching goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit.

If the documents are found in order, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and if they are found as per credit requirements, either effects payment, or reimburses in the pre-agreed manner. 5. Settlement: 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: (a) 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 of this bank is other than the issuing bank, then sends the documents to the issuing bank. If the issuing bank is satisfied with the requirements, payment is obtained from the issuing bank. (b) Settlement by Acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft 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. (c) Settlement by Negotiation: This settlement procedure starts with

the submission of documents by the negotiating bank accompanied by a draft drawn on the buyer or any other drawee, at sight or at a 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. Modes of Transmission of L/C: In international trade, the transmission of L/C is preferred by the following means: ? Cable ? Telex ? FAX ? SWIFT ? Airmail At Dhaka Bank Ltd. the transmission of L/C is done through SWIFT. Documents Against L/C: Import documents usually consist of – 1. Bill of Lading 2. Bill of Exchange 3. Commercial Invoice 4. Certificate of origin 5. Packing List 6. Weight Certificate 7.

Pre-shipment inspection certificate 8. Insurance Cover Note 9. Analysis Certificate. Bill of Lading/ Air Consignment receipt/ Post Receipt/ Truck receipt: Bill of lading is the cardinal document against an import L/C. It is a document of title to goods evidencing its dispatch from the exporting to the importing country. The B/L issued by the shipping company facilitates negotiation of documents. Through it the exporter ensures- a) That the B/L is issued in required sets of 2,3, or 4 as the case may be and presented to the bank, along with sufficient number of non-negotiable copies. b) It is clean i. . bears no superimposed clause beyond the terms of L/C. It must not be marked as “Received for shipment. ” c) It evidences that the consignment is “on Board” and that

bears the date of shipment positively not after the stipulated date. It is drawn to the order of an authorized dealer as per exchange control regulation duly signed by an authorized agent of the shipping company. d) It must state the position with regard to how and who has paid or would pay the freight if the term of L/C is for delivery on FOB basis, the Bill of Lading should bear notation like “Freight payable” or “Freight collect”.

If the price is on CFR basis, it must be marked---“Freight paid” or “Freight Prepaid”. e) It must indicate the port of loading and the name of the port of destination/ discharge, names of the shipper and the buyer/importer and their full addresses as per terms of L/C. f) It must not indicate transshipment unless the terms of L/C authorizes/allows to do so. g) It must bear the description of goods, marks, numbers, gross and net-weights, L/C number and others should also be correctly mentioned in keeping with those in other relative documents. ) The name of the beneficiary should appear below the name of the shipper with prefix “Account”. i) It must not be stale. A bill of lading presented to the bank for negotiation beyond the stipulated period of negotiation, becomes stale which is not accepted for negotiation. Air-way bill/ Air-consignment Note: This document contains full particulars of goods dispatched by Air. Normally air-way bill (AWB) is issued in triplicate by the concerned Air-line. The 1st one is for the carrier, the 2nd one is for the consignee and the 3rd one for the consignor.

But the AWB do not constitute title to the goods and

are, therefore, not negotiable instruments. In keeping with the Exchange Control Regulation in Bangladesh the bill is to be issued to the order of a bank in the importer’s country through whom the documents are intended to be negotiated. Bill of Exchange/ Draft: a) The bill of exchange or draft is usually drawn by the exporter in sets of two or three. It must bear a date and, the number and date of the L/C or export order under which it is drawn, and is signed by the exporter. b) The date must not be prior to the date of shipment or subsequent to the presentation. ) Its value must correspond to the value of the invoice and must not exceed the L/C amount. d) It must be drawn to the order of a bank since the exchange control regulations in Bangladesh require that all foreign exchange transactions must be routed through an authorized dealer. Commercial Invoice: This document is prepared by the shipper giving therein the description and price of the merchandise, quantity, quality, marks, number of packages, name of the buyer, L/C number, indent/contract number, grades, size, name of the vessel, the date of shipment, number of the bill of lading etc.

There should be an invoice number along with date duly signed by an authorized representative of the shipper. The description of merchandise must correspond exactly to that mentioned in the L/C and indent or contract. There must be required number of invoices as per L/C with two extra copies- one for the central bank & other for the negotiating bank. Certificate of Origin: It’s a document certifying the country of origin of

the merchandise. This document is generally issued by the approved chamber of commerce of the concerned country or Manufacturer of the commodity as per terms of the L/C.

When tariff concession is sought to be obtained for export to the countries who have accepted the Generalized System of Preference (GSP), a GSP certificate should be obtained from the Export Promotion Bureau. Packing List: This document contains full particulars of consignment viz- number of cases, bales, prices or packages (as the case may be), net and gross weight of each unit/packet, shipping marks, numbers etc. which enable the buyer and shipping company to readily identify & collect the goods. Weight List:

This document consist of a certificate of the weights in details stating gross and net weight of the consignment prepared and duly signed by the authorized representative of the shipper duly acknowledged by the shipping company too, to be as per with that of Bill of Lading. It is often necessary with goods sold in bulk, such as, grains, oil and similar products. Pre-shipment Inspection Certificate: PSI certificate of imported goods have been made compulsory by the Govt. of Bangladesh with effect from 15-02-2000. For this purpose Govt. of Bangladesh has appointed 3 (three) survey companies to perform the PSI functions.

The PSI agencies are namely – (i) M/s. Intertek Testing service Ltd. (ii) BSI Inspectorate Ltd. (iii) Bureau Veritas (BIVAC) Bangladesh Ltd. PSI service charge will be recovered @ 1% from the importer on the invoice value of the consignment. Ostentation of PSI Certificate, however, shall not be required in case the importer is any Govt. , semi-govt. , sector corporation and/or any autonomous body. Insurance Cover

Note: To cover the transit risk in course of transport of goods from the warehouse to the port of shipment, an insurance policy needs to be taken. The policy generally remains valid for one month.

Analysis Certificate: This certificate of analysis may be required in the case of chemical and drugs etc. showing the result of analysis made of their ingredients. It should be obtained by the shipper/exporter/seller from the authority specified in the L/C from any internationally reputed organization bearing testimony that the specification of commodity is in order as per contract/indent and that must accompany the set of documents. Incoterms International Chamber of Commerce published a set of international rules for the inter protection of the chief terms used in foreign trade contracts.

These rules are known as incoterms. These trade terms are key elements of international contract of sale, since they tell the parties what to do with respect to: - Carriage of goods, from seller to buyer, and - Export and import clearance. They also explain the division of costs and risks between the parties. These terms are accepted and used throughout the world as a simple and reliable terminology on whose basis all shipping documents will be prepared and shipments are made and charges be paid. Departure EXW= Ex Works (…named place) Main Carriage Unpaid FCA= Free Carrier (…named place)

FAS= Free Alongside Ship (…named port of shipment) FOB= Free On Board (…named port of shipment) Main Carriage Paid CFR= Cost and Freight (…named port of destination) CIF= Cost, Insurance and Freight (…named port of destination) CPT= Carriage Paid To (…named place of destination) CIP= Carriage and Insurance Paid To (…named place of

destination) Arrival DAF= Delivered At Frontier (…named place) DES= Delivered Ex Ship (…named port of destination) DEQ= Delivered Ex Quay (…named port of destination) DDU= Delivered Duty Unpaid (…named place of destination) DDP= Delivered Duty Paid (…named place of destination)

Incoterms Practiced in Bangladesh: As per the instruction of Bangladesh Bank, the following three incoterms are used in the foreign dealing of Bangladesh. 1. CFR 2. CIF 3. FOB Cost And Freight (CFR): “Cost and Freight” means that the seller must pay the costs and freight necessary to bring the goods to the named port of destination. But the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. Cost Insurance and Freight (CIF):

In CIF, the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. Free On Board (FOB): FOB means that the seller fulfills his obligation to delivery when the goods have passed over the ship’s rail at the port of shipment. This means that the buyer has to bear all cost and risks of loss of or damage to the goods from that point. The CFR, CIF and FOB terms require the seller to clear the goods for export.

These terms can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CPT, CIF and FOB terms should be used. Section 6 Shipment of Consignment &

Lodgment of Import Bills Scrutiny of Documents: 1. Bank must examine the documents with reasonable care, whether they are complied with the L/C terms. 2. Documents not stipulated in the L/C will be examined by the bank. 3. Any discrepancy found in the document shall be lodged within seven working days following the day of receipt of the instrument by the issuing bank. . Bank assumes no liability or responsibility for the genuineness, sufficiency, accuracy, falsification or legal effect of the document submitted by the exporter/supplier. On receipt of the original shipping documents, the L/C opening bank must scrutinize the shipping documents which generally include the following: a) Bill of Exchange b) Bill of Lading/ Truck Receipt/ Air ways Bill c) Invoice d) Packing list e) PSI certificate f) Certificate of Origin g) Any other documents specially called for in the credit.

After completion of careful scrutiny of the documents, steps should be taken to lodge the documents. If minor discrepancies are detected, acceptance/non-acceptance in writing from the party concerned should be obtained. While writing letter to the party the discrepancies should be pointed out specifically. Lodgment of Documents: After getting the shipping documents in order, lodgment of documents should be made there against complying with the following points and formalities: • Bank’s crossing seal to be affixed on B/L and Bill of Exchange to protect loss or fraudulent use of the same. PAD (Payment Against Documents) seal to be affixed and number to be given on all shipping documents. • To make entry in the PAD Register under the heads. • To send intimation letter to the party to retire documents against payment of bank’s

dues. • To make the L/C file up to date Accounting Procedure for Lodgment: Whether the documents are paid or dishonored, the opening bank will reverse the liability entries in their books as under. a. Contingent liability reversal vouchers Dr -Bankers Liability for L/C CR -Customer’s Liability for L/C b. Lodgment voucher Dr -PAD(@ BC selling rate)

Or Bill of Exchange A/C Cr -ID, Head Office (name of Foreign Correspondent Bank) Cr -I/A Exchange Earnings (difference amount) Retirement of Import Documents: On receipt of intimation letter the importer approaches for retirement of the documents. After recovery of bank dues in full, the documents should be endorsed in favor of the importer. [pic] ----------------------- • Background of the study. • Objective of the study. • Methods of Collecting data and their sources. • Scope • Drawbacks to the study. • Corporate Profile • Historical Background • Mission • Vision • Values Strategies • Goals • Business Objectives • Five Years Financial Highlights. • Service Profile Delivered by DBL Ktg Branch. • The Different Banking Services & Products under the Branch. • Loan Portfolio of the DBL Ktg Branch. • The Branch’s Organizational Structure. • Financial Highlight of DBL Ktg Branch for the Month Ended on 30. 12. 2004 • Branch Achievement up to December 2004. VP Branch Incumbent Senior Officer Senior Officer Junior Officer Officer Senior Officer Principal Officer In charge, Cash Dept. Officer Principal Officer Senior Officer Principal Officer Principal Officer In charge

General Dept. In charge Foreign Dept. FAVP In charge, Credit Dept. Principal Officer FAVP Operation Manager • Meaning of Foreign Exchange • Administration of Foreign Exchange in Bangladesh • Authorized Dealers and their Functions

• Authorized Dealership License • Guidelines that govern Foreign Exchange Foreign Account of Banks • Nostro Account • Vostro Account • Loro Account • Credit Instrument • Procedures from L/C issuing Bank’s side • Procedures from Importer’s side • Procedures of Getting IRC • Licensing for Imports • Registration of LCAF • L/C Application Form • Definition of L/C • Why an L/C Parties to an L/C • Types of L/C • • Mechanism of L/C • Modes of Transmissions of L/C • Documents used against L/C • Incoterms used in L/C ISSUING BANK EXPORTER PAYING/ REIMBURSING BANK IMPORTER Present Documents (8) Applies in writing to issue L/C (1) Advises and/or confirms L/C (3) Makes payment against documents (9) Submits documents (4) Makes payment by negotiating documents (5) Issues L/C (2) Forward Documents (6) Make Payments (7) OR ADVISING/ CONFIRMING/ NEGOTIATING BANK Instructs to Pay or Reimburse Pays or Reimburses Sale/Purchase Contract • Scrutiny • Lodgment and • Retirement of L/C