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The word “Bank” refers to the financial institution deals with money. Commercial banks are the primary contributor to the economy of the country. They are borrowing money from the locals and lending the same to the business as loans and advances. So the people and the government are very much dependent on these banks as the financial intermediary. Moreover, banks are profit -earning concern, as they collect deposits at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank. Involvement of the banking sector in different financial events is increasing day by day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases, the banking organizations are coming with innovative ideas. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better services and opportunities providing to their clients. As a result, it has become essential for every person to have some ideas on the bank and banking procedure. Besides these various kind rules and regulations are formulated to check unexpected threats such as money laundering and to cope with rapid change and challenge of competitive free market economy. As core concentration of this study was foreign division, so this study is concerned with specific area of managing import and export procedures to promote logistic support in business.
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
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1.2 Objective of the study
The main objective of the study is to analyze the foreign exchange business of AB Bank Limited. There are some specific objectives on the way of achieving the main objective. These are as follows: To discuss about the import & export policy of the sample branch. To analyze the export and import functions and financing of the branch To focus on growth and development of foreign Exchange business in ABBL, CDA branch. To identify the problems and prospects of foreign exchange. To know the risk involved in the foreign exchange business. To promote the ways, techniques & policies to improve the performance of Foreign Exchange business.
1.3 Methodology of the study
In this report both primary and secondary data are collected.
Primary sources of data
Face to face conversation with the bank officer and staff Face to face conversation with the clients Observation File study
Secondary sources of data
Annual report of the ABBL ABBL website Relevant books, newspapers and journals Various circulars & guidelines & study selected reports Different training materials from BIBM.
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
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1.4 Scope of the study
Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in a modern society. It plays a crucial role in the economic development of a country and forms the core of money market in an advanced country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization, implementation of BASEL II & rating based financing etc. Bangladesh banking sector is lagging far behind in adopting these changes. To flourish well in these changing environments not only progress of appropriate infrastructure is necessary but also infusion of professionalism into banking service is essential. It is also helped me to acquire a firsthand perspective of a leading private bank in Bangladesh. In this internship report the major area of commercial baking has been covered in Foreign Exchange business.
1.5 Limitation of the study
From the beginning to end the study has been covered with the intention of making it as a complete and truthful one. However, many problems appeared in the way of conducting the study, mainly time. It was not possible to go through the whole area covered by the bank although financial statements and other information regarding the study have been considered. This study considers the following limitations: Inequality and lack of availability of required current data Time constraints Confidentiality of data Lack of depth knowledge and analytical ability
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
Page 4 of 70Page 4 of 70 Page│4 Chapter Two An overview of the company Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
The bank changes its traditional color and logo to bring about a fresh approach in the financial world.The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an AA3 rating in the long term and ST-1 rating in the Short term. one foreign branch in Mumbai. The bank commenced its operations in April 12. AB Bank Limited has opened 78 branches in different business centers of the country. 1982.e.Page 5 of 70Page 5 of 70 Page│5 2. The bank has focused to bring services at the doorstep of its customers and to bring millions into banking channels those who are outside the mainstream banking arena. Deposit of the bank rose by TK 1518 cr i. an approach which like its new logo is based on bonding and trust. The bank took a conscious decision to rejuvenate its past identity-an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. fairness. AB Bank Limited always intends to ensure the trust and confidence of the customers through focused customer orientation. The bank’s consolidated profit after taxes amounted to taka 230 cr which is 21% higher than that of 2007. AB Bank Limited which turned 28 this year. the Bank made a significant headway in respect if import. 1981. 2007. accountability. quality of service and state of the art technology.In spite of adverse market conditions. To facilitate cross border trade and payment related services. It is the first private sector bank under Joint Venture with Dubai Bank Ltd.45% while the diversified loan portfolio grew over 30% during the year and recorded a TK 1579 cr increase. export and inflow of foreign exchange remittances from abroad. India and also established a wholly owned subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. 28. Innovative products and services were introduced in the field of Small and Medium Enterprise (SME) Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . AB Bank is known as one of leading bank of the country since its commencement 28 years ago. the bank has correspondent relationship with over 220 international banks of repute across 58 countries of the world. The bank showed strong growth in loans and deposits. As a result of this decision the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14. During the last 28 years. transparency in dealings and adopting the best practices of corporate governance. Modernization is the theme of the bank. responsibility and professionalism in business deliverance at every plausible level. On account of Foreign Trade. UAE incorporated in Bangladesh on Dec 31.1 Historical Background of AB Bank Limited AB Bank Limited is the name of the bank which maintains transparency. Foreign Trade Business handled was TK 9898 cr indicating a growth of over 40% in 2008. concluded the 2008 financial year with good results. The asset base of AB grew by 32% from 2007 to stand at over TK 8400 cr as at the end of 2008.
Mobile Banking. Debit and Credit Cards (local and international). Changed its name to AB Bank Limited (ABBL) with effect from 14 November 2007 vides Bangladesh Bank BRPD Circular Letter No-10 dated 22 November 2007. Home Banking. Effective 1 January 2008.3 Objectives of ABBL: The main objectives of the bank are: • • • • • Be one of the best bank of Bangladesh Achieve excellence in customer services and superior to all competitors Cater to all differentiated segments of retail and wholesale customers Be a high quality distributor of products and services Use state of art of technology in all spheres of banking (such as ATM-services. Investment banking.1 Change of name and logo of ABBL: Arab Bangladesh Bank Ltd. 2. Tele Banking. catering to the satisfaction of its client. Priority banking and Customer Care. women’s entrepreneur. Previous Name & logo : Arab Bangladesh Bank Ltd. Consumer loans. ABBL changed its Logo as well. New Name & logo: AB Bank Ltd 2. specialized products and services for NRBs. AB is recognized as the people’s choice. Internet and SMS Banking. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Prior to that Shareholder of the Bank approved the change of name in the Extra-Ordinary General Meeting held on 4 September 2007. strengthening and expanding its Islamic and Banking activities. Remittance Services. On-line Banking etc. Their satisfaction is AB’s success.Page 6 of 70Page 6 of 70 Page│6 credit.
Page 7 of 70Page 7 of 70 Page│7 2.4 Credo of ABBL Vision statement To be trendsetter for innovative banking with excellence and perfection Mission statement To be the best performance bank in the country and the region Goal of the bank To exceed customer expectations through innovative financial products & services and establish a strong presence to recognize shareholders' expectations and optimize their rewards through dedicated workforce Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
candidate has to seat for a competitive examination.5 Management hierarchy of AB Bank Ltd: In AB Bank Ltd. (ABBL) an incumbent has to start his carrier as a provisionary officer. It is under full authority of the Board of Directors. The following figure shows the hierarchy of carrier ladder in ABBL: Management hierarchy of AB Bank Ltd Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . For this.Page 8 of 70Page 8 of 70 Page│8 2.
Besides. 1981 : 12th April.6 Corporate Profile Incorporated on Started operation on Authorized capital Paid-up Capital Deposits Loans and advances Classified loans Number of branches EPS P/E ratio Number of SME services center Number of employees Contact Address : 31st December.23 ABBLBDDH Info@abbank. 30-31 Dilkusha C/A Tel: Fax: SWIFT: Email: Web: Dhaka 1000. As the bank is centrally situated large number of customers find it easily and comfortably to transact with the bank.7 Brief description of CDA Avenue Branch Arab Bangladesh Bank Ltd. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Flexible banking hour attracts more clients doing banking transactions with the branch. +88-02-9560312 +88-02-9564122.97 : 11 : 1804 AB Bank Limited Registered Office BCIC Bhaban.70 million : 78 : 131. Branch has efficient human resources that can meet up customers needs.abbank. Prompt.bd www. 1982 : 3000 million : 2564.12 million : 70879.com.com. Order wise work load is distributed properly.93 million : 1358.25 million : 83087.13 : 8.Page 9 of 70Page 9 of 70 Page│9 2. Most noted strength is customer service. The office floor of AB Bank Ltd is specious that can accommodate good number of customers comfortably. interpersonal relationship is remarkable. Bangladesh. cordial & enthusiastic service satisfies almost all customers.bd 2. CDA Avenue Branch has started its operation as on 1991 which is located at central position of the Chittagong City.
Page 10 of 70Page 10 of 70 Page│10 Major features of the Branch are: • • • Fully computerized accounts maintenance Well decorated and air conditioned facilities A fully operational computer network which is currently being implemented. • Retail Banking products School banking Auto loan Easy loan for Executives-unsecured House/office renovation loan Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .7. CDA Avenue branch AB Bank believes in modernization and complete customer satisfaction which helps to ensure to provide customers a bunch of innovative products and services that keeps the Bank always one step ahead of the other competitors in serving the customers need.1 Financial products/services of ABBL. the work of Local Area Network (LAN) and Wide Area Network (WAN) installed having reliable and secured communication between the branches and head office is in progress to facilitate any Branch Banking and ATM services • • Money counting machine for making cash transaction easy and prompt A group of professional bankers to render personalized services 2.
Page 11 of 70Page 11 of 70 Page│11 Education loan Gold Grace-jewellery loan Staff loan Secured personal loan Unsecured personal loan Personal overdraft • Corporate banking products and services Project finance Working capital finance Trade finance Cash management Syndicated finance. both onshore & off-shore Equity finance. both onshore & off-shore Corporate advisory services • Deposit products Current deposit accounts Saving deposit accounts Fixed/Time deposits STD accounts Double deposit scheme (DDS) Monthly income deposit scheme (MSDS) Foreign currency deposit account • Gati Proshar Digun Sathi SME loan products Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Page 12 of 70Page 12 of 70 Page│12 Chhoto Puji Uddog Awparajita • • Investment baking Merchant banking services Custodial services Brokerage services Future products Foreign trade Import finance Export finance • • • • • Inward and outward remittances ATM card Money transfer Locker service Online services Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
34 124.97 47556059.51 25381706.22 14493091.00 2229.3 SWOT Analysis Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .30 2007 2000.45 292725.08 32680.79 1363.25 1567.42 670.00 2564.00 743.33 2004108.24 44038. CDA avenue branch.25 764.08 1888.62 25.00 1019.62 1027.Page 13 of 70Page 13 of 70 Page│13 2.00 1527503.99 17. Chittagong (Million Tk) Particulars Authorized Capital Paid – up capital Total Deposits Loans & advances Total assets Import (in USD) Export (in USD) Remittances (in USD) Total Operating Income Total Operating Expenses Profit after provision 2009 6000.51 2032263.69 74.99 91.10 1939.3 Performance: ABBL.2 Organizational structure at branch level Manager Sub Manager A/C Dept.11 99. Remittan ce Cash Foreign Trade FCD Credit Dispatch 2.50 2.51 2008 3000.7.7.7.14 65.51 1374.04 53.55 12.
and fees income achieved by the last few years and subsequently bank expanding its business. interest. Weakness: • Providing information in due time is being late want of proper technological support Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . opportunities and treats of ABBL. From the SWOT analysis we can figure out the ongoing scenario of ABBL. weakness. By doing the SWOT analysis it is possible to find out the strength.Page 14 of 70Page 14 of 70 Page│14 SWOT analysis specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. So to a better view of the present business practices what is prevailing at ABBL I have done the SWOT analysis. Executives are highly qualified and experienced Officer and staffs are prompt in their activities Branch network cover highly geographic area Very good profit margin. SWOT Analysis External Factors Internal Factors Strengths Weakness Opportunities Threats Strengths: • • • • • • • • Employees are always ready to provide expected level of services both internal and external customers so that customers are highly delighted Well reputation in the market Sound import & export operation The relationship between employer and employee is very much appreciable which increased the productivity of employees.
Page 15 of 70Page 15 of 70 Page│15 • • • • Though the bank launched online banking system but 100% online banking is not possible yet There is not any customer complain desk where customers can give their feedback Customer service is not up to standard and sufficient for want of trained people Unavailability of high-tech electronic facilities Opportunities: • • • • • • • Client reliability on ABBL is increasing day by day with the bank Increasing rate of branches day by day even remote area attracting large number of people and people are getting facilities for doing business ABBL offers many popular schemes for trade services. Foreign remittance are increasing day by day Import and export are increasing gradually so bank can properly exploit this opportunity Online and SMS banking services now available in the bank Credit facilities & ATM Booth facility also increasing to meet clients need Threats: • • • • • • • • • Highly competitive market Entries of new commercial bank. leasing companies. investment and merchant banking in the market etc they all are competitors Competitors are offering innovative new products and services based on highly technological support Government put pressure to reduce interest rate Government imposes tax and Vat on profit Central Bank’s policies sometimes are not in favor of the private bank’s policies Political crisis and lack of trust of the foreign investors Frequent fluctuation of domestic currency with US dollar Economic recession Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Page 16 of 70Page 16 of 70 Page│16 Chapter Three FOREIGN EXCHANGE OPERATION Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
All exports and imports are executed through the intervention of banks. Evitt. Foreign exchange is the rate of exchange in the both country's currency. in the backdrop of phenomenal growth of Bangladesh’s external sector. foreign exchange business provides a challenge as well as an excellent opportunity to accelerate growth of bank’s own business. However. Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country's currency are converted into rights to wealth in terms of another country's currency. they provide funded and non funded credit facility in execution of International Trade. credits and balances payable in any foreign currency and draft. This is the Institution that facilitates international trade payment as banking channel is the way of settlements. foreign exchange means foreign currency and includes any instrument drawn. It involved the investigation of the method by which the currency of one country is exchanged for that of another. letter of credit and bill of exchange expressed or drawn in Bangladesh currency and payable in any foreign currencies. the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchanges are effected. travelers cheques. H. all deposits. According to Mr. 1972. Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to other countries. Side by side. as adopted in Bangladesh. Besides. The business of foreign exchange is getting increasingly complex and intensely competitive. In terms of section 2(d) of the foreign Exchange Regulation (FER) Act 1947. accepted. made or issued under clause 13 of article 16 of the Bangladesh Bank Order.1 Foreign Exchange The term Foreign Exchange has different connotations in different contexts. banks meet the other need of foreign exchange transactions of the people of the country as they are authorized to deal in foreign exchange upon receipt of permission from Central Bank under Foreign Exchange Regulation Act. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . E.Page 17 of 70Page 17 of 70 Page│17 3.
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3.2.1 Authorized Dealer Branches
Bangladesh bank has issued licenses to certain branches of our bank to deal in foreign exchange. These branches are known as authorized dealer branches. Licenses to deal in foreign exchange are normally granted only to scheduled banks which have offices in Bangladesh after satisfying that they have adequate number of staff/officers properly trained in handling foreign exchange transactions and will be able to comply fully with requirements of the administration to exchange control. No other person except the authorized dealer can deal in foreign exchange.
3.2.2 Authorized Money Exchange
Licenses are also granted by Bangladesh Bank to persons or firms to exchange foreign currency instruments such as T, C, and currency Notes and Coin. They are known as authorized moneychangers. They are not, however, authorized to make any other transaction in foreign exchange. The authorized Moneychangers are, however, required to deposit the foreign exchange encased by them with an Authorized Dealer at Official rate and submit Returns of such purchase and deposit of foreign currency notes, T/CS etc. to Bangladesh Bank.
3.2.3 Legal basis of Foreign Exchange Transaction
Foreign exchange transactions are performed under some legal regulations, as follows: • Foreign Exchange Regulation Act – 1947 • Import and Export Control Act- 1950 • Customs Act-1969 • The uniform customs and practices for documentary Credit (UCPDC) – 1993 revision & International Chamber of Commerce Publication no – 500, is also an important law for settlement of terms and conditions between exporter and importer in international trade. • Import Policy Issued by Ministry of Commerce • Export Policy Issued By Ministry of Commerce • International Rules Issued by International Chamber of Commerce (ICC)/ Uniform Rules and Practices • Different Foreign Exchange Circulars issued by Bangladesh Bank
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
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3.2.4 Functions of Foreign Exchange Department
Foreign Exchange Department performs many functions to facilitate the foreign exchange transactions. These are: • Facilitating Import Trade • Facilitating Export Trade • Providing Funded and Non-funded Credit Facility. • Provide Non Commercial Remittance • Maintaining Foreign Currency Accounts • Selling of Foreign Currency Bond • Rate of Exchange • Preparation and Submission of Statements
3.3 Foreign Trade
Foreign Trade is defined as the exchange of goods and services between nations. Goods can be defined as finished products as intermediate goods used in producing other goods or a agricultural products and foodstuffs. International trade enables a nation to specialize in those goods it can produce most cheaply and efficiently. Trade also enables a country to consume more than it would be able to produce if it depends only on its own resources. Finally foreign trade enlarges the potential market for the goods of a particular economy. Foreign Trade has always been the major force behind the economic relations among nations. When two countries adopt a direct import and export relationship then bilateral trade occurs and when countries deal worldwide there is multilateral trade. In international trade the values in terms of money are never equal. The balance of trade payments refers the difference between the monetary value of exports and imports of output in an economy over a certain period of time. It is the relationship between a nation’s imports and exports. A favorable balance of trade is known as a trade surplus and consists of exporting more than is imported; an unfavorable balance of trade is known as a trade deficit or informally, a trade gap.
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
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3.3.1 Role of Foreign Trade in Economic Development
• Foreign Trade is an important stimulator of economic growth. It enlarges countries consumption capacities, increase world output and provide access to scarce resources and worldwide markets for products without which poor countries would be unable to grow. • International trade tends to promote greater international and domestic equality by equalizing factor prices, raising real income of the trading countries and making efficient use of each nation’s and the world’s resource endowments. • • In a world of free trade, international prices and costs of production determine how much a country should trade in order to maximize its national welfare. Finally to promote growth and development, an outward-looking international policy is required. In all cases, self-reliance based on partial or complete isolation is asserted to be economically inferior to participation in a world of unlimited free trade.
3.4 Sale and Payment term in Foreign Exchange Business
Every Foreign trade transactions are the result of a sale contract between the seller & buyer. In a sale contract seller agrees to sell & buyer agrees to buy a specified quantity of goods on terms of mutually agreed upon. A sale contract incorporates a number of terms and conditions relating to the various aspects of the deal, the most important among them being the terms relating to the place & mode of delivery, the terms of payments of freight & insurance charges, the mode of payment for the goods, prices, quality, quantity and the period of supply of the goods to be bought & sold. The payment term shows where & how payment will be effected. It has five principal: 1. Cash in advance 2. Letter of credit 3. Drafts 4. Consignment 5. Open account
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC
Letter of credit The documentary credit or letter of credit is an undertaking issued by a bank on account of buyer (the applicant) or for its own behalf to pay the beneficiary the value of the draft and/or documents provided that the terms and conditions of the documentary credit are compiled with. Advantages of an L/C to exporter are: a. Financing source Advantages of L/C to Importer are: a. Revocable b. May allow better sales terms d. Documents inspected c. Confirmed d. Relatively low-cost financing e.Page 21 of 70Page 21 of 70 Page│21 Cash in advance The buyer places the funds at the disposal of the seller prior to shipment of the goods or provision of services. Irrevocable c. Transferable Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Payment certainty d. It involves maximum risk to exporter used where there are political unrest goods made to order new unfamiliar customer. Reduces default risk c. Shipment assured b. Easy cash recovery if discrepancies L/Cs is following types a. Prepayment risk protection e. Eliminates credit risk b.
The Letter of Credit thus constitutes one of the most important methods of financing foreign trade. Sight b. may be converted to a banker’s acceptance) Drafts are four types: a. Deferred c. It is a conditional guarantee. The benefits of open accounts are greater flexibility in making a trade and lower transactions costs. Clean (no documents required) d.Page 22 of 70Page 22 of 70 Page│22 Drafts are unconditional order in writing showing exporter’s order for importer to pay at once (sight draft) or in future (time draft) including three functions are clear evidence of financial instrument (i. the major disadvantage is highly vulnerable to government currency controls. By opening a Letter of Credit on behalf of buyer in favor of seller.e. Documentary Open account An arrangement between the buyer and the seller whereby the goods are manufactured and delivered before payments is required. commercial banks undertake to make payments to a seller subject to submission of documents drawn on in strictly compliance with Letter of Credit terms giving title of goods to the buyer. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Central Banks. therefore assure these things to happen simultaneously by opening Letter of Credit guaranteeing payments to seller and goods to buyer. On the other hand.5 Letter of Credit Letter of Credit is a guarantee or undertaking or commitment to the beneficiary/exporter for making payment issued by the issuing bank on behalf of the importer upon fulfillment of some conditions. 3.
however named or described. whereby a bank (“the issuing bank”) acting at the request and on the instruction of a customer (the “Applicant”) or on its own behalf. or • authorizes another bank to negotiate. publication no 500 define Documentary Credit: • Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the Applicant) or on its own behalf. • Authorize another bank to effect such payment or to accept and pay such bills of exchange (Drafts) • Authorize another bank to negotiate against stipulated documents provide that terms and conditions are complied with. provided that the terms and conditions of the Credit and complied with. the letter of credit is called Documentary letter of credit. or is to accept and pay bills of exchange (Draft’s) drawn by the Beneficiary. the presentation of some specified documents. or to accept and pay such bills of exchange (Draft(s)). The uniform customs and practices for documentary Credit (UCPDC) published by international Chamber of Commerce (1993) revision.Page 23 of 70Page 23 of 70 Page│23 In the Import Policy Order 2003-2006 Letter of Credit denoted as – ‘“Letter of Credit” means a letter of credit opened for the purpose of import under this Order’ The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements. or • authorizes another bank to effect such payment. • Against stipulated document(s). Since the agreed conditions include amongst other things. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . • Is to make a payment to or the order of a third party (“the Beneficiary”). On the other hand Letter of credit can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s disposal under some agreed conditions.
1 Parties involves in L/C Buyer/Applicant Issuing Bank Advising/Notifying Bank Who applies for L/C It is the bank which open/issues a L/C on behalf of the importer It is the bank through which the L/C is advised to the exporters. Usually it is the issuing bank. It is the bank on which the bill will be drawn (as per condition of the credit). or notice to the beneficiary. normally supplier of the goods.5.5.2 Types of Letter of Credit There are many types of Letter of Credits that are used in different countries of the world. as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . This bank is actually situated in exporter’s country. mentioned • Revocable Letter of Credit A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. revocable credit involves risk. this type of letter of credit can be revoked or cancelled at any time without consent of. That is to say. which would reimburse the negotiating bank after getting payment-instructions from issuing bank. in whose favor the L/C is opened It is the bank which adds its confirmation to the credit and it is done at the request of issuing bank. or although presented before payments has been made. The advising bank and the negotiating bank may or may not be the same. It is the bank. as the credit may be amended or cancelled while the goods are in transit and before the documents are presented. In case of seller (beneficiary).Page 24 of 70Page 24 of 70 Page│24 3. Sometimes it can also be confirming bank. But International Chamber of Commerce (ICC) vides their UCPDC. Confirming bank may or may not be advising bank. It may also assume the role of confirming and/or negotiating bank depending upon the condition of the credit. Seller/Beneficiary Confirming Bank Negotiating Bank Accepting Bank Paying/Reimbursing Bank 3.500. which denotes only two types of LETTER OF Credits. It is the bank. The party. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility. which negotiates the bill and pays the amount of the beneficiary.
• Reimburse another bank with which a revocable Credit has been made available for deferred payment. CDA Avenue Branch: • Sight L/C Sight L/C means payment is immediately made to the beneficiary on presentation of the stipulated documents and on condition that all the terms of the credit have been compiled with. • Irrevocable Letter of Credit An irrevocable credit is a documentary credit. as per UCPDC -500: The following types of Letter of Credits are used in the AB Bank. It is advantageous to the exporter as he can get the payment quickly.buyer (Applicant). he received the authorized banks written undertaking to make payment of maturity. mentioned bellow. On presenting the required documents. acceptance or negotiation – for any payment. In the modern banking the use of revocable credit is not widespread. varied or changed/amended or cancelled without the consent of all parties. In certain circumstances. prior to receipt by it of notice of amendment or cancellation. In this case the issuing banks must perform the following two roles: • Reimburse another bank with which a revocable Credit has been made available for sight payment. • Deferred L/C Under a deferred L/C the beneficiary does not receive payment when his presents the documents but at a later date specified in the credit. against documents which appear on their face to be in compliance with the terms and conditions of the Credit. which cannot be revoked. In this way the importer gains possession of the documents before being debited for the amount involved. and Confirming Bank (in case of confirmed Letter of Credit). take up documents which appear on their face to be in compliance with the terms and conditions of the Credit. how ever. if such a bank has. In the issuance of Irrevocable Letter of Credit both the Issuing and Conforming Bank have some liability. except that there is no bill of exchange and therefore no possibility of obtaining money immediately through a descant transaction. Issuing Bank. but he/she remains dependent on an undertaking of a foreign bank. Irrevocable Credit gives the seller greater assurance of payments. In terms of its economic effect a deferred payment credit is equivalent to an acceptance credit. the Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .Page 25 of 70Page 25 of 70 Page│25 issuing bank at which the issuing bank has made the credit available. acceptance or negotiation made by such bank – prior to receipt by it of notice of amendment or cancellation. seller (Beneficiary).
A discountable bill offers wider scope. this method of finance is widely used and is very well known to the manufactures of garments. though such as advance will normally only be available form the issuing or confirming bank. duly renewed Tax Identification Number (TIN) Certificate PSI related papers (where PSI) required Papers/documents for import of any special items as required as per Import Policy Letter of Authority to recover Bank’s Charges & Margin from Importer’s Account Necessary Charges Documents duly stamped & signed 3. 3. To execute the order he is to import raw materials from Korea. from an American Bank. which open against lien on valid export L/C.e.Page 26 of 70Page 26 of 70 Page│26 banks payment undertaking can be used as collateral for an advance. Then the Bangladeshi exporter will have to open an import L/C favoring Korean supplier for import of fabrics and accessories. under bonded warehouse system. The L/C is opened by the Bangladeshi bank lien against the American Banks L/C.5.4 Procedure of opening L/C Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . In our country in export of garments. For manufacture of the ordered shirts the exporter does not have the required raw materials.5. • Back to back L/C Back-to-Back L/C is a type of import L/C either in inland or in abroad.3 Documents needed from Importer for opening L/C • • • • • • • • • • • • Prescribed L/C Application and Agreement form duly stamped and signed A set of LCAF duly filled & signed IMP form in duplicate duly signed Proforma Invoice (PI) Indent duly accepted Marine Insurance Cover Note along with original Money Receipt in case of import under CFR/FOB Valid membership Certificate from a registered local Chamber of Commerce & Industries or any registered association where the respective Importer belongs IRC evidencing payment of fee for current year i. Suppose Bangladeshi exporter received an irrevocable L/C for supply of readymade shirts.
known as advising bank. Negotiation of export bills happens when the banker agrees to provide him with finance. Documents are sent to the issuing bank for reimbursement or payment. These are describing here below. The importer takes delivery of goods upon presentation of the transport documents. In such case he obtains payment immediately upon presentation of documents.5. The issuing bank opens the L/C that is channeled through its overseas correspondent bank. If not the documents will be sent to the issuing bank for payment or on an approval basis as in the next step. Issuing bank honor it’s undertaking to pay the negotiating bank on condition that the documents comply with the L/C terms and conditions. which is acting as the negotiating bank. The importer and exporter have made a contract before opening a L/C.5 Important features of an L/C • • • • • • • Charges Country of origin of goods Currency and amount Date and place of expiry of the Documentary credit Description of goods and quantity Documents required for negotiation Instruction for negotiating bank Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . 3. All these documents will be sent to the banker. The importer applies for a L/C from his banker known as the issuing bank.Page 27 of 70Page 27 of 70 Page│27 There are some steps involves in L/C process. Exporter ships the goods to the importer or other designated place as stipulated in the L/C. Meanwhile the exporter also prepares his own documents and collects transport documents or other documents from relevant parties. The advising bank informs the exporter of the arrival of the L/C. He may have to use his credit lines. Issuing bank releases documents to the importer when the letter makes payment to the former or against the letter of trust receipt.
Proforma Invoice Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Packing List 10. Certificate of Origin 9. Commercial Invoice 5. Airway Bill 3. Bills of Exchange 6. Truck Receipt 4.6 Documents used in Documentary Credit 1.) Code Mode of carrying –Air/Ship/Truck Name and address of beneficiary Name and address of advising bank Name and address of the applicant Name of issuing bank and branch Number of letter of credit and date of opening Payment term-sight/Deferred Period of negotiation Period of presentation Port of loading and port of discharge Reimbursing bank and payment mode Terms and conditions regarding transshipment and partial shipment Insurance clause B.L clause Other clauses as required as per Import Policy Order and as per contract executed in between buyer and seller 3.S.5. Inspection certificate 8. Bills of Lading 2. Insurance Cover Note 7. IRC (Import Registration Certificate) number and Harmonized System (H.Page 28 of 70Page 28 of 70 Page│28 • • • • • • • • • • • • • • • • • Last date of shipment Letter of credit authorization (LCA) number.
• • • • The beneficiary should properly invoice the merchandise Date Name and address of the buyer and the seller The importer license or IRC number of the importer indents registration number and number letter of credit Authorization number are incorporated in the invoice Bills of Exchange The most important instrument in international trade by which seller can obtain the payment from the buyers for the invoice value of goods is bill of exchange. The name of carrying vessel Evidence that the goods have been loaded on board The names of shipper. consignee and name & address of the notifying party Whether freight has been pain or is payable at destination The number of original bills of loading issued The date of issuance Commercial Invoices It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C. or may be. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . needed to support an insurance claim. The Bills of lading includes: • • • • • • • • A description of the goods in general terms consistent the credit Identification of marks and numbers.Page 29 of 70Page 29 of 70 Page│29 Bills of Lading Bills of Lading are showing ‘shipped on board’ and it has to be properly endorsed to the bank. if any. It also constitutes a document that is. A bill of lading specified states that goods are loading for ultimate destination specifically mentioned in the credit.
cartoon etc. and other relevant information. the buyer who also indicates the type of inspection he wishes the company to undertake usually nominates the inspection company Packing List This is unique documents and not combined with other documents. Insurance document generally contains the following information: • • • • • • • • The name of the insurer or his agent The name of the ship/carrier The name of assured The subject matter of insurance The time and/or voyage insured Te peril (s) insured against The valuation The stamps etc. which direct correspondence between importer and exporter. The sales contract. Proforma Invoice Proforma Invoice (PI)/indent is the sale contract between seller and buyer in export-import business.Page 30 of 70Page 30 of 70 Page│30 Inspection Certificate This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality. Insurance Document: Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the agreed manner and extent against fortuitous losses. There is slight difference between indent and PI. On the other hand. is called Proforma Invoice (PI). there may be an agent of exporter in importer’s country. specification or other aspects of the goods. This is a listing of the contents of each package. as called for in the contract and/or the L/C. In this regard. if the Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
number (H. The Chief Controller shall issue permission /permit on the basis of above documents. Code Number against each item required to be imported. T. Certificate of Origin A certificate of origin is a signed statement providing evidence of the origin of the goods.S.S. inviting him to buy the goods on stated terms.Page 31 of 70Page 31 of 70 Page│31 sale contract is occurred between the agent of at importer and exporter then it is called indent. b. based on the Harmonized Commodity Description and Coding System shall be mandatory. Form. 3.S. Code) with at least six digits corresponding to the classification of goods as given in the Import Trade Control Schedule 1988. Code) thereon. • NOC (No Objection Certificate) On the basis of ROR (Right of Refusal) a. Code as mentioned above. S. quantity/number. Code published by Bangladesh Bureau of Statistics may also be mentioned in the Letter of Credit. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . The chamber of commerce of the importing country usually issues this certificate. C.6 General condition of import of goods • Import Trade Control Schedule Number For import purpose. The seven Digit H. The details about the aided project and specific provision of the relevant contract and other necessary information shall also have to be furnished along with the list of the items. No Objection Certificate on the basis of Right of Refusal (ROR) form any authority shall not be required for import of any freely importable item by any Public Sector agency. No bank shall issue Letter of Credit Authorization form or open Letter of Credit without properly mentioning I. use of ITC Number (H. Letter of Credit and other relevant paper within a bracket in addition to normal H. price and H. S. Proforma Invoice/indent is a form of quotation to a potential buyer. In case of import of banned/restricted items for approval projects financed under foreign aid the concerned Government Department/Agency will approach the Chief Controller of the Import and Export directly for necessary permission together with a list of items duly certified under proper seal and signature giving description. It should be clearly stated that it is Proforma and if it is accepted the details are normally transferred to a commercial invoice.
Shipping Directorate to be obtained. which are recognized by Custom Authority. “country if origin shall be mentioned clearly on goods. along with import documents to the Customer Authority at the time of release of goods. • Shipment of Bangladesh Flag Vessels a. b.. fragments of former Socialist Republic of Yugoslavia. Goods also not are importable in the flag vessels of that country. A certificate regarding “country of origin” issued by the concerned Government agency/approved authority/organization of the exporting country must be submitted. All kinds of import form and export to Serbia and Montenegro. In case of import of Limestone. as raw-materials for Chattak Cement Factory. • Pre-shipment inspection Unless otherwise specified. Goods weighing upto 20 MT for import by individual importer and upto 100 MT import by group importers can be shipped on a non Bangladeshi vessel. Goods form Israel or goods originating from that country shall not be importable. In case of import and export of goods by export oriented industries shipment may be made in non-Bangladeshi flag vessel • Import by Mentioning “Country of Origin” 1. b. While exceeding said quantity shipment to be made on Bangladeshi vessel. package/container. 2. pre-shipment inspection of imported goods shall not be obligatory in case of import by private sector importers. otherwise general waiver from the Director General. shall be waived from the restriction of “country of origin” subject to the conditions imposed by the Foreign Exchange Regulation Act. In all cases of import. Besides. Bangladesh Bank and Commercial bank. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . instead of each consignment/lot for the quantity mentioned in Letter of Credit in case of river way and as per supplied carrying list as case of rode-way.Page 32 of 70Page 32 of 70 Page│32 • Restriction regarding source of procurement of goods a. 100% export oriented industries. shall be banned. “country of origin” certificate from the exporting country’s Government/approved authority/organization shall be submitted once to the Customs authority at the time of release of goods. in different consignments/lot by the rope-way or by river.
7 The Mechanism of Letter Of Credit is as follows: INDENTOR Advises and/or confirms Present document BUYER/ IMPORTER Application for opening L/C SELLER/ EXPORTER/ BENEFICIARY ISSUING BANK Forward Markets FIG: FOREIGN EXCHANGE MECHANISM Or REIMBURSING BANK Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC Pays or Reimburse Makes payments against document Issue L/C ADVISING BANK/ NEGOTIATING BANK Makes payment Submit document Instruction to pay or reimburse .Page 33 of 70Page 33 of 70 Page│33 3.
Page 34 of 70Page 34 of 70 Page│34 Chapter Four Import Business Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
It is also called Cross-Border Transaction. rates of exchange. sales taxes etc. through the Chief Controller of Imports & Exports (CCIE) while Bangladesh Bank through its Exchange Control Dept. 4. Firms. at the end of June or at the beginning of each financial year in July. Act 1947. Sources of finance and items permissible for import against: 1. Imports of goods from South Africa and Israel or goods originated from these two countries && on Flag Vessels of Taiwan.T. Companies Government.E.3 Import Policy Import Policy of the Govt. Govt. On the other hand the customs authorities at the import points physically supervise the imports of goods and ensure that the items of goods imported are permissible under I. It is an international Trade.Page 35 of 70Page 35 of 70 Page│35 4. and Semi-Government organization in Bangladesh. where applicable. such as payments for imports.1 Import Import is the purchase of foreign goods and services from abroad by Consumer. Cash foreign exchange. Foreign aids/credits/grants/barter and under 3. Controls the financial aspects. of Bangladesh in accordance with Import Control Act 1950 and public notifications issued there under from time to time. South Africa and Israel is prohibited.R. is embodied in the Import Policy order issued by the Govt. The import Policy order covers the following main issues: A. B. Items eligible for imports during the shipping period including list of banned items. under the provision of F. methods of remittances against imports. The CCIE announces the Import Policy covering various aspects of imports during the relative shipping periods.2 Import Trade Control Physical imports of goods into Bangladesh are regulated by the ministry of commerce. 2.C. 4. Wage Earner's Scheme/Secondary Exchange Market Scheme. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . regulations before release of the same for consumption in the country on payment of import duty.
Import by TCB and other Govt. Procedure for imports under O. They are: 1. I. including formation of groups by smaller importers. The dates of opening of L/C and shipment and procedure for submission of Letter of Credit authorization (LCA) forms covering various items of imports. Commercial importer It means an importer registered under the importer. G. E.L.1 Types of Importer There are mainly two types of importer on which AB Bank deals with. J. Conditions for Import by established Importers and Industrial consumers.Page 36 of 70Page 36 of 70 Page│36 C. 4. the value of entitlement and ITC classification. H. Change of items by the commercial Importers..G. commercial importers and actual users. if any. Industrial Importer When issued to an industrial customer gives the items of import raw materials and packing materials and spare parts. F. 2. K. gives the category held by him ITC classification and public notice against which they are admitted into import trade. Basis of licensing for the category holders of various permissible items including repeat licensing procedure. Agencies. When issued to a commercial importer. here I have given the types of importer and import procedure at first. Conditions for entry of new comers into Import Trade. The Procedure for imports by Industrial consumers. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .4. D. Validity of licenses with regard to L/C opening and shipment thereof. 4. exporters and Indentors registration under 1981 that import goods for sale. L. Exporters and Indentors (Registration) Order-1981 from the CCI & E is treated as Importer. Rules relating to revalidation of license (LCA FORM) and extension of L/C. Before going to discuss the task of import section of the AB Bank Limited.4 Importer The person who deals in import business obtaining Import Registration Certificate (IRC) in terms of Importers.
Public Notices issued time to time by the office of the CCI& E. Foreign Exchange Regulation Act-1947 2. The following papers are required for submission to CCI and E • • • • • Valid Trade license Income tax clearance Certificate Nationality Certificate Asset Certificate TIN Certificate Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . 1950. 4. Import & Export (Controls) Act-1950 3. import or export any goods into Bangladesh except in case of exemption issued by the government of Bangladesh. Import Policy Order issued periodically by the Ministry Of Commerce 6. no person can indent. Exporters and Indentors (Registration) Order-1981 4.Page 37 of 70Page 37 of 70 Page│37 4. the users within monetary limit can import reading materials etc. 4.1 Procedure for obtaining Import Registration Certificate Through public notice or import policy the Chief Controller of Imports and Exports invites applicants usually for registration of importers. which do not involved remittance of foreign exchange like medicine. without registration.6 Registration of Importer As per import and export control act. ICC Publication-UCPDC-600 5. The first thing one need to carry out a business of import is called Import Registration Certificate (IRC).6. But registration is not required for import goods.5 Regulations behind Import Import of goods and services and payment there against are mainly regulated by Bangladesh Bank under the purview of following rules and regulations: 1. Importer.
Proforma Invoice/indent 5. LCAF. 4. Import Registration Certificate (IRC) 3. The following are the required documents: 1. L/C etc. Insurance cover note with money receipt 9. Others Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Bank Account 2. L/C application form duly attested 7.7 Import Procedure To import through AB Bank Limited a customer/credit required a set of document which is to be produce before the concerned official of the foreign department.Page 38 of 70Page 38 of 70 Page│38 • • • • • Bank Solvency Certificate VAT Registration Certificate Trade Association Certificate Memorandum & Articles of Association Certificate of Incorporation ( Incase of Limited Company) Persons exempted from registration The following persons/items don’t require IRC for Import • • • • • • Government Department Local Authorities and Autonomous Bodies Recognized Education Institutions Hospitals Import of goods for which no Foreign Exchange Remittance is required Import of Capital Machinery and initial Spares to set up a new industry This registration number is invariable required to mention in IMP form. Importers must be known to AD (Authorized Dealer). One set of IMP form 8. Membership certificate 6. Tax paying Identification Number (TIN) 4.
this can be the issuing bank or confirming bank. 4. The buyer gives an instruction to his bank (the issuing bank) to issue a credit in favor of the seller---The issuing bank then send message to another bank (advising bank) usually situated in the country of seller.Page 39 of 70Page 39 of 70 Page│39 The procedures that follow at the time of imports are as follows: • • • • • The buyer and seller conclude a sale of contract provided for payment by documentary credit. the bank then pay accept or negotiating according to the terms of credit. advice or confirm the credit issue. accepting and negotiating bank. It is issued for processing exchange copy of bill entry or certified invoice. Original copy for Bangladesh Bank 2. which goes outside the country for the purpose of payment. If the documents meet the requirements of the credit.7. 3. As soon as the seller receives the credit. if the credit satisfies him then he can reply that. IMP has four copies: 1. The advising bank then informs the seller through his bank that the credit has been issued. It is an application for permission under Foreign Exchange Regulation Act-1947 to purchase foreign currency for the payment of import. Bank named in the credit as the paying. Duplicate copy for authorized dealer. • The bank then checks the documents against the credit. Triplicate copy for authorized dealers record Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .1 IMP form This form is prepared for maintaining account of the money. This form is required by Bangladesh Bank. he can meet his terms and conditions. he is in position to load the goods and dispatch them. • The seller then sends the documents evidencing the shipment to the bank where the credit is available.
Description of goods. date and value in taka. LCA form no. The importer has to fill up an IMP form provided by the AB Bank.2 L/C Application Form for Import The L/C application form contains the following information regarding the importer/buyer. Quadruplicate copy for submission to the bank in case of import documents is required.Page 40 of 70Page 40 of 70 Page│40 4. Amount of remittance to be permitted. 4. Full name and address of the applicant. Country of origin.7. including details of quantity and unit price Whether freight is to be prepaid or not Details of document required The place of shipment or dispatch or taking in charge and the destination Whether partial shipments are prohibited The latest date of shipment. acceptance or negotiation A brief description of goods. Name of carrier. This form contains the followings Name and address of the authorized dealers. exporter/seller/beneficiary and the goods: The full name and address of the beneficiary The amount of credit The type of credit: revocable/irrevocable/irrevocable with the added conformation of the advising bank. Invoice value in foreign currency. Whether the credit is to be available by payment. dispatch or taking in charge The expiry date of credit How the credit is to be advised Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Port of destination. Port of shipment.
Page 41 of 70Page 41 of 70 Page│41 On the next step the importer applies to the bank for opening L/C then the next procedure for import starts. 4.3 Importers application for L/C Limitations After obtaining the IRC and letter of credit authorization the importer then apply to the bank’s foreign exchange department for L/C limit.7. MTSWIFT-700 or mail. L/C is normally sent through Fax. The documents needed for and the procedure of opening L/C is stated above. The L/C advising may confirm the issuing bank about the credit-worthiness of the beneficiary by sending a credit report if there exist a prior agreement between two banks. After careful inspection.7. It also sends to the reimbursing bank for reimbursement. The application contains: Full particulars of the bank A/C Types of business Amount of limit required terms of payment Security to be offered Goods description Repayment schedule and source of find flow etc. the letter of credit is sent to advising bank. the head office sanctions the L/C limit.4 Transmission of L/C After inspection of the terms and conditions that mentioned in Import L/C and signed by the authorized person of the bank.5 Adding confirmation of Import L/C Adding confirming bank is a bank which adds its confirmation to the credit and it is done at the request of the L/C opening bank. If the concerned officer of the office satisfied with the terms and conditions of the application then precedes it to the head office. Then the next step is: 4. The opening bank sends an original copy for negotiation and a copy of the advising bank for advising. 4. The credit report contents: Name and address of the beneficiary Constitution Nature of account with the advising bank Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .7.
if there is no account. Truck Receipt. Railway Receipt. then authorized and paid-up-capital etc One thing must be mentioned here that this credit report can be sought from the buyer or from the seller’s bank or from any other authority also known to the seller. maintained with them (the NOSTRO Account) or will seek reimbursing bank mentioned in Letter of Credit. prepare or collect necessary documents as required under the terms of Letter of Credit and presents the drafts to the negotiating bank along with the supporting documents for negotiation. pays the beneficiary. The negotiating bank negotiates the draft if the documents are found in order as per terms of the Letter of Credit. Simultaneously.g. 4. the confirming bank (if any) & the beneficiary. The beneficiary of the Letter of Credit (supplier).Page 42 of 70Page 42 of 70 Page│42 Business/company established/incorporated Nature of business activity Other allied activity Name and address of associate concern Experience as to their dealings It limited Co. The negotiating bank will reimburse itself either by debiting AB Bank’s Account.7.6 Amendment of Import L/C Parties of L/C mainly the buyer & seller can not always satisfy about the terms and conditions of the L/C due to some genuine reasons. 4. The nature of documents has to be sent by the negotiating bank will depend primarily on the terms of the Letter of Credit and secondly the sales contact between the buyer and seller. Barge Receipt) Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . In that situation. it can be amended or cancelled by the issuing bank at any moment & with prior notice to the beneficiary.7. the bank will send the documents to AB Bank. However. after effecting shipment of the goods as per Letter of Credit terms. the credit terms should be amended Incase of revocable credit. generally the following documents are asked to send: • Bill of lading or Airway Bill or other evidence of shipment (e.7 Receipt and scrutiny of Documents After opening the Letter of Credit the next step would be to await shipment followed by negotiation of documents by a bank abroad. if any. However in case of irrevocable credit it can neither be amended or cancelled without the agreement or the issuing bank.
If the importer doesn’t accept the banker inform it to the negotiating bank within seven banking days from the date of receipt of the documents. that is to be informed to the importer that whether he accepts the bills with discrepancies or not.8 Scrutiny of Document On receipt of the documents the branch shall immediately set itself to the task of scrutinizing the documents. Shipment certificate Shipping advice Inspection of Survey Certificate. Examination of the documents generally includes the following points: • Completeness of the documents. otherwise it is treated to be accepted & the opening bank must be bound to pay against the bill and no complain against the bill will be accepted more than seven banking days following the date of receipt of the documents under Article no K1 (d) & Article no. 14 (c) of the UCPDC-500. • Consistency of the documents with each other. What they would ensure is that the documents received from the negotiating bank are drawn strictly in conformity with the terms of the Letter of Credit and respond to the requirement of the underlying Letter of Credit in every respect. If any discrepancy in the documents is found. That is why the documents should be scrutinized properly.Page 43 of 70Page 43 of 70 Page│43 • • • • • • • • • Certificate of Origin. Commercial Invoice. Paris. • Compliance with the Uniform Customs and Practices for Documentary Credits (UCPDC) issued by the International Chamber of Commerce.7. Draft or bill of exchange. Packing List. One of the basic principles of documentary credit is that all parties deal with document and not with goods (Articles 6 of UCPDC-500). Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Insurance cover note with insurance paid slip Quality Control Certificate 4.
disposal of the shipping documents and clearance of the goods from the customs authorities. This stage of the documentary credit operation is known as ‘Retirement of Import Bills’. 11) LCA no. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . On receipt of intimation. Bank prepares cost memo in printed form on account of the concerned party giving details head of charges payable.Page 44 of 70Page 44 of 70 Page│44 4. 5) Excess drawing.7. 12) Goods short shipped etc. The importer may ask the bank to retire the bill by debiting his account or may request for the providing LIM or LTR facility. 1) Inadequate number of invoice. Bangladesh bank permission no are not mention in the invoice. Thereafter the documents may be handed over to the importer against proper acknowledgement after certification and endorsement. 2) Submission of shipping documents after expiry of L/C 3) Late shipment.8 Common discrepancies of the imported document The followings are the discrepancies usually found in the documentary operation. 4. the importer is given necessary instructions with regard to retirement of the bill. if arranged earlier. The above discrepancies must be carefully noted and referred to the Importer for acceptance other wise bank would be liable for any problems arising out of them. 6) Shipping made from and to ports other than those permitted in the relevant L/C 7) No indication of “ freight prepaid” 8) Difference in weight in the invoice and with certificate.9 Retirement of the documents On receipt of cost memo/lodgment voucher the importer pays the necessary amount. adjustments of margin and PAD Account. 4) Stale documents. The branch will prepare the retirement voucher to reflect the amount of cost and other charges to be collected from the importer. 9) Specification of goods are not as per terms of L/C 10) Short submission of documents. On intimation the importer approaches with a letter for retirement of the document against full payment with up to date interest and charges payable.
• Under such circumstances. till such time. • Collateral Security Collateral security valuing double of the amount of LTR is to be obtained. • Loan Against Trust Receipts (LTR) Advances against a Trust Receipt obtained from the Customer are allowed to only first class tested parties when documents covering an import shipment of other goods pledged to the Bank as scrutiny are given without payment. However. • The consignment after clearance is stored in Bank’s own go-down duly insured against all risks. they maybe allowed to retire the PADs through LIM Account on retaining sufficient margin n the landed cost of the goods or as prescribed by Bangladesh Bank. Even if they are reluctant to provide aforesaid margin. for such advances prior permission/sanction form Head Office must be obtained. without resorting to any borrowing from the Bank on that behalf. Any exception to this rule requires approval by Head Office. The customer holds the goods or their sale –proceeds in trust for the Bank. • The delivery of the consignment is made on the parties against payment only. the loan allowed against the Trust Receipts is fully paid off. goods may be allowed to be cleared through LIM account under forced circumstances to same the consignment form incurring demurrage.9 Financing related with Import • Loan Against Imported Merchandise (LIM) Parties who are not in position to retire the documents. pilferage.Page 45 of 70Page 45 of 70 Page│45 4. and auction and to protect the interest of the Bank. goods are cleared only through approved Clearing Agent of the Bank. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Page 46 of 70Page 46 of 70 Page│46 Chapter Five Export Business Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Higher the export higher the reserve of foreign currency. CDA Avenue branch engage with various export-related activities for encouraging the exporter. collection and negotiate the export bill.3 Export Incentives a.Page 47 of 70Page 47 of 70 Page│47 5.1 Export Export means goods and services that are produced domestically and sold to buyers in another country. the export department of AB bank. Export brings foreign currency in the economy. provide the exporter export financing and helps the exporter in different issues. 5.2 Export Policy Export policies formulated by the ministry of commerce. GOB provide the guidelines and incentives for promotion of export in Bangladesh. 5. It has been decided to formulate these policies to cover a five year regime. through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government. The major function of this section is comprises with purchase. • • Financial Incentives Restructuring of export credit guarantee scheme Convertibility of Taka in current account • • • • • Exporters can deposits 40% of FOB value of their export earning in own accounts in dollar and pound sterling Export development fund Expansion of export period from 180 days to 270 days Tax rebate on exports earning Duty draws back Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Export policies also set out commodity wise annual target. The export-oriented private sector.
Page 48 of 70Page 48 of 70 Page│48 • • Bonded warehouse facilities to 100% export oriented firms Duty-free import if capital equipment for 100% export oriented firs b. General Incentives: • Trading course on external trade • Arrangement of international trade fairs. He can do this by contracting the buyer and directly or through agent. i.4 Export procedures The import and export trade in our country are regulated by the import and export control act 1950 under the export policy of Bangladesh the exporter has to get valid Export Registration Certificate (ERC) from Chief Controller of Import & Export (CCI & E). Registration of exporters: For obtaining ERC intending Bangladeshi exporters are required to apply to the controller/joint controller/deputy controller/assistant controller of import and export. The ERC is required to renew every year. in the prescribed form along with the following documents: Nationality and assets certificate Memorandum and Articles of Association and Certificate of Incorporation in case of Limited company Bank certificate Income tax certificate Tax certificate ii. • Simplification of exports procedures. 5. Securing the order: After getting ERC the exporter may proceed to secure the export order. Other Incentives: • Assistance in improvement of quality and packing of exportable items. commodity-based exhibits in the country and participation in foreign trade fair c. In this purpose the exporter may get help from: Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . quality. exporter has to get (writing or oral) for exporting exportable items from Bangladesh detailing commodity. 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. price. Bank & UCPDC 600 published by ICC): The terms of the L/C are in conformity with those of the contract The L/C is an irrevocable one preferably confirmed bye the advising bank The L/C allows sufficient time for shipment and negotiation.Page 49 of 70Page 49 of 70 Page│49 License officer Buyer’s local agent Export promoting organization Bangladesh Mission Board Chamber of Commerce Trade Fair etc. iii. iv. exporter should ask the buyer for Letter of Credit clearly starting terms and conditions of export and conditions of export and payment (here the regulatory framework is foreign exchange regulation of B. Terms and conditions should be stated the contract in case of other mode of payment: Cash in advance Open account Collection basis v. Signing the contract After communicating buyer. Receiving Letter of Credit After getting the contract for sale. shipment. vi. insurance and marks. Shipment of Goods Then the exporter should take the preparation for exporting arrangement for delivery of goods as per L/C and in terms prepare and submit shipping documents for payment/acceptance/negotiation in due time. inspection and arbitration etc.
2) Particular Verification • Each and every document should be verified with the L/C 3) Cross Verification • Verification of one documents to another Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .6 Export documentary checking 1) General Verification • • • L/C restricted or not Exporter submitted documents before expire date of credit Shortage of documents etc.Page 50 of 70Page 50 of 70 Page│50 5.5 Documents needed for export procedure • • • • • • • • • • • • Export Registration Certificate (ERC) from CCI & E L/C document EXP form duly signed by the exporter Certificate of origin Shipping documents Inspection certificate Packing list & Bill of Lading Invoice Transport documents Quality control certificate Customer Duty Certificate Bill of Exchange 5.
These are: • • • Settlement by payment Settlement by acceptance Settlement by negotiation 5.A. • Direct cash payment 1. In this case the export documents are presented to importer though a bank in the country of importer and if Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . either effects payment or reimburse in the pre-agreed manner. The issuing bank also checks the documents and if they are found as per credit requirement. The exporters collect the remittance and subsequently export goods as per terms of the contract. accept or negotiate to the issuing bank. Settlement means fulfill the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. and M. Direct cash remittance Exporter may receive value of export in advance from importer before the actual shipment of goods.T. This settlement may be done under three separate agreements as stipulated in the credit. or T.T. The seller being satisfied with the terms and conditions of the credit proceed to dispatch the required goods to the buyer and after that have 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. This may be done by cheque.D (Cash Against Document) Sometimes goods are exported on Cash Against Document basis.Page 51 of 70Page 51 of 70 Page│51 Parties involved in L/C. If the documents are found in order the bank will pay. draft.7 Types of Payment There are different types of payment method used in international trade and letter of credit may include one of them. In such a situation the credit should be amended. particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to the some obvious and genuine reasons. C. 2. favouring exporters.
Bank presents the drafts to the drawee for acceptance. As in this method generally no bill of exchange is drawn on the importer. at the request of exporter takes delivery and keeps the same in Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Documentary sight draft (D/P) This is one of the most widely used methods of case payment in export trade. Export of goods on consignment sale basis request prior permission from Exchange Control Authorities. which is retained by the Bank along with shipping documents with them till payment is made in full. is drawn on importers. The exporter retains title to the goods exported. Exporters ship goods to the agent who receives and sells the same ad remit sale proceeds to the exporter after deduction of commission and other charges along with a statement called Account Sale. Documentary Usance Bill Sometimes the usance bill of exchange. 6. 90 d/s.Page 52 of 70Page 52 of 70 Page│52 the importer is satisfied with the documents he pays the bill in cash and takes delivery of the shipping documents (B/L. 4. the foreign bank. 60 dld etc. Consignment sales Goods may be exported on consignment sales basis. The exporters ship goods and draw a sight bill of exchange (draft) on the importers and the same is presented to the drawee (importer) along with the shipping documents for payment. If goods arrive at the port of destination. the seller (exporter) is exposed to possible default on the part of the importer. 3. Drawee accepts the draft. Invoice. Drawee pays the draft (bill of exchange) and takes delivery of documents. which is payable after a certain fixed period of time says.). As per exchange control regulation only non-traditional item can be sent on consignment basis.. Bank in importing country gives delivery of documents to importers only against payment of the bill. Delivery of documents against trust receipt Sometimes drawee may take possession of the goods against "Trust Receipt" and in this case responsibility for repatriation of export proceeds lies with the foreign bank that allows release of the goods to the importers against Trust Receipt. 5. In case of sale on consignment basis the exporter must have sufficient knowledge regarding financial status of the agent. The exporter signs an agreement with importer to act as an agent of the exporter. In this method exporter retains the title to the goods till the importer finally pays the bill. etc.
Documents against Acceptance (D.e. Bill) Sometimes drawee may take possession of the goods against "Trust Receipt" and in this case responsibility for repatriation of export proceeds lies with the foreign bank that allows release of the goods to the importers against Trust Receipt.A. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for foreign country. In this method exporter retains the title to the goods till the importer finally pays the bill. • Credit payment 1.8 Export Financing Financing report constitutes an important part of a bank’s activities. Pre-shipment credit is given for the following purposes: • • • • • Cash for local procurement and meeting related expense Procuring and processing of goods for export Packing and transporting of goods for export Payment of insurance premium Inspection fees. In this case drawee is entitled to some rebate at an agreed rate for the unexpired period of the draft i.Page 53 of 70Page 53 of 70 Page│53 warehouse. Pre-shipment credit Pre-shipment credit is given to finance the activities of an exporter prior to the actual shipment of the goods for export. An exporter can obtain credit facilities against lien on the irrevocable. confirmed and unrestricted export letter of credit in form of the following: A) Export cash credit (Hypothecation) Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Exporters require financial services at two different stages of their export operation. 5. Drawee pays the accepted draft on due date and take delivery of the documents. But the drawee may also pay the draft before the due date and consequently take possession of the goods. difference between the due date and the date of payment. 1.
As the bank has got no normally insists on the furnishing collateral security. 2. or packing of goods on the basis of L/C. the bank can sell the pledge merchandise for recovery the advance C) Export cash credit against trust receipt Under this agreement credit is allowed against trust receipt & the exportable goods remain in the custody of the exporter but he is required to execute a stamped trust receipt in favor of the bank. processing. a credit is sanctioned against hypothecation of the raw materials. D) Packing Credit Packing credit means any loans or advances granted or any other credit provided by an institution to an exporter for financing the purchase. Such facility is allowed to the first class exporters. Post-shipment credit Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . In this case credit facilities are extended against pledge of goods to be stored in the warehouse under bank’s control by signing letter of pledge & other pledge document. wherein a declaration in made that goods purchased with financial assistance of the bank are held by him in order to utilize the credit for processing & rendering the goods in exportable condition. In the event of failure of the exporter to honor his commitment. E) Back-to-back letter of credit After receiving order from the importer very frequently exporters face problems of scarcity of raw materials because some raw materials are not available in the country. This L/C is called back-to-back L/C.Page 54 of 70Page 54 of 70 Page│54 Under this agreement. In that case exporter gives lien of export L/C to bank as security and opens as L/C against it for importing raw materials. B) Export cash credit (Pledge) Such credit facilities are allowed against pledge of exportable goods or raw materials. These have to be collected from abroad.
5.Page 55 of 70Page 55 of 70 Page│55 The need for post-shipment finance arises because exports that sell goods abroad have to wait for a long time before payment is received from the overseas buyers. Bank generally finances the exporters at post-shipment stage on verifying of the creditworthiness and financial soundness of both the buyers and sellers.9 Export Flow Chart Receiving the order Asking to open L/C Booking of freight Booking of exchange rate Procurement of goods Getting the goods insured Shipment of goods Advice of shipment Preparing export papers Securing payment Close of transaction Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . In the meantime.A bills Advance against Foreign Bill under collection. Post-shipment credit ordinarily takes the following shape. Banks are the main source for the exporters to seek the finance. • • • Negotiation of documents under L/C Purchase of Foreign Bill under D. The actual period of waiting depends on the payment terms. the exporter needs funds to carry on his normal export activities.P and D.
Page 56 of 70Page 56 of 70 Page│56 Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Page 57 of 70Page 57 of 70 Page│57 Chapter Six Foreign Remittance Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
1 Foreign Remittance Foreign remittance means remittance of foreign currencies from one place/person to another place/person. Travel and other purpose. Purpose of inward remittances: Family maintenance Indenting commission Donation Gift Foreign investment Export proceeds Others Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . favoring a beneficiary in Bangladesh.2. Actually inward remittance means remittance received in form abroad through normal banking channel in the form of foreign TT. 1994 Bangladesh Taka was declared convertible for current account International Transaction. MT. Bills and Drafts. 6. Only a few remittance of special nature require Bangladesh prior approval. purchase of traveler’s cheques. foreign currency notes and coins. Cheques. DD. In broad sense foreign remittance includes all sale and purchase of foreign currencies on account of import. However specifically foreign remittance means sale and purchase of foreign currencies for the purpose other than export and import. On March 24.1 Inward Remittance Inward remittance covers remittance on account of export and private remittance on sundry items.Page 58 of 70Page 58 of 70 Page│58 6. TCs etc. export.2 Types of Remittance All foreign remittance transactions are grouped into two broad categories i) ii) Foreign inward remittance Foreign outward remittance 6.
AD branches can sale Travelers Cheques as per the ceiling fixed by Bangladesh Bank. Mode of outward remittance: Foreign Telegraphic Transfer (FTT) Foreign Mail Transfer (FMT) Foreign Demand Draft (FDD) Traveler’s Cheque (TC) Foreign currency Notes Local branches can draw TT to those banks with which they have accounting relationship & message should contain test & brief description of the beneficiary. sale of foreign currency by TT. Foreign remittance can be cancelled such as unitized foreign currency against passport endorsement or cancellation of loyalty issued foreign demand etc.2 Outward Remittance The term “outward remittance” includes not only remittance i.2.Page 59 of 70Page 59 of 70 Page│59 Mode of inward remittance Telegraphic Transfer (TT) Mail Transfer (MT) Foreign Demand Draft (FDD) Payment Order (PO) Traveler’s Cheque (TC) Foreign currency Notes. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Any Authorized Dealer (AD) branches can issue foreign drafts draw on the bank with which they have an accounting relationship. AD branches can issue foreign currency notes as per ceiling fixed by Bangladesh Bank. Traveler’s Cheque but also includes payment against imports into Bangladesh and local currency credited to non-resident Taka account of foreign banks or convertible taka account. MT.e. 6. Drafts.
Page 60 of 70Page 60 of 70 Page│60 Chapter Seven Performance Evaluation Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
Page 61 of 70Page 61 of 70 Page│61 Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
24 50000000 40000000 30000000 20000000 10000000 0 2007 2008 2009 Im port ( in USD) Figure: 01 From the above figure it is clear that the volume of import is increasing gradually and mentionable that 2008-2009 is noteworthy. For this reason CDA Avenue branch is also engaged in trade financing. Frequent fluctuation of domestic currency worth against US dollar. Due to political unrest. I have analyzed the performance of last three years from 2007 to 2009.1 Evaluation of Foreign Exchange performance Foreign exchange business plays a crucial role in the overall business of a country.1. 7. They are known as authorized dealers. In exercise of the powers conferred by the foreign exchange regulation act 1947 certain schedule banks authorized by the Bangladesh Bank to deal in Foreign Exchange.45 2009 47556059. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock. In that period the demand of import decreased significantly. unavailability and shortage of foreign currency was also important reasons for small growth of import.1 Analysis of Import Years Import (in USD) 2007 14493091.Page 62 of 70Page 62 of 70 Page│62 7. adverse economic condition and economic recession was the main reason of flat growth of import business during 2006-2007 and 2007-2008.08 2008 25381706. the selected branches of the bank can transact such business.
3 Analysis of Foreign Remittance Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .Page 63 of 70Page 63 of 70 Page│63 But growth of import from 2008 to 2009 is remarkable due to inclusion of several corporate customers and accordingly the profit during 2008-2009 is increased. 7.1.51 300000 250000 200000 150000 100000 50000 0 2007 2008 2009 Export (in USD) Figure-02 ABBL.00 2009 44038. The reason behind this notable change is the insertion of several big corporate groups with renowned buyer and as a result volume of export was outstanding.1. disturbed economic growth was prevailed. From the analysis of export volume it is seen that in 2007-2008 there is a remarkable growth of export. Inharmonious international relationship also had a great affect on volume of export 7.2 Analysis of export Years Export (in USD) 2007 32680. But in 2008-2009 the volume of export again reduced to USD 44038.51 due to aversion of exporter to export outside of country as political instability. The branch was in progressing position because of the economic condition was good position in compare to previous year.33 2008 292725. CDA Avenue Branch was doing the foreign exchange business from the very beginning of the branch and export renaissance also started that time.
99 2009 2032263.34 which is better than previous year. remittances is gradually increasing 2008-2009 and at the end the December the volume of USD 2032263.Page 64 of 70Page 64 of 70 Page│64 Years 2007 Remittance(in USD) 2004108.14 2008 1527503.34 2500000 2000000 1500000 1000000 500000 0 2007 2008 2009 Remittance(in USD) The above table and graph shows that the total foreign remittance earning is not up to the mark due to lack of non resident account & less relationship with different exchange house all over the world. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Due to change of management policy for collecting huge amount of foreign remittance back signed a number of MOU with foreign exchange house and insertion of several shipping companies.
e.operational risk can arise out of many situations i. c. Foreign exchange risk management involves two steps: • • Identifying Risks Measures of controlling Risks 1. 2. legal risk etc.Through selection of counter party and fixation of counter party limits. Currency composition. b. Others.There is two types of market risk as and when investment is made in foreign currency i. d. stop-loss limit. Operational risk. b. e.. Credit risk.day-light limit/intra-day-limit-overnight limit. investment portfolio. Operational risk. Market risk.Page 65 of 70Page 65 of 70 Page│65 7. loss of reputation and/or destabilization of cash flows. (i) currency exchange rate risk and (ii) interest rate risk. Measures of controlling risk a.Liquidity risk is the risk that a bank will be unable to meet its funding requirements or execute a transaction quickly and at a reasonable price. Identifying Risk a. It never can be avoided but to minimize.To minimize these types of risks we can follow a benchmark. country limit etc. c.2 Risk assessed in Foreign Exchange Business Risk is uncertainty of outcome leading to loss of money. (ii) middle office and (iii) back office.open position limit:. (i) front office. Liquidity risk. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . are included in the benchmark. d. It is an inherent part of foreign exchange trade and money market operation. on account human error or faulty systems and procedures. country risk. duration etc. currency-wise limit.e. Credit risk/counterparty risk. Liquidity and market risk. dealer-wise limit.It is the risk of loss due to inability or unwillingness of the counterparty to meet its obligation. Other risks viz.To ensure the minimum level of operational risk there are three offices/groups/desks viz.
Page 66 of 70Page 66 of 70 Page│66 Chapter Eight Concluding Aspect Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
CDA avenue branch. it is a problem for him/ her to arrange an introducer of SB or CD accounts holder. I have reached a firm and concrete conclusion in a very confident way.Page 67 of 70Page 67 of 70 Page│67 8. remittance business is not enough than other competitor. • Import and export business are remarkably increasing in 2006 & 2007 respectively then previous year but later on not continue due to discontinuation of corporate business and stuck up of previous financing • For implementation of BASEL II the bank not yet started its work to make a rating based bank. But now in every case BASEL II is very much needed which will help to adopt better banking position in the country. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . As result Bank is falling behind in competition. • According to some clients opinion introducer is one of the problems to open an account. The foreign exchange of AB Bank.1 Findings From the practical implementation of customer dealing procedure during the whole period of my practical scope in AB Bank. • In case of big L/C payment exchange rate or fluctuation of currency create problem which is harmful for foreign exchange business • Foreign exchange house relationship & non-resident account. If a person who is new in the city wants to open an account. CDA Avenue branch is facing the following problems which are barrier to improve their performance and distinguish from others: • Want of modern technical equipment such as good software & computer the mechanism of L/C process sometimes makes complication. The bank provides only some traditional limited service to its client. • Lack of variety of service is also a drawback of the general Banking area of the AB Bank of Bangladesh Ltd.
• New updated banking software should be installed for foreign exchange department and bank should take proper step for implementation of BASEL II. • For better profit than others we have to create good relationship with renewed corporate client who have huge amount of Import & Export & remittance business.2 Recommendations Here are the following recommendations embedded with: • Bank will have to arrange more training program for the FOREX officers to improve their analytical ability. • Bank should make more relationship with the foreign exchange house & special strategies will have to take for increasing non resident account. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . Reducing interest on such credit facilities would induce the clients to do more global trade thus increasing bank’s profit as well as the well being of the country’s economy • Bank should consider exchange rate at the time of big payment & L/C margin & commission should be uniform. indenting & shipping line account. • The bank needs to create new marketing strategy which will attract more clients including priority customer and thereby increase the total export import business. Usually the rates of interest on these credits are excessively high which actually discourages the customers. • Payments for L/C’s could also made through pre arranged credit facilities that the customer may have with the bank. • There is no customer complain desk which causes dissatisfaction about document negotiation. communication skill & professional standard regarding the customer dealing & different foreign exchange operation.Page 68 of 70Page 68 of 70 Page│68 8.
CDA Avenue branch. Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC . AB Bank Limited wants to cross the nation boundaries.3 Conclusion Now a day the world is called global village. AB Bank Limited plays an important role in our national economy. The employees of the AB Bank are well organized. I hope in spite of my all limitations this experience of sharing works with such working environment will help me a lot in professional life. It was huge gratification for me to do my internship program in a venerated organization like ABBL. ABBL is a company which has so far shown good performance and holds the strongest position in the banking market. It presents me ample opportunity to scrutinize the functions of bank through the superior assistance of its members.Page 69 of 70Page 69 of 70 Page│69 8. Already they develop a global network. They maintain a good employee relation policy. Overall the bank must make a positive attempt to be more outward looking in their goals and aware of what is happening. it reaches around the world. Because business does not have national boundaries.
R Chowdhury Import & Export Policy – Publication of Ministry of Commerce Guidelines for Foreign Exchange Transaction & Documentary CreditsPublication of Bangladesh Bank Banking Manual Of ABBL Prospects of ABBL Annual Report of ABBL www.abbank.Page 70 of 70Page 70 of 70 Page│70 References Gordon E. : Banking Theory. & Natarajan K.com. Law and Practice (Himalayan Publishing House. 2000) International Trade Finance-Journal (Bangladesh institute of Bank Management) Foreign Exchange – L.bd Prepared By: Tania Ahmed Chowdhury | B061246 | Finance & Banking | BBA | IIUC .
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