report on nccbl ,jubilee road brunch
DESCRIPTION
Foreign Exchange business of NCCBLTRANSCRIPT
Internship Report
FOREIGN EXCHANGE BUSINESS OF NCC BANK LIMITED-A Study on Jubilee Road Branch, Chittagong
(This internship report is submitted for the partial fulfillment of the degree of Masters of Business Administration with a major in Finance & Banking)
Prepared by
Didarul AlamID No: R-121137Program: RMBA
Semester: Autumn-2012
Internship Duration: Submission Date:
Department of Business AdministrationFaculty of Business Studies
International Islamic University Chittagong
1
Internship Report
FOREIGN EXCHANGE BUSINESS OF NCC BANK LIMITED-A Study on Jubilee Road Branch, Chittagong
(This internship report is submitted for the partial fulfillment of the degree of Masters of Business Administration with a major in Finance & Banking)
Supervised by
Mr. Muhammad Mahbubur RahmanAssociate Professor
Department of Business Administration
Prepared by
Didarul AlamID No: R-121137Program: RMBA
Semester: Autumn-2012
Internship Duration: Submission Date:
…………………………………….Signature of Supervisor
Department of Business AdministrationFaculty of Business Studies
International Islamic University Chittagong
2
To
The Dean
Faculty of Business Studies
International Islamic University, Chittagong
Subject: Submission of Internship Report.
Dear Sir,
It is my pleasure to submit my Internship Report on ‘Foreign Exchange Business of
the NCC Bank Ltd Jubilee Road Branch, as a part of my MBA final examination.
Though it’s a new experience for me, I tried my best to gather relevant information for preparing a complete paper on this subject. Without the sincere co-operation and proper guidance of you, it was not possible for me to prepare the report. For this act of kindness I am grateful to you. This paper is not totally free from mistake due to some unavoidable limitations. I hope you accept it with gracious consideration.
Thank you
Sincerely Yours,
DidarulAlam
ID-R121137
MBA (major in Finance & Banking)
Trimester: Autumn-2012
IIUC
3
Acknowledgements
At the very beginning, I would like to express my deepest gratitude to the almighty Allah, the merciful and the benevolent who have enabled me to complete this report.It is indubitably an immense contentment on my part to have the opportunity to submit this internship report after 7 weeks of practical orientation in National Credit and Commerce Bank Ltd. (NCCBL), Jubilee Road Branch, Chittagong.
It was not an easy task to fit in a situation where I was never before. But I have I got an amiable and affable working atmosphere there. With the kind supervision of my honorable internship supervisor teacher and some cordial officials in the bank I was able to complete my internship program smoothly.
That’s why at the outset, I would like to convey my deepest gratitude to my honorable supervisor Mr. Muhammad Mahbubur Rahman, Associate Professor Department, of Business Administration, International Islamic University, Chittagong. I have been fortunate that I received encouragement and cooperation from him. I would not be able to complete this study without his counsel and kind cooperation.
I am very much indebted to Mr. Abdur Rahman Vice President and Manager, Jubilee Road Branch, NCCBL to give permission to do internship in the NCC Bank Ltd, Jubilee Road Branch, Chittagong.
I also want to render my special thanks to Mr. A.K.M..Humayun Kabir, Asstt.Vice President for his valuable guidance, support, co-operation, encouragement and advice throughout the internship program.
I also want to give thanks to Mr.Shaha Alam Head of the Foreign Exchange Department, Mr.Shahidul Alam, Senior officer of Foreign Exchange And Mr. DidarulAlam senior officer of Import section of foreign Exchange Department who helped me very much during my internship period.
Finally, I would like to express my gratitude to all the Executives and Officers of NCC Bank Ltd, Jubilee Road Branch who have given me their precious time.
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Executive Summary
The internship program is a partial fulfillment requirement of one year MBA program by which a student can gather practical knowledge. The aim of this program is to connect practical knowledge and theoretical knowledge. I was decisive to serve a financial institution and I got chance to placement in NCC Bank Ltd, jubilee Road branch Chittagong. To fulfillment of internship, time is not sufficient to prepare report on “Foreign Exchange Business of NCC Bank Ltd” at Jubilee Road Branch Chittagong.
The main objective of the study is to Analysis the Foreign Exchange Business of the NCC Bank Jubilee Road branch, Chittagong. To discuss the rules and regulations, Foreign Exchange Mechanisms are also in the way attaining the main goal. In this study primary data as well as secondary data has used. Primary data collected by personal interview and observation .The secondary data collected by bank annual report &web site, different training materials and articles etc.
This report has contained comprising with introductory chapter, Organizational overview, and foreign exchange business and performance evaluation of the Branch. Organizational overview parts includes different information related with introduction NCC bank, management, mission, vision, product & services, rendered by the company for the customer. The foreign exchange business discusses the rules and regulation, activities of import and export procedure, remittance, foreign exchange operation mechanism. The performance Analysis has presented regarding Foreign exchange business which exists Import and Export performance, Remittance, L/C opening, major importing and exporting country etc.
Finding of the Report have been presented that NCC Bank Jubilee Road Branch mostly deals in Import related business rather than export. Most of the clients are highly satisfied with the service provided by the officials in the branch and the find it best in comparison to other banks. The foreign exchange is running its operation by efficient hands and at the same time some minor problems have been identified from different sector of the department.
The report has been conducted by some Recommendation that identified problem and evaluation should be implemented to save the time, cost, difficulties and increase best performance of the bank.
Finally, the report concluded that proper financial system of a country can contribute towards the development of its economy. In our country, Banks are leading in the financial system. Certainly NCC Bank Jubilee Road Branch is mobilizing it’s all resources on this track to achieve maximum possible contribution to the nation. And the Foreign Exchange Department is performing this task is very efficient way.
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6
CHAPTER 01
1.1 INTRODUCTION
Bangladesh is a developing country. The common scene of Bangladesh now is that its
economic condition is improving and it is taken forward by the Banks of Bangladesh.
Commercial banking industry is one of the most important financial intermediaries
which are playing a great role to generate savings and it makes sure the proper
investment of the savings in different sector of our economy.
Commercial banks are cooperating different types of business in various ways which
is ensuring prosperity of business which ultimately means prosperity of economy as a
whole. By, now it has been proved that literally bank is the heart of all commercial
activities in Bangladesh and one of the most flourishing sector of our country. And,
foreign exchange business can help expansion of our economy. That’s why the banks
are now giving the maximum importance in financing Export, Import, and Remittance
business enormously.
This report concentrates on the overall performance of Foreign Exchange & Foreign
Trade in NCC Bank Ltd, Jubilee Road Branch Chittagong. From the very
beginning of taking birth, this Branch is playing an outstanding role for the betterment
of the Import & Export market in this country.
1.2 RATIONALE OF THE STUDY
The rationale of the study is to assess the banking system of National Credit &
Commerce Bank Limited (NCCBL). NCCBL’s banking service is one of the finest
services among the banking industry. With the state-of-the-art technology, efficient
employees and diversified services NCCBL is facilitating the banking operation for
Bangladeshi national. The benefit of the existence of NCCBL’s banking service in
this country is enormous because, NCCBL has countrywide operation with worldwide
network which facilitates the trade function of domestic exporter and importer with a
great professionalism and care. This also increases the opportunity for this country’s
entrepreneurs to expose in the industrial growth of the country with finance of
NCCBL. The increased financial growth of the bank over the year attributes the trust
and reliability of depositors and investors on NCCBL’s banking service. Simply, this
is one of the most important indicators of the superior performance of NCCBL.
7
In a situation of low rate of economic growth, high rate of inflation, unemployment,
the analysis of the status of contribution indicators of NCCBL banking operation to
the economy of Bangladesh is of immense significance.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is analyze the Foreign Exchange Business of NCCBL
Jubilee Road Branch, Chittagong. In line with the broad objective, the detailed
objectives of the study may be spelled out as follows:
To know about the Foreign Exchange Business of NCC Bank Ltd.
To discuss about the Export Business procedure of the sample bank.
To discuss about the Import Business procedure of the sample bank
To analyze the financial performance of Foreign Exchange Business of the
sample branch.
1.4 METHODOLOGY OF THE STUDY
The study is based on both primary and secondary data sources which have been mentioned below-
Primary Sources :
Face to Face conversation with the respective officers and staffs
In-depth study of selected cases.
Interview with the Clients.
Secondary Sources:
Annual Report of NCCBL
Official Website of NCCBL
NCC Bank Training Books, Catalogs
Relevant Books, Research Papers, News Papers and Journals
Internet and various study selected reports
8
1.5 SCOPE OF THE STUDY
Through a reliable report demands an effective comparison between different
branches of bank, this could not materialized due to paucity of time. However, an
exhaustive endeavor is taken by studying depth of National Credit & Commerce Bank
Ltd (NCCBL), Jubilee Road Branch, Chittagong keeping in view of several
departments of the branch.
1.6 LIMITATIONS OF THE STUDY
From the beginning to end, the study has been conducted with the intention of making
it as a complete and truthful one. However, many problems appeared in the way of
conducting the study. During the study, it was not possible to get know all about the
account opening systems and its procedures covered by the bank although the
financial statements and other information regarding the study have been considered.
The study considers following limitations-
Banking sector and its operation is a complex issue.
Authoress lack of in-depth knowledge and analytical ability for writing such
report on this issue pose problems for the report preparation.
Getting required information from busy officials within limited time period is
hamper the data collection.
This report suffers from a narrow data range for analysis.
Changing environment from the educational area to the professional area.
Banking sector is a large area and the time period for study in this area was
short
9
10
CHAPTER 02
2.1 PROFILE OF NCC BANK LTD
As Banking structure is changing day by day and the far-reaching program of
economic reform is carried out towards efficient utilization of scarce resources and
the development of private entrepreneurship, in the vast changing business
environment, financial intermediaries are gradually being left to be guided by market
forces rather than regulations. Competition is strengthened by the entry of new and
innovative providers of financial services through the development of Money Market
and Capital Market. Under the ongoing financial liberalization program, the NCC
Bank Ltd emerged as a fast growing leading and prominent bank in the private sector
to operate on the commercial arena of Bangladesh. The bank has been sponsored by a
group of renowned personalities from the field of trade, commerce and industries
including some eminent entrepreneur. Highly skilled professionals having wide
experience in domestic and international banking manage the bank. The NCC Bank
Ltd has already occupied a challenging position among its competitors after achieving
success in all areas of banking operation. It offers all kind of commercial, corporate
and personal banking services covering almost all segments of the society. To serve
the customers through capacity building across multi delivery channel is one of the
main strategies of the NCCBL. The bank is gradually expanding branch for coming
nearer to its customers for providing various convenient services. Thus, in the local
market the operation of the NCCBL is highly appreciated for its customer oriented
focus.
2.2 HISTORICAL BACKGROUND OF NCCBL
At the first leg of the decade of 1980s, the Government of Bangladesh changed its
policy regarding Banking Business, which was until then restricted to the public
sector only besides a few number of foreign banks. With the change of policy, the
country witnessed advent of banks in private sector. This shift in policy also paved the
Way of establishing non-banking finance company to build up capital market of the
country.
At that time on 25th November 1985 National Credit Limited here in after called NCL
was established and incorporated as a public limited company in order to operate as a
financial company with its registered Head Office at 7-8, Motijheel C/A, Dhaka-1000.
The aim of the company was to mobilize resources from within and invest them in
11
such a way so as to develop country’s industrial and trade sector and playing a
catalyst role in the formation of capital market as well. The NCL faced severe setback
in 1992 in respect of business and came on the verge of collapse. However, with the
initiative of Boards of Directors and Management and with the permission of the
Central Bank, NCL was converted to a full-fledged private commercial bank in the
name and style of National Credit and Commerce Bank Limited hereinafter called
NCCBL on 17th May, 1993 with authorized capital TK 75.00 crore and paid up capital
TK 39.00 crore. Day by day NCC Bank has achieved a standard position among all
financial institution as a full-fledge commercial bank.
2.4 MISSION & VISION OF NCCBL
Mission: To mobilize financial resources from within and abroad to contribute to
Agricultures, Industry & Socio-economic development of the country and to
Pay a catalytic role in the formation of capital market.
Vision: To become the Bank of choice in serving the Nation as a progressive and
Socially Responsible financial institution by bringing credit & commerce
Together for profit and sustainable growth.
2.5 GOAL OF NCCBL
General goal: To Share a significant portion of the banking sector by utilizing
available manpower and state of the art technology for
maximizing the shareholders wealth.
Long term goal: To maximize the wealth of shareholders.
Short term goal: To earn satisfactory rate of return on investment by providing
wide range of banking services.
2.6 PHILOSOPHY OF NCCBL
At present, the bank has as many as 84 branches across the country and it is
committed to become equal service providers compatible with the norms of
commercial schedule bank. It renders all types of personal, commercial and corporate
banking services to its customers within the purview of the Bank Companies Act,
1991 and in line with the directives and policy guidelines laid by down, by
Bangladesh bank.
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2.7 OBJECTIVES OF NCCBL
The NCCBL has been established with the objective of providing efficient and
innovative banking services to the people of all sections of our Society One of this
bank is that it is backed by the disciplined and strongest Institution of Bangladesh.
The bank has extensively in the country’s industrial and agricultural sectors in the
coming days. The bank is committed to contribute as such as possible within its
limitations for the economic growth and for ensuring value of its available resources.
2.8 BRANCH NETWORK OF NCCBL
NCC is the Private bank in Bangladesh. There are 84 branches all over the country. Among them 34in Dhaka Division, 33 branches in Chittagong Division, 3 branch in Khulna Division, 6 branches in Sylhet Division , 7 branch in Rajshahi Division and 1 branch in Barisal Division .
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National Credit & Commerc
e Bank Ltd.
National Credit & Commerc
e Bank Ltd.
Khulna 3
Khulna 3
Barisal 1
Barisal 1
Dhaka 34
Dhaka 34
Chittagong 33
Chittagong 33
Sylhet 6
Sylhet 6Rajshahi
7Rajshahi
7
Figure: Total Branch of the National Credit and Commerce Bank Limited
2.9 ORGANIZATIONAL STRUCTURE OF NCCBL
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Managing Director (MD)Managing Director (MD)
Deputy Managing Director (DMD)Deputy Managing Director (DMD)
Senior Executive Vice President (SEVP)Senior Executive Vice President (SEVP)
Executive Vice President (EVP)Executive Vice President (EVP)
Senior Vice President (SVP)Senior Vice President (SVP)
Vice President (VP)Vice President (VP)
Senior Assistant Vice President (SAVP)Senior Assistant Vice President (SAVP)
Assistant Vice President (AVP)Assistant Vice President (AVP)
Senior Principal Officer (SPO)Senior Principal Officer (SPO)
Principal Officer (PO)Principal Officer (PO)
Senior Officer (SO)Senior Officer (SO)
Officer (G-1)Officer (G-1)
Junior Officer (JO)Junior Officer (JO)
Assistant Officer (AO)Assistant Officer (AO)
2.10 EXECUTIVE STRUCTURE OF JUBILEE ROAD BRANCH
2.11 DEPARTMENTS OF JUBILEE ROAD BRANCH Several departments are in Jubilee road branch to support for smooth running of the banking operation.
15
General BankingGeneral Banking
CashCash
Ledger & DepositLedger & Deposit
AccountsAccounts
Loan and AdvanceLoan and Advance
ClearingClearing
RemittanceRemittance
Fixed Deposit Receipt (FDR)Fixed Deposit Receipt (FDR)
Foreign ExchangeForeign Exchange
Departments of Jubilee Road BranchDepartments of Jubilee Road Branch
Accounts OpeningAccounts Opening
ExportExport
ImportImport
Foreign RemittanceForeign Remittance
Vice President (VP)
Assistant Vice President (AVP)
Senior Principal Officer (SPO)
Senior Officer (SO)
Principal Officer (PO)
Officer (G-1)
Junior Officer (JO)
Assistant Officer (AO)
Others
2.12Products & Services of NCCBL Deposit Products
Current A/C
Savings Bank Deposit A/C
Short Term Deposit A/C
Term Deposit A/C
Premium Term Deposit A/C
Instant Earnings Term Deposit A/C
Special Savings Scheme
Special Fixed Deposit Scheme
NFCD
RFCD
Money Double Program
Loans and Advance Products
1. Commercial and Trade Financing
2. Long Term (Capital) Financing
3. House Building Financing
4. Retail and Consumer Financing
5. SME Financing
6. Agricultural Financing
7. Imports and Export Financing
8. Working Capital Financing
Cards
1. ATM Card
2. Credit Card (Local, International and Dual)
Remittance Products
1. Special Interest rate on Savings and Term Deposits
2. Wage Earners Welfare Deposit Pension Scheme
3. Loans for Real Estate (Land purchase and House construction/renovation)
4. Advance against Regular Remittance
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ServicesBrokerage House
1. Member, Dhaka Stock Exchange Ltd.
2. Full Service Depository Participant
Treasury Service
1. Primary Dealer of Govt. Approved Securities
Remittance Service
1. Correspondence arrangement with more than 330 Financial Institutions all over
the World
For Wage Earners Remittance we have Agency arrangement with 12 reputed Exchange Houses covering major Locations of our Expatriates
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2.13PERFORMANE OF NCC BANK LTD Five Years Financial Highlights Taka in MillionParticulars 2008 2009 2010 2011 2012Authorized Capital 2500.00 2500.00 2500.00 5000.00 10000.00
Paid up Capital 1201.79 1352.01 1757.62 2284.90 4501.25Reserve fund & other Reserve 1215.58 1995.36 2863.63 4371.62 5771.09
Equity Fund 2417.37 3326.52 4621.25 6656.52 10272.34
Deposit 28147.34 34901.77 46904.66 53900.15 67961.24
Loans & Advances 24678.36 32687.75 46332.69 50387.68 63230.14
Investments 3552.08 6266.62 6526.82 9671.53 10980.81
Import Business 17646.80 28779.21 38796.88 33078.44 41245.21
Export Business 8557.00 9577.92 12522.04 11903.72 16125.52
Operating Income 3913.19 5269.03 7417.64 9333.03 10157.99Operating Expenses 2645.62 3488.78 5054.15 61.95.33 6057.79Operating Profit 1267.57 1780.25 2363.49 3137.70 4100.20Profit before Tax 1056.51 1356.32 1788.96 2686.49 3248.23Profit after Tex 479.22 677.18 882.28 1719.50 2371.68Retained Profit 7.83 8.13 5.34 46.47 388.11Total Assets (Excluding Contra) 32615.01 42522.85 57365.52 65937.49 83554.18
Fixed Assets 353.71 522.00 775.31 849.10 1191.49Number of Branches 48 53 57 65 79Number of Employees 1118 1230 1400 1496 1622Earnings per Share 3.99 5.01 5.02 7.53 5.33Dividend (Cash %) 10.00 - - - -Dividend (Bonus %) 12.50 30.00 30.00 47.00 32.00ROE % 19.82 20.23 21.76 28.49 25.35ROA % 1.47 1.59 .54 2.61 2.84Capital Adequacy Ratio 9.78 10.61 10.61 13.55 10.91Nonperforming loan as % of Total Advances
4.95 4.17 4.14 2.84 2.27
Volume of Non-performing Loans
1212.26 1353.31 1902.58 1420.57 1425.28
Amount of Provision against Classified Loans
523.58 644.11 912.90 720.22 742.80
Amount of Provision against unclassified Loans
282.09 388.78 456.07 509.67 740.31
Amount of Provision against Off-balance sheet exposures
- 51.69 109.41 111.93 174.93
Advance Deposit Ratio% 87.68% 93.66% 98.78% 93.48% 93.04%
Source: Annual Report 2011, NCCB
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2.14 SWOT Analysis
SWOT stands for Strength, Weakness, Opportunity and Threat. The SWOT of NCCBL has been shown below-
Internal factorsStrength Weaknesses
Existence of strict and standard Foreign exchange department.
Young Enthusiastic workforce Experienced manpower in
Foreign in foreign exchange department
Strong financial position
Lack of trained and highly educated officers.
Absence of modern equipment in banking needs.
Lack of proper media presence.
Lack of advertisement of the Foreign exchange banking
Some officials are having attitude problem at workspace.
External factors Opportunities Threats
Country wide Network More Experienced and
Managerial Know-How Debit Cards Can recruit fresh graduates
and train them to bring up a team of talented officers.
Can take initiative for introducing Islamic Banking system.
Govt. policies are not in favor of the private banks.
Up Coming Bank Moderate levels of Customer
Satisfaction Effects of the World Economic
Slums
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20
CHAPTER 03
3.1FOREIGN EXCHANGE
Foreign Exchange refers to the process or mechanism by which the currency of one
country is converted into the currency of another country. Foreign exchange is the
means and methods by which rights to wealth in a country’s currency are converted
into rights to wealth in another currency to effect “International Trade” payment. This
mechanism by which commercial investment and others transactions between
countries are being settled.
(Chowdhury, L.R. (2000), A Text Book on Foreign Exchange, p. 3).
3.1.1FOREIGN EXCHANGE REGULATION ACT
Foreign Exchange Regulation Act 1947 was adopted in Bangladesh immediately after
independence. A few provisions have been added under the foreign exchange
regulation ordinance, 1947. Actually this Act empowered Bangladesh Bank to
regulate certain payments, dealing in foreign exchange and securities and the import
and export of currency and bullion. After 1947, the Act was adopted by Pakistan and
after 1971 by Bangladesh. The Act has 27 sections and a number of sub sections.
The main objective of the Act are to conserve the limited foreign exchange resources
and to ensure that the available foreign exchange is utilized only for priority
requirements in the economy and financial interest of Bangladesh and the
maintenance of the proper accounting of foreign exchange receipts and payments.
Bangladesh Bank issues license to deal in foreign exchange empowered by the
Foreign Exchange Regulation Act 1947. Central Bank may issue general license or
license with authority to perform limited functions only. (Chowdhury, L.R. (2000), A
Text Book on Foreign Exchange, p. 6).
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3.1.2 Balance of Payment Balance of payment is a record of the value of all transactions between residents of a
country with outsiders. All international transactions, both commercial and industrial
in a year which gives rise to claims by residents of the country on foreigners and
claims by foreigners on nationals of the country are included in the balance of
payments.
3.1.3 Balance of Trade The difference between the money value of a nation’s merchandise exports and
imports, as shown by customs data adjustment for difference in timing and coverage
for calculation of a nation’s balance of payment, there fore reflecting the visible. If
import merchandise of a nation is rated higher then the export merchandise over a
year then it’s referred as imbalance trade. Because national reserves of foreign
remittance privileged by export but it’s lost the reserve by import. So, if import is
running higher then export then government loss its foreign stock which effects non
national economy.
3.1.4 Functions of AD in Foreign Exchange and Foreign Trade
The Authorized Dealer (AD) Bank has vital role in the foreign trade of a country.
They provide the finance needed to execute the transaction. They form the channel
through which the documents and money are exchanged between the exporter and
importer.
NCCBL Jubilee Road Branch is an AD branch having the right to perform foreign
exchange operation with the foreign trade of the country. Including Jubilee Road
Branch, there are 5 branches of NCCBL in Chittagong area that perform foreign
exchange operation. They are-
Khatungong Branch
O. R. Nizam Road Branch
Agrabad Branch
Majirghat Branch
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3.1.5Transaction by Jubilee Road Branch as AD Branch
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Foreign Exchange TransactionForeign Exchange Transaction
Foreign Trade Foreign Trade Foreign Exchange & other TransactionForeign Exchange & other Transaction
Foreign Guarantee Foreign Guarantee
PGPG
APGAPG
BIDBID
ImportImport ExportExport
Import Trade financeImport Trade finance
L / CL / C
Export Trade financeExport Trade finance
PADPAD
LIMLIM
ECC (P)/ECC (H) ECC (P)/ECC (H)
Packing CreditPacking Credit
B to B L/CB to B L/C
IFDBCIFDBC
FDBPFDBPFC = Foreign Currency A/C = Account, BID = Bid-BondPAD = Payment Against Import Document FDBC = Foreign Documentary Bill For CollectionFDBP = Foreign Documentary Bill For Purchase TC = Traveler Cheque CFC = Cash Foreign CurrencyPG = Performance GuaranteeAPG= Advanced Payment GuaranteeLIM = Loan Against Import MerchandiseLTR = Loan Against Trust receiptCC (P/H) = Cash CreditECC (P/H) = Export Cash CreditNRFCD = Non Resident Foreign Currency DepositRFCD = Resident Foreign Currency Deposit
FC = Foreign Currency A/C = Account, BID = Bid-BondPAD = Payment Against Import Document FDBC = Foreign Documentary Bill For CollectionFDBP = Foreign Documentary Bill For Purchase TC = Traveler Cheque CFC = Cash Foreign CurrencyPG = Performance GuaranteeAPG= Advanced Payment GuaranteeLIM = Loan Against Import MerchandiseLTR = Loan Against Trust receiptCC (P/H) = Cash CreditECC (P/H) = Export Cash CreditNRFCD = Non Resident Foreign Currency DepositRFCD = Resident Foreign Currency Deposit
LTRLTR
Foreign RemittanceForeign Remittance F.C A/C OpeningF.C A/C Opening
Other TransactionOther Transaction
Outward RemittanceOutward Remittance
Inward RemittanceInward RemittanceTC/ CFCTC/ CFC
Private F.C A/CPrivate F.C A/C
NRFCD A/cNRFCD A/c
RFCD A/cRFCD A/c
Dealing in Foreign Currency Dealing in Foreign Currency
Forward Dealing in Foreign Exchange Forward Dealing in Foreign Exchange
3.1.6Activities of Foreign Exchange Foreign exchange means exchange of foreign currency between two countries. If we
consider Foreign exchange as a subject than it means all kinds of transactions related
to foreign currency. In other words Foreign exchange deals foreign financial
transactions related to
Import
Export
Foreign Remittance
3.1.7 Letter of Credit The Letter of Credit signifies a commitment on behalf of the buyer (importer) by the
buyer’s bank to effect payment to the seller (exporter) subject to fulfillment of certain
condition by the seller.
“The Uniform Customs and Practice for Documentary Credits” 2007 Revision,
International Chamber of Commerce (ICC) Publication No. 600 defines documentary
credit agreement, however named or described, whereby a bank acts at the request
and on the instruction of a customer:
To make a payment or to order the third party (the beneficiary)
Authorized another bank to make due payment or to accept and pay such bill
of exchange or authorizes another bank to negotiable against stipulated
documents provided that the terms and conditions are complied with.
The customary clauses contained in a L/C are as follows:
A clause authorizing the beneficiary to draw the bill of exchange up to a
certain amount on the opener
List of shipping document that are accompany the bill
Description of the goods to be shipped
An underwriting by the opening bank that bill drown in accordance with the
conditions will be duly honored.
Instruction to negotiating bank for abstaining reimbursement of payment
under the credit.
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3.1.8 Types of L/C Generally L/C has two types. These are
Clean letter L/C
Documentary L/C
Clean L/C
Here L/C is issued without documents.
Documentary L/C
Documentary is two types. These are
Revocable L/C
Irrevocable L/C
Revocable L/C
Revocable credit is a credit, which can be amended or revoked or cancelled by the
issuing bank at any time without prior notice to the seller/ beneficiary.
Irrevocable L/C
Irrevocable credit constitutes a definite undertaking of the issuing bank provided that
the stipulated documents are presented and the terms and conditions are compiled
with for payment, acceptance and payments of drafts or negotiation. An Irrevocable
credit can neither be amended nor cancelled without the agreement of the issuing /
confirming bank and the beneficiary.
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3.1.9 Parties of Documentary L/C Under UCPDC 600, 2007 Revision, published by ICC-
Importer / Buyer/ Opener/ Applicant: Importer / Buyer/ Opener/ Applicant
is a person who request or instructs the bank to open a L/C.
Issuing/ Opening Bank: Issuing bank means the bank that issues a credit at
the request of an applicant or its own behalf.
Exporter/ Seller/ Beneficiary: Beneficiary means the party in whose favor a
credit is issued.
Advising / Notifying bank: Advising bank means the bank that advises the
credit at the request of the issuing bank.
Conforming Bank: Conforming bank means a bank that adds its confirmation
to a credit upon the issuing bank’s authorization or request.
Negotiating Bank: Negotiating bank means the bank that negotiates and pays
the amount to the beneficiary. It has to certify scrutinize the documentary
credit before negotiation in order to see whether the documents apparently are
in order or not.
Paying/ Reimbursing bank: Paying/ Reimbursing bank is the bank on whom the bill
will be drawn. It is nominated in the credit to make payment against stipulated
documents complying with the terms of the credit. It may or may not the issuing
bank
26
3.1.10 Process of Documentary L/C
27
BUYER/ IMPORTER
INDENTORSELLER
EXPORTER BENEFICIARY
Makes P
ayment against
Docum
ent
Pre
sent
Doc
umen
t
Ap
plication
for Op
enin
g L/C
Adv
ises
and
/or
conf
irm
s l/
c
Su
bm
it D
ocu
men
ts
Makes P
ayment
ISSUING BANK ADVISING BANK/ NEGOTIATING
REIMBURSING BANK
Instruction to pay or reimburse
Pay
s or
Rei
mbu
rses
OR
Foreign Exchange Department
FIG: FOREIGN EXCHANGE MECHANISM
3.1.11 Operational Procedure of L/C
Performa Invoice
Contract
Intender’s Intend
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ImporterL/C opener
OrApplicant
ImporterL/C opener
OrApplicant
Advising BankThis bank will deals with the exporter & inform the supplier that a L/C came from the buyer.
Advising BankThis bank will deals with the exporter & inform the supplier that a L/C came from the buyer.
Reimbursement BankThis bank deals with payment in favor of issuing bank.
Reimbursement BankThis bank deals with payment in favor of issuing bank.
Negotiation BankThis bank negotiates with issuing bank in the favor of exporter for the bill and pays the amount to the exporter.
Negotiation BankThis bank negotiates with issuing bank in the favor of exporter for the bill and pays the amount to the exporter.
ExporterOr
SupplierBeneficiary
ExporterOr
SupplierBeneficiary
Issuing BankThe bank will deal with L/C for the buyer against supplier & through the L/C advising bank.
Issuing BankThe bank will deal with L/C for the buyer against supplier & through the L/C advising bank.
Shipment of GoodsShipment of Goods
3.2 IMPORT BUSINESS
Import refers to bringing foreign goods and services into the country from abroad.
3.2.1 Flow Chart of Opening L/C for Import
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Following document duly signed L/C application form LCA form IMP form authority to debit account.
Following document duly signed L/C application form LCA form IMP form authority to debit account.
Documents submitted by the importer by the importer indent/ PI/ Insurance cover note etc.
Documents submitted by the importer by the importer indent/ PI/ Insurance cover note etc.
Banker examines the liability position of the importer from different departments and whether the item is importable or not.
Banker examines the liability position of the importer from different departments and whether the item is importable or not.
Credit report of the exporter asked from the negotiation bank.
Credit report of the exporter asked from the negotiation bank.
Original IRC submitted to the bank
TIN certificate
Trade License (up to date) copy
Membership certificate of chamber of Commerce
Original IRC submitted to the bank
TIN certificate
Trade License (up to date) copy
Membership certificate of chamber of Commerce
Positive or NegativePositive or Negative
L/C is opened and sent to advising bank through swift.
L/C is opened and sent to advising bank through swift.
3.2.2 Application for L/C Limit Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an
importer submits an application to the bank furnishing the following information-
Full Particular of Bank A/C maintained with the bank
Nature of Business
Required Amount of Limit
Payment Terms and Conditions
Goods to be Imported
Offered Security
Repayment Schedule
A credit officer scrutinizes this application and according prepares a proposal (CLP)
and forwards it to Head Office Credit Committee (HOCC). The committee, if
satisfied, sanctions the limit and \returns back to the branch. Thus the importer is
entitled for the limit.
3.2.3 L/C Application After getting the importer applies to the bank to open a letter of credit on behalf of
him with required papers.
Documentary Credit Application Form: NCCBL provides a printed form for
opening of L/C to the importer. This form is known as Credit Application
Form. A special adhesive stamp is affixed on the form.
Proforma Invoice: It states description of the goods including quantity, unit
price etc.
Insurance Cover Note: The name of issuing company and the insurance
number are to be mentioned on it.
LCA: The Later of Credit form should be duly attested.
IMP Form
TIN Certificate
VAT Certificate
Forwarding for Pre-Shipment Inspection (PSI): Importer sends forwarding
letter to exporter for Pre-Shipment Inspection. But all types of goods do not
required PSI.
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3.2.4 Securitizations of L/C Application The NCCBL Officer scrutinizes the application in the following manner-
The terms and conditions of the L/C must be complied with UCPDC 600 and
Exchange Control and Import Trade Regulation.
Eligibility of the goods to be imported
L/C must not be opened in favor of the importer
Radioactivity report in case of food item
Survey report or certificate in case of old machinery
Carrying vessel is not of Israel
Certificate declaring that the item is in operation not more than 5 years in case
of car.
As soon as a L/C is opened, the following vouchers are passed in the books of the
opening bank:
Customer’s liabilities on L/C – DR
Banker’s liabilities on L/C – CR
Margin commission postage and SWIFT charges are recovered from the party by the
passing entry as follows:
Party’s A/C - DR
Margin A/C on L/C - CR
Commission - CR
Postage - CR
3.2.5 Transmitting L/C The Transmission of L/C is done through telex or fax to advice the L/C to the
advising bank. The advising bank verifies the authenticity of the L/C. NCCBL has
corresponding relationship or arrangement throughout the world by which the L/C is
advised. Actually the advising bank does not take any liability if otherwise not
requested.
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3.2.6 Credit Report If the amount of L/C exceeds US $10,000 then NCCBL takes the credit report of the
beneficiary to ensure the worthiness of the supply of goods.
3.2.7 Amendment of Credit Parties involved in L/C, 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.
In such a situation the credit should be amended.
In case of revocable it can de amended or cancelled by the issuing bank at any
moment any without prior notice to the beneficiary. But in case of irrevocable credit it
can neither be amended nor cancelled without agreement of the issuing bank, the
confirming bank (if any) and the beneficiary.
3.2.8 Presentation of Documents The seller being satisfied with the terms and conditions of the credit makes shipment
of the goods as per L/C terms. After making the shipment of the goods in favor of the
importer the exporter submits the documents to the negotiating bank. After receiving
all the documents, the negotiating bank then checks the documents against the credit.
If the documents are found in order, the bank will pay, accept or negotiates to
NCCBL. Branch & bank received seal to be affixed on the forwarding schedule. The
Bill of Exchange & transport documents must immediately be crossed to protect loss
or fraudulent.
3.2.9 Settlement the documents and the draft and if it is a bank other than the issuing bank, then sends
the documents to the issuing bank stating that it has accept the draft and at Settlement
means fulfillment the commitment of issuing bank in regard to effecting payment
subject to satisfying the credit terms fully. This settlement may be done under three
separate agreements as stipulated in the credit. This are-
Settlement by payment
Settlement by acceptance
Settlement by negotiation
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Settlement by Payment
Here the seller presents the documents to the paying bank and the bank then
scrutinizes the documents. If satisfied the paying bank makes payments to the
beneficiary and in case of this bank is other than the issuing bank, then sends the
documents to the issuing bank. If issuing bank is satisfied with the requirement,
payment is obtained from the issuing bank.
Settlement by Acceptance
Under the agreement the seller submits the documents evidencing the shipment to the
accepting bank accompanied by the draft down on the bank at the specific tenor. after
being satisfied with the documents, the banks accept maturity the reimbursement will
be obtained in pre-agreed manner.
Settlement by Negotiation
This settlement process start with the submission of documents by the negotiating
bank accompanied by a draft on the buyer or other drawee, at sight or at a tenor, as
specified in the credit. After scrutinizing that the documents meet the credit
requirement, the bank may negotiate the draft. This bank if other than the issuing
bank, then send the documents and draft to the issuing bank. As usual, reimbursement
will be in the pre agreed manner.
3.2.10 Modes of Transmission of L/C In international trade the transmission of L/C is preferred by the following means-
Cable
Telex
FAX
SWIFT
Airmail
In NCCBL transmission of L/C is done through SWIFT.
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3.2.11 Documents used in L/C Operation The most commonly used documents in foreign exchange are-
Bill of exchange
Bill of Lading
Commercial invoice
Certificate of origin
Inspection certificate
Packing list
Insurance document
Pro Forma Invoice (P1)/Indent
3.2.12 Clean Report of Freight (CRF) This certificate is provided by the Pre Shipment Inspection (PSI) Concerns. The entire
world has been brought under the three supervision of the three pre - shipment
inspection concerns based on different territory. These are as follows —
Intertek Testing Service
Inspectorate Griffith Ltd
Bureau Veritas
After receiving all the documents, the negotiating bank then checks the documents
against credit. If the documents are found in order the bank will pay, accept, or
negotiate in accordance with the terms and conditions of the credit. Then the bank
will send the documents to the L/C issuing bank (NCCBL).
3.2.13 Examination of Import Document One of the basic principals of documentary credit is that all parties deal with
document and not with goods. That is why the documents should be scrutinized
properly. If any discrepancy in the document is found that is informed to the party. A
checklist may be followed for examining the documents. The following things can be
happen. These are indicated in the following –
Discrepancy found but importer accepts – then the bank lodges the documents.
Discrepancy found and importer not agrees to accept – issuing bank would
imitate negotiation bank for revised document or return the documents to the
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Negotiation bank for necessary action. Ere the issuing bank is not bound to pay
because the documents send by the exporter is not in accordance with the terms of
L/C.
Documents are ok importer is not willing to retire the documents in this case
bank is obligated to pay the price of exported goods. Since imported did not
pay for bill of exchange, this payment by bank is one kind of credit to the
importer and this credit in banking is known as FORCED PAD.
Every things is ok but importer is fail to clear goods from port and request
bank to clear in, this case the banks clears the goods and takes delivery of the
same by paying customers duty and sales tax etc. So this expenditure is
debited to the importer’s account and in banking called LIM.
Some times bank gives the documents to the importer before paying money
depend on importer’s goodwill and in banking it is called LTR.
3.2.14 Payment through the Reimbursing Bank The L/C issuing bank after getting the document and check the document and if the
terms and condition met the requirement the issuing bank take initiative to make
payment to the exporter through reimbursing Bank.
Reimbursing Bank
The issuing bank then informs the importer that his/her document has come to the
bank and by giving the payment he/she can release the document and unloading
his/her goods form the ship or any other place as per L/C terms and conditions. After
realizing the SWIFT charge, service charge, interest (if any), and the shipping
Documents is then stamped with PAD number and entered in a PAD Register.
Information is given to the customer calling on the bank’s counter requesting
Retirement of the shipping document. After passing the necessary vouches,
endorsement is made on the bank of the bill of exchange as “Received Payment” and
the Bill of Lading is endorsed to the effect “please deliver to the order of M/S………”
under two authorized signatures of bank’s officers (P.A Holder). Then the documents
are delivered to the importer.
35
L/C opening BankL/C opening Bank Negotiating BankNegotiating Bank
3.2.15 Lodgment Lodgment means requirement of funds. Usually payment is made within seven days
after the documents have been received. If the payment becomes deferred, the
negotiating bank may claim interest making delay. Lodgment constitute the
followings-
Requisition for the Foreign Currency: For arranging necessary fund for
payment, a requisition is sent to the International Department.
Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As
the T.T & O.D rate is paid to the ID, the difference between these two rates is
exchange trading. Finally, an IBETCA is send to ID.
Creation of PAD Liability: NCCBL lodges the converted the bill amount at
Bill Collection (BC) rate prevailing on the date of lodgment to PAD A/C and
an IBETCA prepared at the converted bill amount at T.T clear is sent to ID.
PAD A/C should be adjusted within 21 days.
Payment Instruction: Payment instruction is given to the reimbursement
bank to debit the issuing banks. NOSTRO A/C to make payment to the
negotiating bank.
Payment Intimation to the Negotiating Bank: Intimation is sent negotiating
bank ensuring that payment has been made.
Stamping: Shipping documents are then stamped with PAD number and
entered in the PAD register.
Intimation to the Applicant: As soon as above formalities are completed the
importers are served with PAD bill intimations for retirement of concerned
import documents. A letter of intimation regarding receipt of the documents
Should be sent to the applicant with a request to take delivery of the
documents on settlement of all dues against it.
The following accounting treating are given-
Client’s A/C …………………………….. Dr
Margin on L/C………………………Cr
VAT (15% of Commission)…………Cr
FCC…………………………………Cr
Registration Fee A/C……………….Cr
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SWIFT charge………………………Cr
Miscellaneous Charges A/C………...Cr
After that L/C number and the above entries are given in the L/C register. The
Contra entries stating the liabilities of the bank and the client are as follow
Customer’ liability……………….Dr
Banker’s Liability……………Cr
3.2.16 Retirement of Documents After lodgment the issuing bank will send the importer an intimation regarding the
document arrival notice. On intimation the importer calls on the bank’s counter
requesting retirement of the shipping documents against payment to the debit of their
account by the bill amount and other charges payable. Steps involved in retirement are
—
Calculation of interest it any.
Preparation o the Memo, Bill amount, Interest commission, overdue interest if
any, Agents charges, postage etc.
Passing vouchers.
Entry in the register.
Endorsement is made on the back of the bill or exchange as ‘Received
Payment’
On the back of bill of lading endorsed to the effect that ‘Please deliver to the
order of MIS’ under two authorized signatures of the bank.
Acknowledgement received on the office copy of the cost memo from the
importer in his authorized agent.
Filling of the office copy.
Then the documents ape delivered to the L/C (Importer)
37
On scrutiny if it is found that the document drawn in conformity with the terms of the
credit, the documents are in order NCCBL lodges the document in PAD and L/C
Margin A/C.
L/C Margin A/C………………Dr
PAD A/C…………………Cr
(Margin amount transferred to PAD A/C)
Customer A/C…………………………Dr
PAD A/C………………………..Cr
(Customer’s A/C debited for the remaining amount)
PAD A/C……………………………..Dr
NCCBL General A/C…………..Cr
Exchange gain A/C…………….Cr
(Amount given to MCCBL General A/C and interest credited)
Reversal Entries
Banker’s liability………………….Dr
Customer’s liability…………..Cr
(When lodgment is given)
3.3 IMPORT FINANCING
NCCBL foreign Exchange provide three types of post import finance for the clients-
Payment Against Documents (PAD)
Loan Against Import Merchandise (LIM)
Loan Again Trust Receipt (LTR)
3.3.1 Payment Against Documents (PAD ) Advance Against Import Bills originate from the lodgment of shipping documents
received foreign correspondent against letter of credit established by the bank on
behalf of its clients. PAD is created for 30 days at interest of 15% of L/C. If importer
dose not take the documents within these days then bank may sell the imported goods
to recover the given credit.
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3.3.2 Loan Against Import Merchandise (LIM) Advances allowed for retirement of shipping documents and re of goods imported
through L/C taking effective control over the goods by pledge fall under this type of
advance. When the importer failed to pay the amount payable the exporter against
import L/C, then NCCBL gives Loan against Imported Merchandise ((LIM) to the
importer. The importer will bear all the expenses i.e. go down charges, insurance fees,
etc. and the ownership of the goods is retaining to the bank and the outstanding under
PAD or Bills of Exchange (B/F) is transferred to Loan Against Imported Merchandise
(LIM) account. Normally part delivery is not allowed white on LIM account.
3.3.3 Loan Against Trust Receipt (LTR) This is excluded by the Borrower(s) to release shipping documents for taking delivery
of merchandise, which is hypothecated, to bank. The goods are handed over to the
importer under trust with the arrangement that sale proceeds should be deposited to
liquidate the advances within a given period. The borrower(s) agree to take delivery
of the merchandise as the banks agent(s) arid acknowledge(s) that the bank remains
owner of the goods and they will holding the goods on behalf of the bank as trustees
until complete repayment of the debts to the bank. Usually the roan is granted on the
basis of trust and is allowed 60-90 days time to make payment. For giving these types
of loan, officer makes loan proposal and sends it to H/O for approval. After getting
Approval from H/O, bank grants loan in the form of LIR. It’s needless to say that
bank only deals with the documents, not with goods & services in case of foreign
exchange business.
3.4 EXPORT BUSINESS
The goods and services sold by Bangladesh to foreign country called export. In
broader aspect the major responsibility that re performed here are —
L/C Advising.Documents CollectionDocuments negotiationExport financing,
3.4.1 Parties Involves In Export L/C L/C issuing Bank
Importer
Exporter L/C advising Bank
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Negotiation Bank
The Paying / Reimbursing Bank
3.4.2 Export Procedures & Formalities The export trade of the country is regulated by the Imports and Exports (control) Act,
1950. There are a number of formalities, which an exporter has to fulfill before and
after shipment of goods. These forma or procedures are enumerated on follows.
Registration of the Exporter
The foremost requirement to engage in the business of import and export is
registration with the Chief Controller of Imports and Exports (CCI&E). For this
purpose an application in the prescribed, form is require to be submitted to that office
along with the following documents —
Trade license issued by the municipal Authority.
Nationality Certificate from the Local Authority.
Bank Certificate.
Income Tax Clearance Certificate.
Payment of Registration fees and renewal fees in a Treasury Chalan.
Copies of Contract or L,/C (if any)
Export Registration Certificate (ERC)
The exports from Bangladesh are subject to export trade control exercised by the
Ministry Of Commerce through Chief Controller of Imports and Exports (CCI&E No
exporter is allowed to export any commodity permissible for export from Bangladesh
unless he is registered with CCI & E and holds valid Export Registration Certificate
(ERC). The ERC is to be renewed every year. The ERC number is to be incorporated
on EXP forms and other documents connected with exporters.
Export Permit Form (EXP)
Alter having the registration, the exporter applies to TBL with the trade license: ERC,
and the Certificate from the concerned Government Organization to get EXP. If the
bank is satisfied then an EXP is issued to the exporter.
An EXP contains the following particulars-
Name & address of the authorized dealer
40
Particulars of the commodity to be exported with code
Country of destination
Port of destination
Quantity
L/C value in foreign currency
Terms of sales
Name & address of the importer
Bill of lading
The L/C is an irrevocable one, preferably confirmed by the advising bank.
The L/C allows sufficient time for shipment and a reasonable time for
registration.
If the exporter wants the L/C to be
Transferable, divisible and advisable, he should ensure those stipulations are
specially mentioned in the LIC.
Procuring the Materials No & date
Port of shipment
Land custom post
Shipment date
Name & address of the exporter
CCI & E’s Registration number and date of the exporter
Securing the Order
Upon registration, the exporter may proceed to secure the export order. Contracting
the buyers directly through correspondence can do this.
Signing of the Contract
While making a contract, the following points are to be mentioned-
Description of the goods
Quantity of the commodity
Price of the commodity
Shipment
Insurance and marks
Inspection
Arbitration
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Receiving Letter of Credit
Alter getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C)
clearly stating terms and conditions of export and payment. The following are the
main points to be looked into for receiving / Collecting export proceeds by means of
Documentary Credit —
The terms of the L/C are in conformity with those of the contract.
After making the deal and on have the L/C opened in favor, the next step for the
exporter is to set about the task of procuring or manufacturing the contracted
merchandise.
Registration of Sale
This s needed when the items propos to be exported are raw jute and jute goods.
Shipment of Goods
The follow are documents normally involved at the stage of shipment-
EXP Form
Photocopy of registration certificate
Photocopy of the contract
Photocopy of the L/C
Customs copy of ERF Form for shipment of jute goods and EPC Form For
raw jute.
Freight certificate from the bank In case of payment of the freight at the port
of lading is involved.
Railway receipt, Berg Receipt or Truck Receipt.
Shipping instructions.
Insurance policy.
After those, exporter submits all these documents along with a Letter of Indemnity to
NCCBL for negotiation. An officer scrutinizes all the documents, if the document is a
clean one, NCCBL purchases the documents on the basis of banker- customer
relationship.
42
3.4.3 Documents for Export L/C These documents should be submitted to the bank for negotiation-
Export L/C
EXP form
Commercial invoice
Bill of Exchange
Certificate of origin
Bill of Lading
Packing list
Inspection certificate
Insurance document
Any other document as per L/C
Respective officer must scrutinize all the documents with reasonable care to confirm
whether the terms and conditions are right or wrong
3.4.4 Realization of Export Proceeds
The period prescribes by the Bangladesh Bank within which exporter must receive
full foreign exchange proceeds of exporter in four months if the receipt of the full
Proceeds of any shipment is delayed beyond the period without a special authority
from the Bangladesh Bank. The exporter will be liable to action under FER Act, 1947.
3.4.5 Modes of payments of Export Bills under L/C The most common methods of payment under a L/C are as follows:
43
Payment Method under L/C
Payment Method under L/C
Acceptance Payment CreditAcceptance Payment Credit
At Sight Payment CreditAt Sight Payment Credit
Deferred payment CreditDeferred payment Credit
Negotiation Payment CreditNegotiation Payment Credit
3.4.6 Advising L/C When export L/C is transmitted to the bank for advising, the bank sends an Advising
Letter to the beneficiary depicting that, L/C has been issued.
3.4.7 In Land L/C ILC means LJC within the same country. These types of L/Cs are opened when the
seller does not believe the buyer though they are of the same country and also in the
cases where the sales contract is of a big amount.
3.4.8 Bills Negotiation The beneficiary (exporter) receives the letter of credit from advising bank. After
proper shipment of goods as per terms and conditions of the L/C, required documents
like Commercial Invoice Bill of Lading and bill of exchange are presented to the
negotiating bank by the beneficiary for negotiation. For sight L/C, if the documents
are in order as per L/C then the negotiating bank negotiates the drafts making
payment to the beneficiary. Then the negotiating bank forwards the drafts along with
the shipping documents to the L/C opening bank
3.5 EXPORT FINANCING
An exporter is one who exports the goods to another customer whether n domestic
country or in abroad. In exporting the stipulated goods he nay requires financing. So
export financing may be required at two stages-
Pre-shipment credit.
Post shipment credit,
3.5.1 Pre-shipment Credit Pre shipment credit, as the name suggests, Is given to finance the act of an exporter
prior to the actual shipment of the goods for export. The purpose of such credit is to
meet working capital needs starting from the point of purchasing of raw materials to
final shipment of goods for export to foreign country. Before allowing such credit to
exporters the bank takes into consideration about the credit worthiness, export
performance of the exporters, together with all other necessary information require for
44
sanctioning the credit in accordance with the existing rules and regulations. Pre credit
is given for the following purposes-
Cash for local procurement and meeting related expenses.
Procuring and processing of goods for export.
Packing and transporting of goods are export.
Payment of Insurance premium.
Inspection fees
Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and
unrestricted export letter of credit in farm of the followings-
Packing credit (PC).
Back-to-Back letter of credit.
Export Cash Credit (Hypo).
Export Cash Credit (Pledge).
3.5.2 Packing Credit (PC) Packing Credit is essentially a short-term advance granted by a Bank to an exporter
for assisting him to buy, process, manufacture, packing and ships the goods. This type
of credit is sanctioned for the transitional period starting from dispatch of goods till
the negotiation of the export documents. Exporter can get PC up to 10% of the Export
L/C value and has to be liquidated by negotiation / purchase of Bills of Exchange. The
drawings of P.C are required to be adjusted fully once within a period of 180 days.
Charge Documents for PC
Banker should obtain the Following charge documents duly stamped prior to
disbursement-
Demand Promissory Note
Letter c Arrangement
Letter of Lien of Packing Credit (On special adhesive stamp)
Letter of Disbursement
Packing Credit Letter
45
3.5.3 Back-to-Back Letter of Credit A Back-to-Back letter of credit, a new L/C (an Import L/C) is opened on the basis of an original L/C (an Export L/C). Under the Back-to-Back concept, the seller as the Beneficiary of the First L/C offers it as a ‘security to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back-to-Back L/C may be located inside or outside the original Beneficiary’s country. As per instruction of the central bank commercial banks are rendering Back-to-Back L/C at nil margins.
Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back-to-back L/C arrangement,
Back-to-Back L/C is of two types-
Foreign back-to-back L/C.Inland back-to-back L/C.
A Back-to-Back L/C is opened against an irrevocable L/C opened bank having reasonable period of validity to cover shipment of merchandise after completion of
validity to cover shipment of merchandise after completion of the manufacturing
process. The export L/C is lien marked with the back-to-back L/C issuing branch,
import t is opened on issuance basis covering usance of not more than 180 days. The
Import L/C is opened for 8O% of the value of Export L/C. The payments normally
made form the proceeds or export bills negotiated after shipment.
Payment of Back-to-Back L/C
In case Back-to-Back L/C as 60-90-120-180 days of maturity period, deferred
payment is made. Payment is given after realizing export proceeds from the L/C
issuing bank. For Back-to-Back L/C, opener has to pay interest at LIBOR rate
(London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 5% to 7%.
3.5.4 Export Cash Credit (Hypothecation) Under this arrangement the bank sanction the loan to the 1st class exporter, as there is no security against this loan. The letter of hypothecation creates a charge against the merchandise in favor of the bank but neither the ownership nor the possession is passed to it.
3.5.5 Export Cash Credit (Pledge) Under this arrangement the bank advance loan to the exporter against pledge of raw
materials or exportable goods. The exporter surrenders the physical possession of
goods under banks control till the payment of dues is made. If the exporter does not
able to pay the loan the bank can sell the exportable goods to recover the credit.
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3.5.6 Post-shipment Credit This type of credit refers to the credit facilities, extended to the exporters by the banks
after shipment of the goods against export documents. Necessity for such credit arises,
as the exporter cannot afford to wait for a long time for without paying
manufacturers / suppliers. Before extending such credit, it is necessary on the Part of
banks to look into carefully the financial soundness of exporters and buyers as well as
other relevant documents connected with the export in accordance with the rules and
regulations in force, Banks in our country extend post shipment credit to the exporters
through —
Foreign Documentary Bills Purchased (FDBP).
Local Documentary Bills Purchased (LDBP).
3.5.7 Foreign Documentary Bills Purchased (FDBP) In case of Deferred L/C the payment usually received after a certain period that is
90,120180 days later. In that case party (exporter) sometimes wants to negotiate the
bills to the negotiating bank, for incise or need of money. In FDBP bank negotiates
the bills & documents to adjust the Packing Credit (PC) or back to-back L/C payment
and gives the rest amount to the client in cash or by crediting his account. In this
process the negotiating bank collect acceptance letter from the payment bank and
purchase the export bills at a usance rate of currency. FDBP is created only for the
foreign documents. For this purpose, NCCBL maintains a separate register named
FDBP Register. This register contains the following information —
DateReference number (FDBP)Name of the draweeName of the collecting bankConversion rateBill amount both in forei9n currency & Taka.Export L/C number
3.5.8 Local Documentary Bills Purchased (LDBP) It created only for the local export documents. Local exporters are usually small one
and act ns backward linkage industry to the large foreign exporters. So, in case of
deferred L/C (Usually done in Textiles/ Garments) the exports want to negotiate the
bills for quick receiving of payments. The negotiating bank checked the documents
thoroughly and transferred the discounted value of Bills by converting it into
47
Bangladeshi Taka at a ruling usance rate. This temporary liability is adjustable from
the proceeds of the bills.
3.6 REMMITANCE
Remittance means sending of fund from one place to another place, When fund in
transferred to or received from foreign country it is called foreign remittance. The
word Foreign Remittance means sending/ transferring of fund through a bank from
one place to another between two countries.
“Foreign Remittance” means purchase and sale of freely convertible foreign
currencies as admissible by “Foreign Exchange Regulations Act-1947” and
“Guidelines for Foreign Exchange Transaction – VOL. 1&2” of the country. Purchase
of foreign currencies constitutes inward foreign remittance and sale of foreign
currencies constitutes out ward foreign remittance.
3.6.1Local Remittance
Local remittance is the process of transfer money one place to another place through bank within the country of a bank
Mode of Local Remittance
Advice: Advice is an instrument for transferred fund from one branch to another in order to perform its internal activities. This is one kind of order payment.
Payment Order (PO): Payment Order is an instrument which makes the order of payment to a certain institution from a particular bank.
Demand Draft (DD): This is an instrument through which customer’s money is remitted to another person/ firm / organization in outside the clearinghouse area from branch of one bank to an outstation branch of the same bank or to a branch of another bank.
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Telegraphic Transfer (TT): This is a mode of transfer of customer’s money from a branch of one bank to another branch of the same bank through telegraphic.
3.6.2 Foreign remittance
Foreign remittance is the process of transfer of money from one country to another country via bank
Mode of Foreign Remittance
Channels Country
Habib Qatar Qatar
Al Fardan Middle East
Dhaka Janata Italy
UAE Exchange LLC UAE
Federal Exchange Middle East
Placid Express USA
KAYMAKS England
First solution England
Wall street UAE
Money Gram Worldwide
Xpress money Worldwide
Arab National Bank KSA
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3.6.3 Country Wise Remittance Performance Figure In million Country 2008 2009 2010 2011 2012 (%) of
TotalKSA 800.66 1450.54 1854.07 2844.52 4300.65 40.44UAE 389.66 197.76 297.15 953.37 1728.39 14.96Kuwait 171.82 115.44 318.69 805.74 1346.15 13.08Malaysia 201.22 203.05 380.90 672.80 1318.21 11.11UK 162.03 197.28 290.53 568.01 1116.72 4.07USA 93.10 28.66 85.61 178.92 446.39 5.11Oman 108.65 121.27 291.97 572.14 1184.53 3.95Bahrain 5.97 13.20 45.18 91.48 260.80 2.12Singapore - 35.06 58.22 130.09 431.50 1.10Qatar 18.34 128.96 221.53 526.14 1126.93 3.12Others 10.15
1.58 12.15 104.28 37.91 0.94Total 1961.60 2492.3
03856.00
7443.50
12098.18
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Country Wise Remittance Position
KSA
UAE
Kuwait
Malaysia
UK
USA
Oman
Bahrain
Singapore
Qatar
Others
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CHAPTER 04
4.2 PERFORMANCE OF NCCBL JUBILEE ROAD BRANCH
4.2.1 Import
As on 30th November, 2012 branch’s total import stood at $ 1041.848 Million, in the year of 2011 it was $1390.5 million and at the end of the 2010 it was 1221.6million.
Year 2010 2011 2012
Import 1221.6 1390.5 1041.484
Graphical Representation Figure in million
Analysis:
From the above graphical presentation we can see that import of the bank is fluctuating over the three years. But in 2011 the import of the Branch was 1390.5 million & in the year of 2012 the branch total import was 1041.484 which is represents that the import of the branch is reducing.
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4.2.2 Export
As on 30th November, 2012 branch’s total export $891.7million stood at the end of 2011 it was $149.95million & at the end of year 2010 it was 225million.
Year 2010 2011 2012
Export 225 149.5 891.7
Graphical Representation Figure in million
Analysis:
At the year of 2012 the total export volume is increased by 742.2 million against at the end of year 2011. Which shows the export of the branch is rapidly increased.
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4.2.3 Number of L/C
The total number of L/C issued by the branch 2012 is 533 and at the year of 2011 the number of total L/C was 594
Year 2010 2011 2012
Number of L/C 601 594 533
Graphical Representation Figure in million
Analysis: From the above graphical presentation we can easily understand that in the year of 2010 the total number of L/C was the highest among the three years but remaining two years number of L/C is decreasing where as it is sharply decreased in the year of 2012.
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4.2.4 Remittance
At the end of year 2012 the Brunch received total remittance 182.64 million; at the end of 2011 it was 152.68million and at the end of 2010 it was 142.28million.
Year 2010 2011 2012
Remittance 142.28 152.68 182.64
Graphical Representation Figure in million
Analysis:
From the above graph we can say that the remittance of the branch is gradually increased over the three years in the year of 2012 it was 182.64million which represents that it was the highest among the three years.
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CHAPTER 05
5.2 Findings of the Study
After analyzing the performance and during the organizational attachment of internship program the following findings have been found out:
The position of NCC Bank Ltd in import business and remittance is not as
higher as some other banks operation in Bangladesh. This might be keeping
NCCBL away from deriving the dominant position among the banks in
Bangladesh.
In this modern technological era banks of this country are still relying on lots
of paper works which are possible to accomplish electronically. In
Bangladesh, NCC Bank Ltd also doing lots of manual tasks in order to comply
with local systems. Specifically, Foreign Exchange Department of NCCBL in
this country is still maintaining different forms, registers etc. Remittance
Department preparing advice for inter branch transaction with register in order
to serve the purposes of local corporate clients and comply with different
domestic rules and regulations.
Management of NCC Bank Ltd introduces “Flora” software to the employee
for better service. But it’s not properly ready yet. Some times problems create
on data storing and finding records by using Flora.
The advertisement of National Credit and Commerce Bank Limited (NCCBL) in TV,
Newspaper, or in any mass media is not available.
National Credit and Commerce Bank Limited (NCCBL) does not update their website
properly as a result the client or customer can not get details about the bank.
Booth facility of the bank is not sufficient.
Training facility is not sufficient especially of the lower level officer.
For better marketing of the bank products, the bank doesn’t have a dedicated team of
officials who will only concentrate on marketing.
Recovery of classified loans is very slow, as because the bank doesn’t have individual
recovery unit.
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5.3 Recommendations
NCC Bank Ltd should increase their investment in Trade Services and
branches into the major areas so that they can lead the highest position among
banks in Bangladesh.
Online banking must need to be fast enough for quick service to the client.
Banks need to modify and develop the Flora Software Service for avoiding
further blunder in service.
NCCBL can provide an effective training program for the junior level officer
as though they can perform their task efficiently..
Continuous advertisement need to be circulated in electronic and print media
to inform and make popular of the National Credit and Commerce Bank
Limited (NCCBL).
National Credit and Commerce Bank Limited (NCCBL) is a reputed bank in
Bangladesh so they should be up dated their website regularly.
National Credit and Commerce Bank Limited (NCCBL) has to create a new
marketing strategy which will attract more client, as a result number import
and export business increase.
National Credit and Commerce Bank Limited (NCCBL) can introduce debit
card facilities.
National Credit and Commerce Bank Limited (NCCBL) need to launch their
own ATM booth, so that their customers can withdraw cash at a low
commission.
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Conclusion
The banking sector plays an important role in modern society and private banks are
more competitive, diversified and dynamic compare to traditional banking system.
Every day new competitors are entering into the industry with better innovative ideas,
products and services. In banking sector National Credit and Commerce Bank Limited
is a name of trust, now it is an icon of best services.
Foreign Exchange section is the busiest section in this branch. This department is
increasing their business and earning profit every year for well communication of
V.P. and Foreign Exchange In-charge with their clients. The bank has to introduce
new services for the clients so that they may achieve competitive advantage over
other commercial banks. The adjustment of Loans against L/C is satisfactory enough.
The consistent performance of the bank over the last few years is the evidence of the
strengths of the bank, efficiency of management team, and uphill struggle of
employees. Despite the existence of deficiencies in some areas, the overall
performance of NCCBL was outstanding among the banking industry in Bangladesh.
The bank has to overcome the shortcomings in the near future and offer new
innovative services in order to retain its position as a leader amongst banks year after
year.
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References
Books & Guidelines
Chowdhury, L.R .(2000), A Text Book on Foreign Exchange (pp. 3-7), Fair
Corporation, Dhaka.
Foreign Exchange Guideline - NCC Bank Ltd
Guideline for Foreign Exchange Transaction (Volume 1) – Bangladesh Bank
Guideline for Foreign Exchange Transaction (Volume 2) – Bangladesh Bank
Maheshwari S.N. & Maheshwari S.K.(2001), Banking Law and Practice (sec
4, p. 11), Kalyani Publishers, New Delhi.
NCC Bank Training Book - NCC Bank Ltd
Publications
Annual reports of NCC Bank Ltd
Financial Statements of NCC Bank Ltd
Websites
www.bangladesh-bank.org , accessed on 16 June 2011
www.nccbank.com.bd , accessed on 24 June 2011
Observed Documents
Accounts opening form
Bill of Leading
Certificate of Origin
Credit Advice Issue Register
Invoice
L/C File
Letter of Credit Application Form
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APPENDIX
AD Authorized Dealer
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ABP Accepted Bill for PaymentB/L Bill of LadingBB Bangladesh BankB/E Bill of ExchangeB.C Bill of CollectionC&F Clearing & ForwardingCAD Cash Against Documents.CRF Clean Report FindingsCCI&E Chief Controller of Import & ExportCFR Cost & FreightCIB Credit Information BureauCIF Cost Insurance & Freight DD Demand DraftDP Note Demand Promissory NoteDLC Documentary Latter of CreditEPB Export Promotion BureauEXP Export FormERC Export Registration CertificateFC Foreign CurrencyFDD Foreign Demand DraftFOB Free On BoardFDBP Foreign Documentary Bill Purchase.HS Code Harmonized Commodity Description & Coding System HO No Objection CertificateIBC Inward Bills for CollectionICC International Chamber of CommerceIMP Import FormIRC Import Registration CertificateL/C Letter of CreditLCAF Letter of Credit Authorization FormLIBOR London Inter Branch Offering Rate.MTDR Mudaraba Term Deposit ReceiptMPI Murabaha Post ImportOBC Outward Bills for CollectionOFDBC Outward Foreign Documentary Bill for Collection.PO Payment OrderPAD Payment Against DocumentPSI Pre Shipment InspectionSWFT Society for Worldwide Inter-Bank Financial Telecommunication TC Travelers ChequeTIN Tax Identification NumberTR Trust ReceiptTT Telegraphic TransferTM Travel & Miscellaneous FormUCPDC Uniform Custom &Practice for Documentary Credit
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