global trade service report
TRANSCRIPT
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1.1. The Organization:
Dhaka Bank Limited (DBL) is the leading Private Sector Bank in Bangladesh. It is
a Scheduled Bank, which was incorporated as a public limited company on April 06, 1995
under the Companies Act, 1994. Within this short time the bank has been successful inpositioning itself as progressive and dynamic financial institution in the country. The Bank
is now widely acclaimed by the business community from small entrepreneur to big
merchant and multinational, including top rated corporate and foreign investors, for
modern and innovative ideas and financial solution.
1.2. Company Overview:
Dhaka Bank Limited (DBL) started its commercial operation as a Private Sector
Bank on July 05, 1995 with a target to play the vital role on the socio-economic
development of the country. The Authorized Capital of the Bank at that time was Tk.1000
million, divided into 10 million ordinary shares of Tk. 100 each. The issued, subscribed,
and paid up capital of the bank in 1995 was Tk. 100 million, which was paid fully by the
sponsors. The Bank offers a full range of Personal, Corporate, International Trade, Foreign
Exchange, Lease Finance and Capital Market Services. It is the preferred choice in
Banking for friendly and personalized services, cutting edge technology, tailored solutions
for business needs, Global reach in Trade and Commerce and high yield on Investments,
assuring Excellence in Banking Services.
Dhaka Bank Ltd provided 15% cash dividend & 10% stock dividend [i.e. 1(one)
bonus Share for every 10(ten) shares] for the year that ended December 31, 2008 to its
shareholders. The Bank has 45 branches, 2 SME Service Centers, 1 Business Center, 2
Offshore Banking Units across the country and a wide network of correspondents all over
the world. The Bank has plans to open more branches to expand the network.
The Bank offers the full range of banking and investment services which backed by
the latest technology and a team of highly motivated officers and staff. In the effort to
provide Excellence in banking services, the Bank has launched Online Banking service,
joined a countrywide-shared ATM network and has introduced a co-branded credit card. A
process is also underway to provide e-business facility to the bank's clientele through
online and Home Banking Solutions.
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Corporate Information:
1.3. Mission Statement:
To be the premier financial institution in the country providing high quality
products and services backed by latest technology and a team of highly motivated
personnel to deliver- Excellence in Banking.
1.4. Vision:
At Dhaka Bank, we draw our inspiration from the distant stars. Our team is
committed to assure a standard that makes every banking transaction a pleasurable
experience. Our endeavor is to offer you razor sharp sparkle through accuracy, reliability,
timely delivery, cutting edge technology, and tailored solution for business needs, global
reach in trade and commerce and high yield on your investments.
1.5. Goal :
Our people, products and processes are aligned to meet the demand of our
discerning customers. Our goal is to achieve a distinction like the luminaries in the sky.
Our prime objective is to deliver a quality that demonstrates a true reflection of our vision
Excellence in Banking.
1.6. Values:
Customer Focus
Integrity
Teamwork
Respect for the Individual
2
Principal Activity Commercial bankingLegal form
A public ltd. company incorporated inBangladesh on April 06, 1995 under
company Act 1994 and listed in Dhaka &Chittagong Stock exchange
Date ofCommencement
July 05,1995
Board Chairman MR. Altaf Hossain Sarker
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Quality
Responsible Citizenship
1.7. Financial Performance of the Bank:
Dhaka Bank Limited is highly performing Private Commercial Bank, which furtherconsolidated its position in the market in terms of quality services to the customers & value
addition for the shareholders.
Assets: The total asset of the Bank is 71.14 billion, an increase of 24% as
against 2007.
Investment of the Bank: The Bank invests
during the year 2008 in government security
which stood at TK 7239 million as against
TK. 5972 million making a growth of 21%
over the last year
Loan & Advances: The Bank record a 24%
growth in advance with a total loans and
advances portfolio of Tk.49698 million at the
end of 2008 compared to Tk. 39972 at theend of 2007
Liability: Total liabilities of the Bank stood at TK.67137 millions at 31
December 2008 registering a growth of 24%.
Deposit: The deposit base of the Bank continued
to register a steady growth & stood at Tk. 56986
million excluding call as of 31 December 2008
compared to Tk.48731 million of 2007 with a
growth 17%.
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Dhaka Bank at a glance in Year 2007-2008:
Particulars Amount Change in
%2008 (TK) 2007(TK)
Paid up Capital 1,934,252,875 1,547,402,300 25
Total Capital 4,808,212,249 3,680,328,764 31
Total Asset 71,136,842,020 57,443,251,307 24
Total Deposit 56,985,924,645 48,730,676,322 17
Total Loan & Advances 49,697,705,621 39,971,903,240 24
ROI 9.18 8.68 6
ROA 1.18 1.23 (4)
Earnings Per share(TK) 43.36 36.39 19Net Income per share 43.36 36.39 19
Price Earnings Ratio (Times) 8.31 19.40 (57)
In 2008 the authorized capital of Dhaka Bank Limited is TK.6000 million divided
into TK.60 million ordinary shares of TK. 100 each. The Paid up capital of the bank is TK.
1,934,252,875 divided into 19342528.75 ordinary shares. The Company went for the public
issue of shares on 18the November 1999 and its shares are listed with the Stock Exchange
of Bangladesh
1.8. Company Philosophy:
The motto or the philosophy of the Bank is Excellence in Banking. Dhaka Bank Ltd
is committed to provide the best whether in personal, corporate, treasury of trade
transactions. Meeting the demand of the banks discerning customers is not the sole
objective. The bank endeavor to deliver a quality that makes every transaction a
pleasurable experience. The bank feels that, if they can meet maximum clientele
requirements in less time with efficiency then they will be able to accomplish a successfulbusiness in the world of banking. Their main objective is to provide all the customer
service available in todays banking procedure for their clientele. Thus they can guarantee
the excellence in banking to their valuable customers.
Slogan of DBL:
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Excellence in
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Motto of DBL:
The bank will be a confluence of the following three interests:
Of the Bank: Profit Maximization and Sustained Growth.
Of the Customer: Maximum Benefit and Satisfaction.
Of the Society: Maximization of Welfare.
Objectives of DBL:
Become one of the best banks of Bangladesh.
Achieve excellence in customer service next to none and superior
to all competitors.
Cater to all differentiated segments of retail and wholesale
customers.
Be a high quality distributor of product and services.
Use state of the art technology in all spheres of banking.
1.9. Workforce:
Dhaka Bank Limited recognizes that a productive and motivated workforce is a
prerequisite to leadership with its Customers, its Shareholders and in the Market it serves.
DBL treats every employee with dignity and respect in a supportive environment of trust
and openness where people of different backgrounds can reach their full potential. The
Banks Human Resources Policy highlights on job satisfaction, growth opportunities and
due recognition of superior performance. A good working environment reflects and
promotes a high level of loyalty and commitment from the employees. So Bank has placed
the utmost importance on continuous development of its Human Resources, identify the
strength and weakness of the employee to assess the individual training needs, they are sentfor training for self-development. To enhance the Banking knowledge of the employees
Dhaka Bank Training Institute (DBTI) organizes both in-house and external training. At
the present the total numbers of employees are around 1000.
1.10. Management of Dhaka Bank Ltd:
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Management of the Bank is vested in an 18-member board of directors that includes
the chairman and a vice-chairman. The managing director is the chief executive of the
Bank. 5 executive vice presidents, 7 senior vice presidents, 18 vice presidents, 25 senior
assistant vice presidents, 29 first assistant vice presidents, and 29 assistant vice presidents
assist him. At present the bank has 45 branches where about 1000 regular employees
working and providing services in and outside the city.
1.11. Organization structure of Dhaka Bank Limited:
Chairman
Board of Directors
Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
First Assistant Vice President
Assistant Vice President
Senior Principal Officer
Principal Officer
Senior Officer
Officer
Junior Officer
Assistant Officer
Assistant Trainee OfficerFigure: Organization structure of Dhaka Bank Limited
1.12. Division of Dhaka Bank Ltd:
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If the Jobs are not organized considering their interrelationship and are not
allocated in a particular division it would be very difficult to control the system effectively.
If there arent any divisions then there would be haphazard situation and the performance
of a particular division would not be measured. Dhaka Bank Ltd has managed this work
very well. Different divisions of Dhaka Bank Limited (DBL) are as follows:
Human Resources Division
Personal/ General Banking Division
Treasury Division
Operations Division
Computer and Information Technology Division
Credit Division
Finance & Accounts Division
Financial Institution Division
Audit & Risk Management Division
1.13. Different Departments of Dhaka Bank Bonani Branch:
As every other branch Dhaka Bank Bonani Branch has four departments to perform
all of its daily activities. Those departments are:
General Banking Department
Foreign Exchange Department
Investment Department
Accounts Department
General Banking Department:
Some common types of works every bank should do to operate the banking
business. Although the mode of performing these works differs from bank to bank but all
the banks have to do the task. In the banking perspective these types of works are known as
general banking. Dhaka Bank Bonani branch performs three types of works, cash, clearing
and transfer.
Foreign Exchange Department:
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One of the largest businesses carried out by the commercial bank is foreign trading.
The trade among various countries fills for close link between the parties dealing in trade.
The situation calls for expertise in the field of foreign exchange operations. The bank,
which provides such operations refereed to as rending international Banking operation.
Mainly trisections with overseas countries are respects of import, export and foreign
remittance come under the preview of foreign exchange transaction, and international trade
demands a flow of goods from seller to buyer of payment from buyer to seller. This
department handles various types of activates by three separate sections:
Import Section
Export section
Foreign Remittance
Investment or Credit Department:
Banking is essentially a business dealing organization with money and credit like
all other business activates. Banks are profit-oriented organization. A bank invites its find
many ways to earn more and more profit and most of its income is derived from loans and
advances. Bank makes loans and advances to traders, Businesspersons, industrialists and
many other persons against security of some cautions policy and sound lending principle in
the matter of lending. Dhaka Bank is a lending bank in loans and advances and it grant
loans in various sectors especially in industry, trade and commerce.
Account Department:
The routine daily tasks of the accounts department are as follows:
Recording the daily transactions in the cash book
Recording the daily transactions in general and subsidiary ledgers
Preparing the daily position of the branch comprising of deposit and
cash
Preparing the daily statement of affairs showing all the assists and
liability of the branch as per ledger and subsidiary leader separately
Making payment of all expenses of the Branch
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Recording inters branch fund transfer and providing accounting
treatment in this regard
Checking and recording of the vouchers in the Voucher Register
The routine periodical tasks performed by the department are as follows:
Preparing the monthly salary statements for the employees
Preparing the weekly position for the branch this is sent to the Head
Office to maintain Cast Reserve requirement
Preparing the monthly position for the branch, this is sent to the
Head office to maintain statuary liquidity requirement
Preparing the weekly position for the branch comprising of the
break up of sector wise deposit, credit etc
Preparing the budget for the branch by fixing the target regarding
profit and deposit so as to take necessary steps to general and mobilize
deposit
Preparing an Extract which is a summary of all the transactions of
the Head Office account with the branch to reconcile all the transaction
held among the accounts of all the branches.
1.14. Foreign Exchange Department of DBL, Bonani Branch:
Foreign exchange is an important department of Dhaka Bank Limited, Bonani
branch which deals with import, export and foreign remittances. Foreign Exchange is an
International Department of the bank. It facilitates international trade through its various
modes of services. It bridges between importers and exporters. This department mainly
deals in foreign currency, that's why it is called foreign exchange department.
Foreign Exchange department of Dhaka Bank handles various types of activates by
three separate sections:
1. Import Section:
Letter of Credit (L/C)
Payment against Document (PAD)
Payment against Trust Receipt (PTR)
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Loan against Imported Merchandise (LIM)
2. Export section:
Back to Back L/C open
Foreign Document Bill for Collection (FDBC)
Foreign Document Bill for purchase (FDBP)
Local Documentary Bill for purchase (LDBP)
Secured Overdraft (SOD) export
3. Foreign Remittance:
Inward remittance
Outward remittance
1.15. Branches of Dhaka Bank Ltd:
Dhaka Bank Limited has 45 Conventional Branches and 2 Islamic Banking
Branches. Among total 47 branches, 21 branches are located in Dhaka City, 9 branches are
located in Chittagong. The other 7 branches are located in Sylhet, Narsingdi, Narayangonj,
and Sirajgonj each. Using the following flow chart shows branches:
Figure: Division wise Number of Branches of DBL
RajshahiDivision
4 Branch
ChittagongDivision
9 Branches
DhakaDivision
20 Branches
Head Office
SylhetDivision
4 Branches
10 otherBranches
Dhaka Bank Limited
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1.16. Organogram of Dhaka Bank Ltd:
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2.1. Origin of the Report:
Board of Directors
Managing Director
Deputy ManagingDirector
(Credit & RiskManagement)
Deputy Managing
Director(Operations)
EVP, F&AD
VicePreside
nt
Senior
VicePresident
AssistantVice
President
VicePreside
nt
Assistantvice
President
FirstAssistant
Vicepresident
SeniorAssistant
VicePresident
VicePreside
nt
FirstAssistant
Vicepresident
SVP,
OperationsDivision
SVP, FinancialInstitutionDivision
SVP, Audit &Risk
Management
VP, PersonalBankingDivision
FAVP,HRD
Figure: Organogram of Dhaka Bank Limited
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This Report is an Impartial University Curriculum Requirement for Bachelor of
Business Administration (BBA) Degree, assigned by my Internship Supervisor Mr. M
Taseen Chowdhury, Faculty Member, School of Business, in American International
University Bangladesh (AIUB). for internship based on project assigned by Dhaka Bank
Limited (DBL) Bonani Branch. It took three months to analyze and evaluate the Letter
of Credit Operation and its Impact on Dhaka Bank Limited
2.2. Background and Rational of the Study:
Bangladesh has gone through different Banking system. Banking system of
Bangladesh has moved out three phases of development - Nationalization, Privatization,
and lastly Financial Sector Reform. In Bangladesh, now-a-days more than 50 commercial
& specialized banks are conducting their operations, but they differ from one another in
many ways regarding their services. In the banking system the department of foreign
exchange is very foremost section where letter of credit (LC) is the primary financial tool
which used in the most import and export transactions. Guaranteed payment upon
presentation of the documents, reducing the production risk, obtain financing for
production or purchase of goods, allows the importer to avoid or reduce pre-payment and
also the payment will be made only upon presentation of the documents confirming
shipment of the goods. All these help the bank to deals with the customers in the country
and also outside the country.
With due consent of my supervisor, I have selected my area of interest in this
particular aspect and set my internship topic as Letter of Credit Operation and its Impact
on Dhaka Bank Limited. I deem my effort will provide not only theoretical knowledge but
also practical experience, which helps to know how bank perform Letter of credit
transaction practically. The letter of credit is the safest, most secure and most convenient
settlement method for international transactions. In Bangladesh there are different banks
works for developing not only the customers satisfaction but also the countries economic
development.
2.3. Statement of the problem:
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From this report, I would like to focus the current financial performance of the
Dhaka Bank Limited, Bonani branch and also show the operation procedures and
performance of the Export & Import department. Beside in that report I find out some
current problem and give some suggestion for remove those problems and improve the
operation procedures and performance of the Export & Import department
2.4. Scope and Limitation of the Study:
During these three months internship program in Dhaka Bank Limited, Banani
Brach, almost all the desks have been observed. For that purpose I needed to get
information from Dhaka Bank Head Office. But I was appointed into Dhaka Bank, Banani
branch. There I had to work in General banking, Loan & advances department and Foreign
exchange desks as a routine work. It was difficult to collect the information relevant my
report, because the people of this Bank was so busy with their duty that they cannot be able
to give me much time. . Here I try to cover the activities and rules and regulation related to
Foreign exchange department.
The present study was not out of limitations. But as an intern it was a great
opportunity for me to know the banking activities of Bangladesh specially Dhaka Bank.
Some restraints are disclosed bellow:
The main constraint of the study is insufficiency of information, which was
required for the study. There are various information the bank employee can't
provide due to security and other corporate obligations.
Due to time limitations many of the aspects could not be discussed in the
present report.
Since the bank personals were very busy, they could provide me very little
time.
I cant present the recent data relating to Letter of credit of Foreign
Exchange department. Because the annual report and the financial statement are
published at the month of April every year.
2.5. Objectives of the Study:
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The internship program, designed to provide the BBA students with an
opportunities to obtain on the job training, aims at bringing together the two facts of
learning the theoretical and practical. While conducting the study, certain aims are fulfilled
while I believe as the objectives of the study. These are as follows: -
2.5.1. Primary objective:
The Primary objective of the report is to evaluate the Letter of Credit Operation and
its Impact on Dhaka Bank Limited.
2.5.2. Secondary objectives:
To be acquainted with how bank perform Letter of credit transaction
practically.
To know about the mechanism of letter of credit procedures of the Dhaka
Bank.
To find out the major problems of Letter of Credit process and the
recommendation accordingly.
At last to relate theoretical knowledge with practical experience in several
functions of the Bank.
2.6. Methodology:
Methods followed to perform a job or conducting activities to complete a task is
called methodology. In conducting this study the following methodology will be adopted in
collecting data and information, preparation of reports etc.
A conceptual framework was developed first through the practical work in
the bank.
An inductive method has been followed in preparing the report.
In the evocation of referred problems I provide my own opinion back by
conceptual framework developed in literature review part.
Observation and experience of month long internship served as a major
source of information.
2.7. Sources of Information:
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The report was fully investigative in nature. Data have been collected from both
primary and secondary sources.
Data Collection
This study is mainly based on secondary data available from the various divisions
and departments of Dhaka Bank (Banani Br.) in addition to these other necessary
information have been collected from the daily news papers, relevant journals, annual
reports of Dhaka Bank, Bangladesh Bank, Ministry of Finance and Planning and
publications of other relevant institutions have also been taken into consideration.
2.7.1. Primary Sources:
Face to face conversation with the bank officers & staffs.
Conversation with the clients.
Different' manuals of Dhaka Bank Limited.
Different circulars of Dhaka Bank Limited.
2.7.2. Secondary Sources:
Procedure manual published by the Dhaka Bank Ltd.
Files and documents of the branch.
Annual report of Dhaka Bank Limited, 2008. Different papers of Dhaka Bank.
Unpublished data.
Different textbooks.
2.8. Schedule of Activities:
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Gant chart: to show our activity schedule, we will use the Gant chart for better
understanding.
Duration (weeks)
1 2 3 4 5 6 7 8 9 10
A ****
B ****
C **** **** ****
D ****
E ****
F ****
G ****
H ****
Activity explanation
A- Understand & discuss the topic
B- Preparing & submitting the proposal
C- Website, library research
D- Collecting data
E- Rearrange data
F- Report writing
G- Presentation preparation
H- Presentation & Report Submitting.
3.1. Definition of L/C:
A Letter of Credit, simply defined, is a written instrument issued by a bank at the
request of its customer, the Importer (Applicant), whereby the bank promises to pay the
Exporter (Beneficiary) for goods or services, provided that the Exporter presents all
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documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms
and conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred
to as a Documentary Credit.
A Letter of Credit can be defined as a written undertaking made by a bank at the
request of the applicant for the credit to pay a specified amount in an agreed currency to a
beneficiary on the condition that the beneficiary presents stipulated documents within a
prescribed time limit.
A Letter of credit is internationally recognized and accepted instrument and can be
used practically everywhere in the world. For countries with government controlled
foreign trade it is often a legal requirement that payments for imports have to be settled
through letter of credit.
The bank acts as an intermediary between the buyer and seller. Settlement is
effected through the bank by means of a direct exchange; the beneficiary presents the
required documents to the bank and receives, in return, the amount specified in the credit.
With a documentary credit, the beneficiary is no longer dependent on the buyers ability or
willingness to pay.
A Letter of Credit balances the needs of the exporter and the importer and provides
an adequate level of security to both of them. Once an exporter receives a documentary
credit he is assured that a Party who is independent of the buyer, the issuing bank, iscommitted to effect payment as soon as he has:
Delivered the goods or services,
Presented credit conform documents to the bank and
Fulfilled the other conditions stipulated in the documentary credit.
The importer, on the other hand, knows that he has to pay if an independent party
(the bank) has certified that the supplier has met the conditions required in the documentary
credit.
Moreover a letter of credit is basically a document issued by a bank guaranteeing a
client's ability to pay for goods or services. A bank or finance company issues a letter of
credit on behalf of an importer or buyer, authorizing the exporter or seller to obtain
payment within a specified timeframe. A letter of credit provides the exporter or seller with
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the greatest degree of safety when extending credit. It is useful when the importer or buyer
is not well known and when exchange restrictions exist or are possible.
3.2. Advantage of Letter of Credit:
The letter of credit is the safest, most secure and most convenient settlement
method for international transactions. There are a number of advantages both for the
seller/exporter and the buyer/importer.
Advantages of L/C to the importer (Buyer):
Provides guarantees for the delivery of goods according to the terms and condition
of the L/C.
It is safer to deal with bank than to prepay.
Buyer may get better terms and prices.
The beneficiarys foreign exchange risk is eliminated.
A letter of credit allows the buyer to confirm its paying capacity.
Provides possibility to obtain a longer period for the payment in comparison with
the other terms of payment.
Advantages of L/C to the exporter (Seller):
Reducing the production risk.
The chance to obtain financing for production or purchase of goods (pre-export
finance).
Facilitates pre-shipments financing through packing cash credit or B to B L/C
Reduces vagueness regarding transaction because terms are specified in the L/C
The ability to structure the delivery schedule according to the exporter's interests.
3.3. Form of Letter of Credit:
Letter of credit comes in various basic forms. These differ according to the degree
of security provided and the point of time at which the bank takes over the risk. Banks may
issue several types of letters of credits. It is best for importers and exporters to meet with
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their banking officer to determine which type of credit best suits their needs. Basic forms of
Letter of credit are furnished below:
i. Revocable Letter of Credit:
A Revocable Letter of Credit can be amended or cancelled by the issuing Bank
(usually on the instructions of the applicant) at any time without prior notice to the
beneficiary. It does not constitute a legally binding undertaking by the Issuing Bank to
make the payment. Revocable is however, possible prior to payment, acceptance or
negotiation by the bank, with which revocable credit has been made available, against
documents which appear on their face to be in compliance with the terms and conditions of
the credit.
Thus a revocable credit does not usually provide adequate security for thebeneficiary. Above all, a correspondent bank cannot confirm it. So the seller can face the
problems of obtaining payment directory form the buyers. Because this places the exporter
at risk, revocable letters of credit are not generally accepted and this type of credit is not
worth considering unless the parties to the transaction are already well known to each
other. Revocable credits are seldom used these days.
ii. IrrevocableLetter of Credit:
An Irrevocable Letter of Credit constitutes a firm undertaking by the issuing bank
to make payment. Provided that the stipulated documents are presented to the Nominated
Bank or to the Issuing Bank and that the terms and conditions of the credits are complied
with. It, therefore, gives the beneficiary a high degree of assurance regarding the payment
of his goods or services.
An irrevocable credit cannot be amended or cancelled without the consent of the
beneficiary, the issuing bank and the confirming bank, if any. If the seller wishes to amend
or cancel individual provisions of the credit, he must get the buyer to send instructions to
this effect to the issuing bank.
Almost without exception, the beneficiary is advised of the opening of an
irrevocable credit through a correspondent bank. The correspondent bank may be
instructed by the issuing bank merely to advise the credit or to confirm it.
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iii. 'With' or 'Without Recourse' Credit:
Letters of Credit often mention whether bills to be drawn under them are to be
"with recourse" or "without recourse". In a "with recourse" bill, in the event of refusal
but the drawee to honor the bill, the negotiating bank may demand refund of money
from the drawer. So, in a "with recourse" credit, the beneficiary may have to face the
possibility of repaying the money to the bank that negotiated his bill in case the
importer and/or the opening bank refuse to meet the bill for any reasons, whatsoever.
To avoid this eventuality, exporters insist on a "without recourse" credit as the bills
drawn under such a credit having once been negotiated, the beneficiary, who is the
drawer of these bills, cannot be asked to pay even though the importer or the opening
bank may have refused to honor the bills.
In a "without recourse" credit the beneficiary has no liability after his bill has
been negotiated. He has no further role in the operation of the credit. The negotiating
bank then has only the goods as its security and in the event of non-payment by the
importer he can sell them to recover money.
A without recourse credit has greater convenience for the beneficiary but he
may have some difficulty in negotiating his bills. A "with recourse" credit, on the other
hand, provides greater security for the negotiating bank.
3.4. Types of Letter of Credit:
As already mentioned, the basic forms of a documentary credit differ in respect of
the degree of security they provide for the beneficiary. Credits are further classified into
various types according to the method of settlement employed. There are also special
arrangements involving combination of separate credits or the assignment of credit
proceeds.
i. Sight Credit
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The most commonly used credits are sight credits. These provide for payment to be
made to the beneficiary immediately after presentation of the stipulated documents, on the
condition that the terms of the credit have been complied with. A sight credit is payable
immediately upon presentation of documents to the opening or the nominated bank. As per
UCP (Publication No.600) of the ICC, a sight credit in compliance with credit term must be
paid within 5 banking days.
ii. Acceptance Credit
With an acceptance credit, payment is made in the form of a term bill of exchange
drawn on the issuing bank or the correspondent bank. Once he has fulfilled the credit
requirements the beneficiary can demand that the bill of exchange be accepted and returned
to him. Thus the accepted bill takes the place of cash payment. UCPDC Article 6.c statesthat a credit must not be issued available by a draft drawn on the applicant since the Issuing
Bank is primarily liable to pay under the credit. If a credit, nevertheless, calls for a draft on
the applicant, the same shall be considered as an additional document. Bill of exchange
drawn under an acceptance credit usually has a term 60-180days.
iii. Deferred payment credit
Under a deferred payment credit the beneficiary does not receive payment when he
presents the documents, but at a later date specified in the credit. On presenting the
required documents, he receives the authorized bank's written undertaking to make
payment at maturity. In this way the importer gains possession of documents and thereby
of the goods or services, before being debited for the amount involved.
iv. Red clause credit
In the case of a red clause credit, the seller can obtain an advance for an agreed
amount from the correspondent bank. This advance is used to finance the manufacture or
purchase of the goods that are going to be delivered under the documentary credit. On
receiving the advance, the beneficiary must give a receipt and provide a written
undertaking to present the required documents before the credit expires. The correspondent
bank pays the advance, but it is the issuing bank that assumes liability. If the seller does not
present the required documents in time and fails to refund the advance, the correspondent
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bank debits the issuing bank with the amount of the advance plus interest. The clause
permitting the correspondent bank to make an advance against the credit used to be written
in red ink, hence the name 'red clause credit'.
v. Revolving credit
Revolving credits can be used when goods are to be delivered in installments at
specified intervals. The amount available at any one time is equivalent to the value of one
partial delivery. The revolving clause often also specifies the intervals at which the credit
may be utilized.
A revolving credit can be cumulative or non-cumulative. Cumulative means that
amounts from unused or incompletely used portions can be carried forward to a subsequent
period. If a credit is non-cumulative, the portions not used within the prescribed period
cease to be available.
vi. Negotiation credit
A negotiation credit means the purchase by the nominated bank of drafts (drawn on
a bank other than the nominated bank) and/or documents under a complying presentation,
by advancing or agreeing to advance funds to the beneficiary on or before the banking day
on which reimbursement is due to the nominated bank.
A negotiation credit is a commercial letter of credit opened but the issuing bank in
the currency of its own country and addressed directly to the beneficiary. The credit is
usually delivered to the addressee by a correspondent bank. This credit is sometimes also
called as 'Hand on Credit'.
vii. Stand by credit
Stand by credits are encountered principally in the US. Under the laws of most
American States, banks are prohibited from issuing regular guarantees. So, stand by credits
are used instead. In Europe too, the use of this type of credit is increasing. The types of
payment and performance that can be guaranteed stand by credits include the following:
Payment of term bills of exchange,
Repayment of bank advance,
Payment of goods delivered,
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Delivery of goods in accordance with contract
viii. Transferable credit
Transferable credit means a credit that specifically states it is transferable. A
transferable credit may be made available in whole or in part to another beneficiary
("Second Beneficiary") at the request of the beneficiary (First Beneficiary). Transferable
credits are particularly well adapted to the requirements of international trade. A trader
(middleman) who receives payment from a buyer in the form of a transferable documentary
credit can use that credit to pay his own supplier. This enables him to carry out the
transaction with only a limited outlay of his own funds.
The buyer applies for an irrevocable credit issued in the trader's favour. The issuing
bank must expressly designate the credit as transferable.
The basic rule for transfer of credits is that payment of the original credit must be obtained
on the strength of the documents presented under the transferred credit. Thus the terms and
conditions of the transferred credit have to be identical with those of the original credit.
Possible exceptions to this rule are as follows.
The amount of the credit and the unit price may be reduced.
The last date of presentation may be brought forward.
The period for shipment may be shortened, provided that the original credit
does not specify a particular shipping date.
The required percentage of insurance cover may be increased, in order to
provide the amount of cover stipulated in the original credit.
The trader may require additional documents; these remain in his keeping.
A transferable credit may be transferred only once. The second beneficiary cannot
transfer it again unless there is an express provision to this effect in the original credit, e.g.,
'transferable twice'.
ix. Back-to-Back L/C
Where an exporter receives a documentary credit opened by foreign buyer in his
favor, he tenders the same to a bank in country as a cover for opening a credit in favor of
his suppliers. The letter is called 'back to back Letter of Credit'. Since same goods are
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involved in both the credits, a back-to-back L/C cannot be issued in respect of suppliers of
iron and steel on the strength of an export L/C for garments. Back to back credit in short, is
one, which is opened against a master L/C. The terms of back-to-back L/C should be
identical except that the price may be lower and validity earlier. This type of credit keeps
the identity of the ultimate buyer secret.
x. Other Credits
i. Installment credit: To differentiate with a revolving credit, an installment credit
is a credit for the full value of goods, but requires shipment of specific, quantities of
goods within nominated periods and allows part shipments.
In case any installment of shipment is missed, credit ceases to be available for that and
subsequent installments unless the L/C permits otherwise.
ii. Green Clause Credits: A Green Clause Credit is a credit with a special clause
incorporated into it that which not only authorizes the advising bank to grant pre-shipment
advances but also storage cost for storing the goods prior to shipment.
The Dhaka Bank basically deals with irrevocable L/C., which cannot be amended
or cancelled by the issuing Bank at any moment and without prior to the beneficiary. It also
deals back-to-back L/C, which is the letter of credit, provided by the exporter to the import
the raw materials from abroad in order to produce the exportable commodity for the
importer.
3.5. Parties to a Letter of Credit & Their Responsibilities:
A Letter of Credit is issued by a bank (Issuing Bank) at the request of an importer
(applicant) in favor of an exporter (beneficiary) from whom the importer has contracted to
purchase some commodity or commodities. The importer, the exporter, and the issuing
bank are, thus, obviously parties to a letter of credit. Some other parties are also involved
in the process.
Parties to the Documentary Credits and their responsibilities obligatory are outlined below:
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3.5.1.Issuing bank/opening bank/buyer's bank: Issuing bank means the Bank
that issues a credit at the request of an applicant or on its own behalf.
Responsibilities:
The issuing bank is primarily responsible for payment under the credit tothe beneficiary.
The issuing bank should nominate the bank, which is authorized to pay or to
accept drafts or to negotiate, unless the credit allows negotiation by any
bank.
Upon receipt of the documents, the issuing bank must determine, on the
basis of the documents alone, whether or not they appear on their face to be
in accordance with the terms and condition of the credit. If the documents
appear on their face not to be compliance with the terms and conditions of
the credit, the issuing bank may refuse to take up the documents.
If the issuing bank determines that the documents appear on their face not
to be in compliance with the terms and conditions of the credit, it may in its sole
judgment approach the applicant waiver of the discrepancies. This does not however
extend period of five days available for scrutiny and communicating decision.
3.5.2. Customer / Applicant / Buyer/ Importer: Customer/buyer/
Applicant /Importer mean the party on whose request the credit is issued.
Responsibilities:
Since the credit is based on the sale contract between the exporter and the
importer, the latter has a duty to the exporter to see that the credit opened is as per the
terms of the sale contract.
The obligations between the importer and the issuing bank are governed bythe application-cum-agreement submitted by the importer to the bank. Such instructions
for the issuance of credits as well as his instructions for any amendments thereto must be
complete and precise.
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3.5.5. Confirming Bank: Confirming Bank means the bank that adds its confirmation
to a credit upon the issuing bank's authorization or request (Article-2).
Responsibilities:
If the credit is available by sight payment, deferred payment or acceptance
with the confirming bank;
If the credit is available by deferred payment with another nominated bank
and that nominated bank does not incur its deferred payment undertaking or having
incurred its deferred payment undertaking, does not pay at maturity;
If the credit is available by negotiation with another nominated bank and
that nominated bank does not negotiate.
Negotiate, without recourse, if the credit is available by negotiation with
the confirming bank.
A confirming bank is irrevocability bound to honour or negotiates as of the
time it adds its confirmation to the credit.
3.5.6. Negotiating Bank/Nominated bank: Negotiating or Nominated bank
means the bank with which the credit is available or any in the case of a credit available
with any bank.
Responsibilities:
Unless the negotiating bank is nominated in the credit and it accepts the
nomination or it is the confirming or paying bank, the beneficiary can
compel no bank negotiate documents under the credit. A bank, under an
open credit, may accept on its own to negotiate documents.
The negotiating bank should accept documents tendered only if they
conform to the terms and conditions of the credit. In documentary credits all
parties concerned deal in documents and not in goods.
If the negotiating bank finds any discrepancies in the documents tendered,
but still negotiates, it may require the beneficiary to execute an indemnity in
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favor of the bank. But such indemnity cannot be transferred to the issuing
bank.
3.5.7. Reimbursing Bank: If the L/C issuing bank nominates a third bank in the letter
of credit to honor the claim of the negotiating bank, the bank is called reimbursing bank
who may honor the claim accordingly, if otherwise in order.
Responsibilities:
An issuing bank must provide a reimbursing bank with a reimbursement
authorization that conforms to the availability stated in the credit. The reimbursement
authorization should not be subject to an expiry date.
A claiming bank shall not be required to supply a reimbursing bank with a
certificate of compliance with the terms and conditions of the credit.
An issuing bank will be responsible for any loss of interest, together with
any expenses incurred, if reimbursement is not provided on first demand by a reimbursing
bank in accordance with the terms and conditions of the credit.
A reimbursing bank's charges are for the account of the issuing bank.
3.5.8.Paying Bank: Paying bank is a bank in the beneficiary's country nominated in
the letter of credit to make payment against documents to be tendered under the credit.
When the paying bank accepts its nomination in the credit, it is liable to pay against
documents tendered provided they satisfy the requirements of the credit.
3.5.9. Accepting Bank:Accepting bank is the bank nominated in the letter of credit
to accept usance bills drawn under the credit. If the bank so nominated accepts the
nomination, its responsibility to the beneficiary is not only to accept the drafts drawn, but
also to payment on their due dates.
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Buyer (Importer)Seller (Exporter)
Indenter
Advising BankConfirming BankNegotiating BankIssuing Bank
Reimbursement Bank
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Figure: Parties to a Letter of Credit
3.6 Key Issues:
Some vital things that should be mentioned while talking about the L/C are as
follows:
i. Middlemen who buys and sells on a letter of credit basisii. Usually the export letter of credit is not transferable
iii. The Master L/C is a source of repayment
iv. The baby L/C is a separate undertaking from that of the issuing bank
v. Matching of the terms and conditions of both credits in order to produce the
required documents within time limits stipulated in the master L/C, with the following
exception:-
Applicants name
Amount
Unit price
Dates
Insurance
Documents can be substituted
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3.7. Uniform Customs And Practices of L/C:
Uniform Customs and Practice for Documentary Credit (UCPDC), International
Chamber of Commerce (ICC) publication are rules that apply to any documentary credit,
when the text of the credit expressly indicates that it is subject to these rules. Bankers and
commercial parties in more than 200 countries use the UCPDC.
UCPDC was first published in 1933 and subsequently updating it throughout the
years. In 1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles.
UCPDC-500 is a set of rules formulated by ICC to apply to all transactions in L/C carried
out by banks. The purpose of the rules is to bring about uniformity in the form of L/C and
the practice and procedures adopted by banks in handling the instruments. In order to
provide common understanding about the interpretation of the terms and terminology, a
uniform code is very essential. Therefore, the ICC formulated the Uniform Customs and
Practice, which is universally accepted, and L/C transactions everywhere are subject to this
set of rules.
The latest revision was approved by the Banking Commission of the ICC at its
meeting in Paris on 25 October 2006. This latest version, called the UCPDC600, formally
commenced on 1 July 2007. It contains a total of about 39 articles covering the following
areas, which can be classified as 8 sections according to their functions and operational
procedures.
Information of ICC& UCPDC
ICC (International Chamber of Commerce) world business
organization
Founded 1919
Membership and Association Thousands of members companies and associations of
over 200 countries.
Purpose To promote international trade, investment system and market
economy worldwide.
ICC publication UCPDC-500, UCPDC600, URR-525, URC-522 etc.
UCPDC Uniform Customs and Practice for Documentary Credits.
Application Import and export through L/C
1st publication 1933
Revised versions were issued 1951, 1962, 1974, 1983 and 1993
Latest version UCPDC600
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Effective from (in force) Formally commenced on 1 July 2007
Number of Articles 39
UCPDC-500 contains Definition, liabilities and responsibilities of all parties
involved in L/C, Rules and Guidelines for L/C operation
(issue, advise, negotiation and reimbursement).UCPDC-600 contains New technologies and the simplification of rules,
definition, Interpretation, independence of credits and
underlying contracts, Pre-Advised Credits, nominated
bank, reimbursement arrangements, complying
presentations and discrepant, waiver, original documents.
3.8. Regulatory Requirements of L/C:
There are some requirements of L/C for the import or export transaction in the
foreign exchange.
LOCAL RULES:
Guidelines for foreign exchange transaction regulation on import (guideline-
chapter-XV)
The Import/Export Act 1950
Import policy for the concerned year
Customs duty, VAT, SRO, Tariff
Rate of exchange and its application
Fe Circular, IBD Circular
Public notice issued by CCI&E Office
UNIFORM RULES:
UCUDC-ICC Publication No. 500
URC-ICC Publication No.522
URR-ICC Publication No.525
INCOTERM-ICC Publication No.560
Harmonized Commodity Description & Coding System (H.S. Code)
UCPDC-600
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3.9. Operational Flow of the Process of Letter of Credit:
Letter Of credit is the main expedient arrangement for international transactions.
For the providing of guarantees for the delivery of goods both the importer and exporter
need to open L/C. The complete Import and Export process in includes the following
stages. Both the importer and exporter are involved in this process of L/C. In here both
party do some tasks. Importers do various tasks or exporters do responsibilities and others
do some and some. The process is very much like the following:
4
Importer Exporter
Issuing Bank
Reimbursing Bank
NegotiatingBank
Confirming Bank
Ship of the Goods
Advising Bank
1
2
3
5
6
7
8
9
10 1114 15
12
13
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Figure: Operational Flow of the Process of Letter of credit
For Import or export of the goods or materials opening L/C is the most necessary
things to do; which is safer process and also reducing the production risk. For opening the
L/C first establish a buying and selling contract between the importer and the exporter. The
flow of the process shows that:
Establish a buying and selling contract between the buyer and the seller.
Submission of application with necessary documents to the bank.
L/C issue and advise it to the advising bank.
Issue reimbursing instruction to the reimbursing bank.
Asking for the confirmation of the L/C to the importer.
Advise the L/C to the exporter by the advising bank after verification of the
L/C.
Issuing request letter by the issuing bank to the confirming bank (as per
exporters requirement) toe confirm the L/C.
Issuing confirmation by confirming bank.
Shipment of the goods.
Submit required document to the negotiating bank for negotiation.
Negotiate the bill by the negotiating bank and make payment to the
exporter.
Claim to the issuing bank or reimbursing bank for payment.
Payment reimbursed by the issuing bank or reimbursing bank.
Ask the importer to collect the documents from the bank.
Collect documents from the issuing bank by paying the banks dues.
3.10. Factors for Opening L/C:A letter of credit provides the exporter or seller with the greatest degree of safety
when extending credit. It is useful when the importer or buyer is not well known and when
exchange restrictions exist or are possible. There are some factors for the L/C applicant for
opening L/C like-
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Account holder of the bank: First of all, L/C applicant must be a client of
the bank. If a new client comes in for opening L/C, he/she has to open an
account with Dhaka bank first.
Trustworthiness: This is the vital issue while considering about opening the
L/C. the past experience of dealings with that person is considered. For a
new applicant, his/her previous dealings with other banks are considered.
Post-import retirement: Post-import retirement is another factor that will
have to be considered for opening L/C.
Volume of business: The volume of business is also a major factor to be
considered. Because after the maturity payment are the initial facts.
Detailed analysis of financial condition: Detailed analysis of financial
condition of the applicant is required for the process, especially for a new
applicant.
CIB (Credit Information Bureau): CIB report from Bangladesh Bank is also
a most important thing to measure the applicant condition.
Personal relationship: And finally the personal relationship of the applicant
with the bank or its high officials plays a vital role in opening L/C.
Proposal approved by executive committee: A proposal approved by the
meeting of executive committee of the bank. It is necessary only when the
L/C amount is small or there is no limit. If the L/C amount is large or there
is a limit, then an approval from Bangladesh Bank is needed. Usually this
approval is needed for amount more than one core.
3.11. Documents Required While Applying for L/C:
In credit operation, all parties deal with the documents. Documents works as a
written commitment between the parties for the exchange of goods, services and other
materials. So in the process of L/C different documents are required whish is must submit
the applicant while applying for Letter of credit. The following documents are required for
opening L/C with DBL for a new applicant:
Trade License (up to date)
Import Registration Certificate (IRC) (up to date)
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Tax Identification Number (TIN) (up to date)
VAT Registration Certificate (up to date)
Chamber Membership Certificate
L/C Application (in letterhead pad of the client) LCA (L/C Application) form-duly filled in and signed by the importer
IMP Form- duly filled in and signed by the importer
Charge documents
Suppliers Credit Report
Applicants Credit Report
Other necessary papers depending on the nature of import.
3.10.1. Requirements of L/C Application Form:
L/C Application Form is a sort of an agreement between the customer and the bank
on the basis of which letter of credit is opened. Dhaka bank provides a printed form for
opening of L/C to the importer. A special adhesive stamp of value TK. 150 is affixed on
the form in accordance with the stamp act currently in force. Usually, the importer
expresses his decision to open the L/C quoting the amount of margin in percentage. In
filling up the form, the importer has to provide the following information:
Full name and address of the importer.
Full name and address of the beneficiary.
Draft amount.
Time bar within which the documents should be presented.
Sales type (CIF/FOB/C&F).
Brief specification of commodities, price, quantity, indent No. Etc.
Country of origin.
Import license no.
IRC No.
Account No.
Documents No.
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Insurance Cover Note/Policy No., date, amount.
Name and address of insurance company.
Whether the partial shipment is allowed or not.
Whether the transshipment is allowed or not. Last date of shipment.
Last date of negotiation.
Other terms and conditions (it any).
Whether the confirmation of the credit is requested by the beneficiary or
not.
The L/C application must be completed / filled in properly and signed
by the authorized person of the importer before it is submitted theissuing bank.
The above information is provided along with the following documents:
Performa Invoice or Indent stating the description of the goods
including quantity, unit price etc.
Insurance Cover Note with money receipt, name and address of
issuing company and the policy number.
Four set of IMP (Import) Form.
3.10.2. Important Documents in the L/C Procedure :
Depending upon the terms stipulated in the letter of credit several documents need
to be presented for settlement of claims under the credit. These documents are also called
shipping document or documents of foreign trade. These documents are submitted in sets
and are issued and signed by the designated authorities with the terms of contract of sale.
These documents can be classified five categories:
Commercial Documents
Official Documents
Insurance Documents
Transport Documents
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Financial and Financing Documents
Commercial Documents:
A commercial invoice is a statement containing full details of the goods shipped.
The general contents of a commercial invoice used in foreign trade are:
Names and addresses of the seller and the buyer.
Details of goods shipped-quantity, description and value.
Packing details and packing marks.
Price and amount payable by the buyer.
Terms of trade-FOB, CFR or GIF, etc.
Details of freight charges, insurance premium and other charges.
Reference to the sale contract in fulfillment of which the shipment is made.
Name of the vessel in which the goods are shipped. and
An invoice is not a document of title to the goods but is only a description of goods.
It serves the purpose of verifying that the goods shipped and the prices charged are as per
the contract. Though there is no specific pro-forma in which an invoice is to be prepared
certain countries may prescribe the format in which invoices for imports into their
countries have to be prepared. Such requirements have to be kept in view while preparing
the invoice.
The following commercial documents are generally used in foreign trade:
i) Invoices
ii) Certificate of origin
iii) Weight notes or certificates
iv) Packing list
v) Quality or inspection certificates
i) Invoice:
An invoice evidences the contract of sale and purchase between buyer and seller.
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The "Pro-forma Invoice" is a memorandum of the terms of a contract of sale wherein the
seller gives the quotation to a potential buyer. If the buyer approves its terms he sends a
definite order for supply. Such an invoice is marked with the words "Pro-forma Invoice".
ii) Certificate of Origin:
A certificate of origin declares the place of actual manufacture or growth of the
goods. A country may place restrictions on importers from certain countries. Or,
preferential treatment may be accorded in tariff for imports from certain countries. For
both these purposes certificate of origin becomes necessary. Usually, such certificates are
issued by the Chambers of Commerce or Trade Associations exporting country.
iii) Weight Note or Certificate:This gives the weight of individual items shipped. If the goods are shipped in bulk,
like food grains, the list may cover the entire shipment. It is generally issued by a public
agency.
iv) Packing list:
The exporter must prepare a packing list showing, item by item, the contents of the
containers or cases to enable the importer of the goods to check the shipment. It should
give description of the goods, net weight and gross weight, measurement etc. this helps in
identifying the contents of specific packages and thus may facilitate assessment by the
customs.
v) Quality or Inspection Certificate:
This is a certificate declaring that the goods have been examined and found to be
accordance with the contract of sale. The manufacturer or supplier signs this, but the
contract of sale may require to be issued by a recognized independent inspection body. It is
also called survey report.
Official Documents: The official documents include:
i) Consular Invoice.
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ii) Legalized Invoice.
iii) Black-listed Invoice.
iv) Health, Veterinary and Sanitary Certificate / Certificate of analysis.
i) Consular Invoice:
It is a special type of invoice, usually in a prescribed form, describing the details of
the goods shipped and sworn as being 'correct in all respects by the exporter before the
Consul of the importing country stationed in the exporting country. The consul then
certifies the invoice. Any false declaration in the consular invoice involves heavy penalty.
ii) Legalized Invoice:
The purpose of a legalized invoice is similar to that of a consular invoice. The
difference is that instead of a specific format of invoice, the ordinary commercial invoice is
presented to the Embassy or Consulate for certification. Certain countries in Middle East
require legalized invoice.
iii) Blacklist Certificate:
A country at war with or having a strained political relationship with another
country may require a certificate that:
the goods are not of the origin of. the particular country, or
the parties involved in the transaction arc not blacklisted or
the transport vessel will not touch the other country.
iv) Health, Veterinary and Sanitary Certificate/Certificate of Analysis:
It is often necessary for shipping documents to contain something more than a
certified invoice as evidence of quality in order to meet health requirements in the country
of destination or to satisfy the importer about the precise strength or chemical composition
of the goods. "Health, Veterinary and Sanitary certificates" are generally needed in the
purchase of foodstuff, hides and livestock and in the use of packing materials. The
recognized health authorities in the exporting countries issue this certificate
Insurance Documents:
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The insurance document must indicate that risks are covered at least between the
places of taking in charge or shipment and the place of discharge or final destination as
stated in the credit.
Transport Documents
These are the documents which evidence that the goods have been delivered to the
named shippers, airlines or transporters for carriage to a named port, airport or place of
delivery. Following transport documents are being used at present in the international
trade:
i) Air Waybill/Air Consignment Note.
ii) Mate's Receipt.
iii) Bill of Lading.iv) Railway Consignment note / Railway Receipt.
v) Roadway Bill.
vi) Post Parcel Documents
i) Air Waybill/Air consignment Note:
Airlines or their agents issue airway bills or air consignment notes as a receipt of
consignment received as carriers.
ii) Mates Receipt:
Bill of lading should be distinguished from a Mate's Receipt. When the goods are
delivered to the shipping company for transportation at first a temporary receipt is issued
by the ship's Chief Officer acknowledging the delivery of the goods alongside the carrying
vessel, which is known as the Mate's Receipt.
iii) Bill of Lading
A bill of lading is a document issued by the shipping company or its agent,
acknowledging the receipt of goods for carriage, which are deliverable to the consignee or
his assignee in the same conditions as they were received. Bill of lading renders the
following three functions:
It is an evidence of contract of carriage;
It is a receipt for the goods received by the carrier; and
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It is a document of title to goods.
iv) Rail Consignment Note or Railway Receipt:
When the exporter or his agent delivers a consignment to the railway authorities for
its onward carriage to a named destination, they issue a receipt, indicating the details of
the consignment and the destination to which they would carry it. This document is called
the Rail Consignment Note or Railway Receipt.
v) Road-way Bill:
It is an internationally approved document of transportation when goods are being
sent by road through the countries. This document is Road- way Bill. This is a non-
negotiable document and provides written evidence that the goods are being carried under
the terms of Road- way Bill.
vi) Post Parcel Documents:
It is a receipt issued by the Post Office for the parcel they have received for direct
delivery to the addressee. It is not a document of title to goods and generally contains the
post office stamp indicating the date of dispatch, name and address as mentioned in the
parcel, name and address of the sender, postage paid and identification number of the
parcel.
Financial and Financing Documents:
These documents are used in payment by the buyer to the seller of goods in the
international trade transactions. Bills of Exchange Promissory Notes are very commonly
used such documents.
i. Bill of Exchange:
A bill of exchange is an instruction by the exporter (drawer) to the importer or the
importer's bank to make payment of the amount mentioned in it. A bill of exchange is a
negotiable instrument and is governed by the Negotiable Instruments Act 1881 in
Bangladesh and by similar enactments in other countries.
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3.11. L/C Issuing Process in the Dhaka Bank:
For the issuing of Letter of credit Dhaka Bank follow some steps or flow in the
processing. Below the flow Chart mentioning Steps in issuing an L/C in Dhaka Bank-
Figure- Issuing Process of L/C
Fill up the application
form
Discussion between
the Bank and the
party
Accumulate forms
and depositing those
Preparing offering
sheetPutting L/C No. Checking Documents
Singing offering sheet Typing the L/C Checking the L/C
Acknowledgment the
accountDispatching L/C
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In the Dhaka Bank Banani branch, foreign exchange department issue the import or export
letter of credit for the customer. For opening L/C, a bank promises to pay on behalf of a
customer. The bank will only issue a letter of credit if they know the buyer will pay. Some
buyers have to deposit (or already have) enough money to cover the letter of credit, and
some customers use a line of credit with the bank. Sellers must trust that the bank issuing
the letter of credit is lawful. The comprehensive process of L/C issuing in Dhaka Bank is
explained below-
Step-1: Fill up the application form:
First time issuing the letter of credit the clients who want to open a L/C have to fill
up the application form in the banks letterhead pad. In there all the information likes name
of the product, origin of the product, where to imported, margin and other things. The
applicant shall have to apply for the required forms of the bank.
Step-2: Discussion between the Bank and the party
After receiving the application form, the Bank pays attention to the issues
mentioned below.
The products that are going to be imported are considered. Because
there are restrictions by the government on some products.
The quoted rates are specially analyzed, as theyre also some restrictions
by the government.
Step-3: Accumulate forms and depositing those
For the primary stage applicants collect the necessary from for opening L/C like
L/C application form, LCA form and also IMP from the bank. They fill up all the form
according to the instruction and maintain all the regulation and acts. After finish the task
the forms and all other necessary documents are then deposited at the desk of the dealing
officer.
Step-4: Checking Documents
After fill up the entire form applicant give that to the dealing officer. Dealing
officer than check all the forms and documents specially the quoted rates, the terms and
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conditions of the indent or pro-forma invoice and the validity of the documents. Generally
the person from whom the forms are collected is engaged in checking out the documents.
Step-5: Putting L/C No.
Every L/C form there has a L/C number. After checking the documents bank given
L/C No. for the easy identification and erase the complexity. Generally the officer who
checks the documents puts the L/C No. L/C number helps not only the applicant but also
the banks to fill the all documents easily.
Step-6: Preparing offering sheet
Generally the dealing officer who deals all the process of the L/C. Officer checks
the all present documents and prepares the offering sheet prepares the offering sheet. It is
the responsibility of that officer to prepare this and maintain as an act.
Step-7: Singing offering sheet
The offering sheet is then signed by the officer having the authority to open the L/C
of the specified amount. If it is within the maximum limit of the amount (for which the L/C
is applied) of the SAVP or branch manager, he/she can sign it. But if it is beyond his/her
limit proposal must be sent to the head office, either for case-to-case sanction or for credit
limit. Generally, in Dhaka Bank, branch managers are empowered to open an L/C without
communicating with the head office, if the L/C amount is within his limit.
Step-8: Typing the L/C
After the approval of opening L/C is given, the L/C is typed in a structured format.
In the Dhaka Bank has a structured format mainly they use it when any applicant want to
open a L/C account. So for the work they need 2 to 5 minutes.
Step-9: Checking the L/C
For finally checking the L/C dealing officer check all the documents, which is
given. All the work from beginning to end dealing officer covenant with whole process and
find out and list the discrepancy if occurred.
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Step-10: Acknowledgment the account
On the basis of credit arrangement with the bank of import financing, the
customers account is affected with certain credit.
Step-11: Dispatching L/C
At the final stage, the L/C is dispatched through postage mail or telex or SWIFT or
so forth.
Although this is the generalized process for issuing L/C, for the speed of the
process sometimes the typing and checking of documents are done before the offering
sheet is signed. Then after signing the L/C it is dispatched. .
3.13. COMMON DISCREPANCIES:
1. Clause (unclean) Bill of Lading.
2. Charter Party Bill of Lading (unless stipulated in the Letter of Credit).
3. On Board notation of in Bill of lading undated/ unauthenticated.
4. Shipment effected from port other than that stipulated in the credit.
5. Goods shipped on deck (unless stipulated in L/C)
6. Full set of bill of lading not presented.
7. Certificate of country of origin not provided.
8. Certificate notifying insurance company of shipment not presented.
9. Wightmans certificate not presented.
10. Cutting/alteration in documents not authenticated.
11. Documents inconsistent with each other.
12. Description of goods on invoice differs from that in the credit.
13. Weights differ between documents.
14. The amounts shown in invoice and bill of exchange differ.
15. Shipping marks and numbers differ between documents.
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16. Credit L/C amount expired.
17. Credit (L/C) expired.
18. Documents not presented in time/state bill of lading.
19. Late shipment
20. Short shipment
21. Absence of documents called for in the credit.
22. Bill of exchange drawn on a wrong party.
23. Bill of exchange payable on an indeterminable date.
24. Bill of lading, insurance documents or bill of exchange are not endorsed
correctly.
25. Absence of signatures, where required, on documents presented.
26. Bill of lading does not evidence whether freight is paid or not.
27. Packing list not submitted.
28. Part shipment/ transhipment effected not being covered by the L/C terms.
29.Notify Party differs/not as per L/C stipulation.
30. Third party bill of lading/short from bill of lading submitted.
31. Inspection certificate not submitted.
32. Unit price not mentioned in invoice.
33. Description of documents on collection schedule with documents presented.
34. Fumigation/Health certificate (Fit for human consumption) not submitted.
35. Forwards Cargo receipt not acceptable (unless provided in the L/C).
3.14. Letter of credit Accounting Procedures:
While dealing with import/export letter of credits the L/C issuing bank /negotiating
bank come across several steps/stages involving financial matters which need to be accounted for
and recorded in the books of accounts of the respective branches as follows (Applicable under
Dhaka Banks Banking System):
Import:
i. At the time of opening Cash L/C:
Dr. Assets as per contra (@ B.C. selling rate) Import L/C General
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Cr. Liability as per Contra Import L/C General
Dr. Party's current account
Cr. Income Account (Commission on L/C Cash)
Cr. Income account (Telex Charges)/SWIFT/P&T.
Cr. Stamp in Hand
Cr. Income Account (Stationery)
Cr. Sundry Deposit (Security Deposit L/C Cash)
Cr. Other A/Cs (if required).
Cr. Sundry Deposit (vat on L/C com.)
Cr. Income A/c (F.C.C)
ii. Entries for lodgment of documents against Cash L/C (Sight / Usance):
Dr. Liability as per Contra (Cash L/C) Import General
Cr. Assets as per Contra (Cash L/C) Import General
Dr. Inward Foreign/Local Bills Lodged
Cr. Inward Foreign/Local Bills for Collection/in case of usance L/C
Dr. Import Bills A/c (B.C. Selling Rate)
Cr. Income A/c (Acceptance commission usance Bills) (if usance L/C)
Cr. FC Fund Purchased A/c. (B.C. Selling Rate)Cr. Profit Receivable A/c (MPI)
Cr. Income Account (Telex Charges)
Dr. F.C Deposit (FC Fund Held) A/c. (At notional rate)
Cr. F.C Deposit (FC L/C cover) A/c (Party wise)
Dr. F.C. Deposit (FC L/C cover) @ Notional rate
Cr. IBGA/c H.O. ID
iii. For purchase of FC:
Dr. IBG, ID, 110 (at notional rate)
Cr. FC Fund Held A/c
Dr. FC Fund purchased A/C
Cr. IBG ID, HO (FC value in Taka)
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iv. For of cash retirement:
Dr. Party's A/c
Dr. Sundry Deposit (Security Deposit Cash L/C) A/c.
Cr. FC Fund Purchased A/c.
Cr. Income Account SWIFT/Telex charges recovery A/c.
Dr. FC Deposit (W.F.H. A/c) at notional rate
Cr. FC Deposit (WES L/C cover) A/c
Dr. F.C. Deposit (WES LC cover) A/c
Cr. IB General A/c. II.O. ID
v. Alter Retirement of Bills:
Dr. Inward Foreign/Local Bills for Collection
Cr. Inward Foreign/Local Bills Lodged
vi. For adjustment of 1B (Import Bill- Temporary Bank Investment):
Dr. Party's A/c
Dr. Security Deposit A/c
Cr. Import Bills (MIB)
Dr. Profit Receivable A/c
Cr. Import Bill A/c. (For rebate)
vii. For Bank's Investment:
Dr. Post Import/HPSM (Investment) A/C
Cr. FC fund purchased A/c
Cr. Profit Receivable A/c
Cr. Income Account Commission on clearance of imported Consignment
Cr. Income Account Telex charge recovery A/c.
Dr. FC Deposit (FC. FH.) A/c
Cr. FC Deposit (L/C Cover) A/c
Dr. F.C Deposit (F.C L/C cover) A/c
Cr. IB General A/c. H.O. ID
Dr. Party's A/c (When realized)
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Cr. MPIA/c
Dr. Profit receivable A/c
Cr. Investment Income A/c (At the end of each month).
viii. For opening of BB L/C:
(a) Charges realization voucher:
Dr. Party's Deposit A/c/Sundry Deposit A/c (Marginal Deposit)
Cr. Income Account Commission
Cr. Income Account P&T/Telex Charges/SWIFT
Cr. Stampt in Hand A/c
Cr. Income Account Stationery
(b) Liability voucher:
Dr. Assets as per contra BB L/C (Inland/Foreign)
Cr. Liability as per contra BB L/C(Inland/Foreign)
ix. On receipt of documents:
Dr. Liability as per contra BB L/C (Foreign/Inland)
Cr. Assets as per Contra BB L/C (Foreign/Inland)
Dr. Assets as per Contra BB Bills(Foreign/Inland)
Cr. Liability as per contra BB Bills(Foreign/Inland)
x. For back to back Bills Retirement:
Dr. F.C. Held against BTB L/c (At the rate at which amount was held)
Cr. IB General A/c HO, ID
Dr. Party's A/c/Sundry Deposit A/c (Marginal Deposit)
Cr. Income A/c(F.C.C)
Cr. Income Account (acceptance commission)
Cr. Income Account (CCIC; if applicable)
Cr. Income Account (Stationery)
Cr. Income account (P&T/ Telex Charges)
Dr. Liability as per contra (BB Bills)
Cr. Assets as per contra (BB Bills)
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Export:
Entries for Negotiation/Purchase of Export bills (Applicable under Dhaka Banks
Banking System):
Dr. FBN/FBP A/c @ OD sight Export Bill (Party wise)Cr. F.C. Held against IBB L/C (as applicable)
Cr. Marginal Deposit A/c (as applicable)
Cr. Investment Income A/c (PSI)
Cr. P&T Recovery A/c
Cr. FCAD-EXP A/c as applicable (as per Bangladesh Bank rule) of FOB value.
Cr. Party's A/c. -Balance amount.
Cr. Sundry Deposit A/c (Buying Agent Commission)
i. Negotiation Under Reserve
Dr. FBN A/c
Cr. PC held against BB L/C
Cr. Marginal deposit A/c (Under reserve)
Cr. FCAD A/c (10% of FOB value if requested as per Bangladesh Bank's Rule)
ii. In case the documents are sent on collection basis accounting should be as under:
Dr. Outward foreign Bill Lodged A/c.
Cr. Outward Foreign Bills for collection A/c
iii.Upon receipt of payment of bill amount by the paying bank in the NOSTRO A/C.
the following entries have to be passed for adjustment of the investment A/C.
Dr. IB General A/c Head Office, ID (by mid rate)
Cr. Foreign Bills Purchased / Negotiated (FBP/FBN) A/c
Cr. Income A/c (Exchange F.C)
Cr. Investment Income A/c (FBP/FBN).
iv. After realization of FBC:
Dr. Outward Foreign Bills for Collection
Cr. Outward Foreign Bill Lodged
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After realization:
Dr. Clearing adjustment A/c (In case Bill realized in TAKA)
Dr. Marginal Deposit A/c
Cr. Exchange A/c
Cr. Investment income A/c (IBP)
Cr. Exchange (In case of Foreign Currency).
Cr. Investment Income A/c.
For Collection of Inland Export Documents:
Dr. outward Bill Lodged
Cr. Outward Bills for Collection
Dr. IBG (HO, ID) A/c (if payment made by FC)
Dr. PO/DD (Through clearing)
Cr. FC Held against BB L/C (if any)
Cr. FC AD (ERQ) A/c (if required)
Cr. Investment A/c (MPI/HPSM/BAIM BB)
Cr. Income A/c
Cr. Party's Deposit A/c
3.15. Time Duration Of L/C Processing:
For the regular clients Dhaka Bank need less than one hour to open another new
L/C. When a regular client applies to open another L/C, they just provide photocopies of
most documents and the bank officer do not take much long time to check those
documents, because in most cases the L/C clients of the banks are regular and old. In case
of new client banks issuing L/C and check the documents thoroughly. However, it
generally does not take more than two days even for a new client applying to open an L/C
and often it takes time to make the client understand the banks requirements.
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Foreign exchange is an important department of DHAKA Bank Limited, Banani
branch which deals with import, export and foreign remittances. Foreign Exchange is an
International Department of the Bank. It facilitates international trade through its various
modes of services. It bridges between importers and exporters. This department mainly
deals in foreign currency, that's why it is called foreign exchange department.
Average Time requirement for the basic activities of
L/C issuing process
ActivityAverage Required Time
(in minutes)
Checking Documents 5
Putting L/C No. 2
Preparing Offering Sheet 10
Signing Offering Sheet 5
Typing the L/C 25
Checking the L/C 8
Crediting the account of the customer 5
Total Time* 60
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This department is playing an important role in enhancing export earning, which
aids economic growth and in turn it helps for the economic development. On the other
hand, it also helps to meet those goods and service, which are most demandable and not
adequate in our country.
3.16. Letter of Credit in Import Financing:
One of the important functions of the commercial banks in the world is to undertake
the import of merchandise into the country and payment of foreign exchange towards the
cost of the merchandise to foreign suppliers. Bangladeshs import policy requires letters of
credit (L/C) for all imports of goods. L/C, as a tool of financing, provides benefits to both
the importer and the exporter. Import financing by Dhaka Bank can be shown by the
diagram below:
However, post import finance is beyond the scope of this report. Thus the following
few sections will describe the import L/C processing of Dhaka Bank.
3.17. Letter of Credit in Export Financing:
Export business creates inward remittance. For that reason, government encourages
investing in export business and offers incentive like tax and duty free entrance of raw
materials in RMG business in our country. As import of one party is an export to the other,
L/C also plays a vital role in financing exports. Following diagram shows means of export
financing that Dhaka Bank deals with.
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Import Finance
Dhaka Bank
Pre Import Finance
L/C (Letter of Credit)
Post Import Finance
1. PAD
2. LIM Agreement
3. Forced LIM
Export Finance
Dhaka BankPost Shipment Finance
1. Negotiation of Export Bills
2. DP/DA
3. Collection of Export Bills
Pre Shipment Finance
1. Packing Cash Credit (PCC)2. Back to Back L/C