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IINNTTEERRNNSSHHIIPPRREEPPOORRTT OONNNNBBLL

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LETTER OF TRANSMITTAL

October 10, 2009

Aklema Choudhury Lema

Lecturer,

Dept. of Accounting & Information Systems,

University of Dhaka.

Subject: Submission of Internship Report.

Dear Madam,

It is a great pleasure and privilege to present the internship report titledForeign Exchange

Operation of National Bank Limited which was assigned to me as a partial requirement for

the competition of my BBA Program.

Throughout the study, I have tried with the best of my capacity to accommodate as much

information and relevant issues as possible and tried to follow the instructions as you have

suggested. I tried my best to make this report as much informative as possible. I sincerely

believe that it will satisfy your requirements. I however sincerely believe that this report will

serve the purpose of my internship program.

I am grateful to you for your guidance and kind co-operation at every step of my endeavor on

this report. I shall remain deeply grateful, if you kindly put some effort to go through the reportand evaluate my performance.

All of my efforts will be successful if the report can serve its purpose.

Sincerely Yours,

Muhammad Amzad Shakil

Roll. No. 11121

BBA 11th Batch

Dept. of Accounting & Information Systems,

University of Dhaka


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ACKNOWLEDGEMENT

First, I would like to express my deep gratitude to the creator, who created and nurture

me in this transitory world. I also express my gratitude to him for giving me an

opportunity to complete my internship program successfully as a partial requirement of

MBA program

Then, I would like to express my indebtedness and deep sense of gratitude to my

honorable supervisor lecturer Aklema Choudhury Lema, Department of Accounting &

Information Systems, University of Dhaka, whose scholastic supervision, kind and

sympathetic guidance, warm advice and encouragement have enabled me to

materialize this report successfully.

I would like to express my sincere gratitude to all executives, officers and employees of

National Bank Limited, Foreign Exchange Branch, who had responded cordially to meet my

needs relating to the report and gave me feeling that I am not alone in taking this great

responsibility. Of them, I would like to mention the name of-

1. Mr. Md. Mostofa kamal (Executive Vice President & Branch Manager)

2. Mr. Md. Nuruddin Zamader(AVP), Accounts.

3. Mrs. Roksan Parvin(SPO), Export.4. Mr. Md. Mostafa Kamal Ahamed(SPO), Export.

5. Mrs. Hasina Momtaz (SPO), Export.

6. Mr. Md. Nazrul Islam (SPO), Import.

7. Mr. Md. Salauddin Miah (PO), Head office NBL.

Without their effort, it would be impossible to bring this report to the light.

I shall never forget the help from some books, term papers, journals, etc., above all I

really be indebted to authors of these works.

I am grateful to my beloved parents, elder brother, friends and well-wishers for theirinspiration that lead me to go ahead.

Finally, I thank all the persons who have directly or indirectly contributed in preparing

this report.


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EXECUTIVE SUMMARY

An internship program is very important & essential for acquiring experience through

learning and spreading the scope of Knowledge. I have done my internship program in

National Bank Limited, Foreign Exchange Branch, Taranga Complex, 19, Rajuk

Avenue, Motjheel, Dhaka-1000.

This internship report is aimed at providing a comprehensive picture to the areas of

Foreign Exchange operation of National Bank Limited. The report has been divided

into twelve parts. These are- Introduction, Brief History of Banking Sector of

Bangladesh, CCoorrppoorraattee rreevviieeww ooff NNBBLL,, Foreign Exchange, Documents Used in

Foreign Exchange Business, Letter of Credit (L/C), Import, EExxppoorrtt,, Foreign

Remittance, FFiinnddiinnggss aanndd AAnnaallyyssiiss,, RReeffeerreenncceess

National Bank Limited is one of the largest commercial Bank of Bangladesh. The main

objective of the Bank is to provide all of banking services at the doorsteps of the

people. The Bank also participates in various social and development programs and

takes part in implementation of various policies and promises made by the

Government.

National Bank Limited plays a pioneering role in handling foreign trade and foreign

exchange transactions. With wide network of branches at home and a large number of

correspondent banks worldwide, it is handling the largest volume of export-importbusiness including homebound remittances. For this reason, Foreign Exchange of the

Bank is very much essential. But now a days banking sector of Bangladesh is

suffering the disease of default culture which is the consequence or result of bad

performance of most banks.

There are three types of modes of foreign exchange market, which are- Export

Financing, Import Financing and Foreign Remittance. Foreign Exchange Branch

does these foreign exchange activities vastly. In this report, I mention the overall

operating procedure of foreign exchange transaction of National Bank Limited. I also

mention the findings of my report and describe the recommendation to overcome the

limitation.

I have taken all the reasonable care to ensure the accuracy and quality to make the

report standard. And I believe that it has included all the necessary information to be

relevant.


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ACRONYMS

A/C Account

AD Authorized Dealer

B/L Bill of Lading

BB Bangladesh Bank

BOE Bill of Exchange

CCI & E Chief Controller of Export& Import

CFR Cost & Freight

CIB Credit Information Bureau

CIF Cost Insurance & Freight

CRR Cash Reserve Ratio

DD Demand Draft

DP note Demand promissory Note

EPB Export promotion Bureau

EPZ Export Processing Zone

ERC Export Registration Certificate

EXP Export Form

FC Foreign Currency

FDD Foreign Demand draft

FOB Free On Board

HS Code Harmonized System of Coding

IBC Inward Bills for Collection

IBCA Inter Branch Credit AdviceIBDA Inter Branch Debit Advice

ICC International Chamber of Commerce

DCCI Dhaka Chamber of Commerce and IndustryIMF Import Form

IRC Import Registration Certificate

L/C Letter Of Credit

LCAF Letter Of Credit Authorization Form

LBC Local Bills for Collection

LDBC Local Documentary Bills for Collection

NBL National Bank LimitedOBC Outward Bills for Collection

ODBC Outward Documentary Bills for Collection

PO Payment Order

PSI Pre shipment Inspection

TT Telegraphic Transfer

SWIFT Society for Worldwide Interbank Financial Telecommunication

UCPDC Uniform Customs & Practice for Documentary Credit


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TABLE OF CONTENTS

Chapter Page no.

Letter of transmittal

Acknowledgement

Executive summary

Acronyms

Chapter-1: Introduction1.1 Origin of the report

1.2 Objectives of the study

1.3 Scope of the study

1.4 Methodology of the study

1.5 Sources of data

1.5.1 Primary Data

1.5.2 Secondary data

1.5.3 Data analysis and interpretation

1.6 Limitations of the study

Chapter-2: Brief History of Banking Sector of Bangladesh2.1 Evolution of the word Bank

2.2 The emergence of modern bank

2.3 Development of banking in Bangladesh

2.4 Public sector Banking

2.5 Private sector Banking

Chapter-3: CCoorrppoorraattee rreevviieeww ooffNNBBLL3.1 History of National Bank Limited

3.2 Vision of National Bank Limited

3.3 Mission of national bank Limited

3.4 Objective of national Bank Limited

3.5 Strategies of National Bank Limited

3.6 Business Goal

7.7 The Future thrust

3.8 Corporate Culture

3.9 Growth and Development of NBL3.10 Branches of NBL

3.11 Management Hierarchy of NBL

Chapter-4: Foreign Exchange4.1 Meaning of Foreign Exchange

4.2 Regulatory Requirements of Foreign Exchange

4.3Why Foreign Exchange is to be controlled

4.4Functions of Foreign Exchange Department

4.5 Foreign Exchange Condition of NBL

4.5.1Foreign Remittance Condition

4.5.2 Import Condition4.5.3 Export Condition


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Chapter-5: Documents Used in Foreign Exchange Business5.1Leter of Credit (L/C)

5.2Bill of Exchange

5.3Bill of Leading

5.4 Commercial Invoice

5.5 Certificate of Origin

5.6 Inspection Certificate

5.7 Insurance Certificate

5.8 Proforma Invoice

5.9 GSP Certificate

5.10 Packing List

5.11 Documentary Credit

Chapter-6: Letter of Credit (L/C)

6.1 Parties Involved in L/C Transaction6.2 Basic Forms of Documentary L/C

6.3 Classification of L/C in terms of Function

6.4 Steps in L/C Opening

6.5 Required Documents for L/C Opening

6.6 Parties Involved in Offering Sheet

6.7 Justification for Fitness of L/C Opening

6.8 Methods of L/C Settlement

6.9 Operation Procedure of Documentary L/C

6.10 Awarring matter of L/C

6.11 How L/C work

6.12 Presenting a L/C

6.13Common Mistakes Made in L/C

Chapter-7: Import7.1 Meaning of Import

7.2 Who is an Importer?

7.3 Types of Import

7.4 Goods are not Importable

7.5 General Provisions for Import

7.6 Import Procedure

7.7 Documents need to open a cash L/C7.8 Procedure to be followed by banks for acceptance/issuance of LCA Form

7.9 Various Method of Import Financing

7.10 Instructions Issued by Bangladesh Bank

7.11 Preparation of Proposal and submitting it

7.12 Documents Receipt and Scrutiny

7.13 Import Portfolio of National Bank Ltd

7.14 Import state of affairs of NBL


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CChhaapptteerr--88:: EExxppoorrtt8.1 What is Export?

8.2 Documentation Used in Export

8.3 Registration for the Exporter

8.4 Processing of export order (export cycle)

8.5 Making sales contract & receiving L/C

8.6 Export Finance

8.6.1 Pre Shipment Finance in Export Trade

8.6.1.1 Types of Pre Shipment Finance

8.6.1.2 Establishing Back-To-Back L/C

8.6.2 Post Shipment Finance

8.6.2.1 Basic Features

8.6.2.2 Financing for Various Types of Export Buyers Credit

8.6.2.3 Types of Post shipment Finance

8.7 Foreign Documentary Bill Purchase (FDBP)

8.8 Certification of Export Forms by Authorized Dealers

8.9 Preparing out and Delivery of Shipping Documents

8.10 Endorsement of Shipping Documents by AD

8.11 Submitting the Shipping Documents to AD

8.12 Retention Quota for Exporter

8.13 Shipment of goods under FOB and CIF terms

8.13.1 Shipment of goods on CIF terms

8.13.2 Shipment of goods on FOB terms

8.14 Export Realization Proceed

8.15 Export Development Fund

8.16 Overdue Export Bills8.17 Export Portfolio of National Bank Ltd

8.17.1 Packing Credit (PC)

8.17.2 Secured Over Draft (SOD)

8.17.3 Back to Back L/C Commission

8.17.4 Local Documentary Bills for Purchase

Chapter-9: Foreign Remittance9.1Meaning of Remittance

9.2 Remittance procedures of foreign currency

9.3 Modes of Foreign Remittance

9.3.1 Foreign Inward Remittance

9.3.2 Foreign Outward Remittance

9.4 Facilities for Wage Earners

Chapter-10: FFiinnddiinnggss aanndd AAnnaallyyssiiss

10.1 Major Findings

10.2 Recommendations

10.3 Conclusion

CChhaapptteerr 1111:: RReeffeerreenncceess


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CHAPTER-01

INTRODUCTIOIN

1.1 ORIGIN OF THE REPORT

As a mandatory part the BBA Program, all the students of the faculty of Business

Studies, University of Dhaka have to undergo a three month long internship program

with an objective of gaining practical knowledge about current business world. After

this internship program each and every students have to submit an internship report

mentioning their activities during the internship program.

Ive started my internship at the National Bank Limited, Foreign Exchange Branch, 19,

Rajuk Avenue, Taranga Complex, Dhaka, on 9th August 2009. At the end of the

program I am submitting my internship report focusing on the contribution of Foreign

Exchange operation to the overall performance of bank especially on profitability

perspective under the supervision of Aklima Chowdhury Lima, Lecturer, Department

of Accounting and Information System, University of Dhaka.

1.2 OBJECTIVES OF THE STUDY

The general objective of the study is to gather practical knowledge regarding banking

system and operation. The practical orientation gives us a chance to relate the four year

long theoretical learning of BBA Program with the practical experience. This consists

the following: To get an overall idea about the Foreign exchange Business of National Bank

Limited.

To apply theoretical knowledge in the practical field.

To describe the organizational structure, management, background, functions

and objectives of the bank and its contribution to the national economy.

To achieve overall understanding of National Bank Limited.

To analyze the financing systems of the bank to find out any contributing field.

To examine the profitability and productivity of the bank.

To acquire knowledge about the everyday banking operation of National Bank

Limited.

To evaluate the effect of world recession on foreign exchange income of NBL,

Foreign Exchange Branch.

To understand the real management situation and try to recommend for

improving existing problems.


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1.3 SCOPE OF THE STUDY

This study provides those scopes of knowing are the following:

History and performance of National Bank Limited.

Terms used in foreign exchange operations Foreign exchange operations of National Bank Limited

Literature review.

Total concept of Foreign Exchange Operation.

1.4 METHODOLOGY OF THE STUDY

The report is prepared on the basic of foreign Exchange of National Bank Limited. To

conduct the overall study, at first I explored the sources of Primary and Secondary

information and data. Different files of the department and statement prepared by FED

helped me to prepare this report. I have interviewed the NBL officials for getting more

information. To present numerical data, I used the Annual Report of 2008 and

monthly statement of January to October 2009 of National Bank Limited, Foreign

Exchange Branch. For preparing this report I have used some graphical representation

to find out different types of analytical and interpretation.

1.5 SOURCES OF DATA

As mentioned earlier, mainly primary and secondary data has been used. Sometimes

the customers gave some important information regarding the services of the Bank:

1.5.1 PRIMARY DATA

Official records of National Bank Limited (NBL). Face to face conversation with the client.

Expert opinion.

Personal Interview Face-to-face conversation and in depth interview

with the respective officers of the branch.

Personal observation Observing the procedure of banking activities

followed by each department.

Daily diary

Practical work exposures on different areas of the branch

Informal conversation with the clients or customers.

1.5.2 SECONDARY DATA

Monthly Statement of NBL.

Annual Report of NBL.

Official Files.

Selected books.

Other manual information.

Websites.

Various publications on the Bangladesh Bank.

Newspaper reports in this concern.


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1.5.3 DATA ANALYSIS AND INTERPRETATION

Both quantitative and qualitative analysis will be performed on the findings. The

quantitative analysis will be done on the trend of export- import, growth pattern of

export-import, pre and post facilities provided for easing the export-import operations.

Qualitative analyses will be based on the macroeconomic variables and foreign

exchange policy provided by Bangladesh bank, the central bank of Bangladesh.

Different statistical tools will be used for the analysis of the findings.

1.6 LIMITATIONS OF THE STUDY

To provide current information and to make the report read-worthy, support from

various sources is essential. In spite of having my wholehearted effort, I could not

collect some information required at the time of the study. So this study is not free

from the following limitation:

Due to unavailability of latest annual report (Annual report 2009), I have toprepare the report on the basis of annual report 2008. As a result, analysis,

presentation of data may not show the existing position/present condition of

National Bank Limited.

For the whole internship I had only 90 days, out of which I get 61 daysbecause of late commencement of internship program, which were totally

insufficient. So I faced time shortage extremely.

Lack of previous experience to prepare this type of report and it is totallynew to me as an intern.

Foreign exchange division follows Uniform Customs and Practice forDocumentary Credits (UCPDC), but within this short period, I was totally

stunned to understand.

Learning all the banking functions within just two months was reallydifficult.

Sometimes the officers of National Bank Limited were very busy. For thisreason the personal did not co-operate me.

National Bank Limited did not give me any kind of monetary support forthis internship program

Most of the working days in NBL, I have to work in cash department to helpin IPO subscription collection, so I get limited time work in other

departments to have practical knowledge

Another limitation of this report is Banks policy of not disclosing some dataand information for obvious reason, which could be very much helpful.


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CHAPTER-02

BRIEF HITORY OF BANKING SECTOR OF BD

2.1 EVOLUTION OF THE WORD BANK

The word bank originated from Italian word Banca. Banca means long tool. In

ancient time Italian Jews merchant used to do business of lending money by sitting on

the tools.

It is assumed that the word bank derived from the word Banca. To meet the expense

of war of 1171 one type credit certificate was launched in Italy at an interest rate of 5%

it was called as Monte in Italian language and Banke in German language then German

language was widely used in Italy. As a result the word Banke gradually changed to

the word Banca from which the word Bank originated.

2.2 THE EMERGENCE OF MODERN BANKING

The linguistics and etymologists suggests an interesting story about banking origins.

Both the old French word Banque and the Italian word Banca were used centuries

ago to mean a bench or moneychangers table. This describes quite well what historians

have observed concerning the first bankers, who lived more than 2000 years ago. They

were money changers, situated usually at table or in a small shop in the commercial

district, aiding travelers who came to town by exchanging foreign coins for localmoney or discounting commercial notes for a fee in order to supply merchants with

working capital.

The first bankers probably used their own capital to fund their activities, but it was not

long before the idea of attracting deposit and securing temporary loans from wealthy

customers became a source of bank funding. Loans were then made to merchants

shippers and landowners at rates of interests low as 6 percent per annum to as high as

48 percent a month for the riskiest ventures. Most of the early bank was Greek in

origin.

The banking industry gradually spread outward from the classical civilizations of

Greece and Rome into northern and western Europe. The early bank in Europe was

places for safe keeping of valuable items (such as gold and silver bullion) as people

came to fear loss of their asset due to war, theft, or expropriation by government.

When colonies were established in North and South America, old world banking

practice were transferred to the new world.


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2.3 DEVELOPMENT OF BANKING IN BANGLADESH

Since early British rule, the history of banking in Bangladesh territory shows that the

traditional trade-networks developed before the banks invaded rural areas. And the

banking services have slowly flourished in Bangladesh territory. Even today, in many

places, moneylenders provide credit services. Small shopkeepers and businessman use

informal credit at high interest rate. Traditional mahjongs money lending business

gradually declined due to expansion of bank and the micro credit programs of NGOs,

cooperative banks and government agencies.

2.4 PUBLIC SECTOR BANKS

During the liberation war in 1971, the economic, political, and social system including

the banking system was severally damaged. At that time, all big and medium financial

institutions except two small banks had their head office in the West Pakistan. The

non-beagle owners and managers of the financial establishments that operated in EastPakistan had abandoned them. After independence in 1971, the new government had to

take over management and ownership of all such institutions. The banks

Nationalization Order 1972 was issued to nationalize banks and financial institutions

(except those incorporated abroad) in order to control chaos in the field of ownership,

party bureaucracy, the intelligentsia, and pressure group. By several orders the

government of Peoples Republic of Bangladesh created-

Six nationalized commercial banks (NCBs):

1. Sonali Bank

2. Agrani Bank

3. Janata Bank

4. Rupali Bank

5. Pubali Bank

6. Uttra Bank

One industrial bank (BSB)One agricultural bank(BKB)

One industrial development financial institution(BSRS)

The banks and financial institutions which originated during the Pakistan period and

were merged, and renamed and functioning after independence of Bangladesh. In the

year 1983, the government allowed private sector to participate in the banking

business. The Publi Bank and the Uttara Bank were denationalized in 1985, due to non

profitability. This action reduced the number of NCBs to four. Such restructuring of

public sector banks was in order to play their role in industry, agriculture, export, self

employment etc.


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2.5 PRIVATE COMMERCIAL BANKS

Taking advantage of the liberalization policy of the government regarding participation

of private sector in the banking business, a number of private banks were established inand after 1983. With the emergence of private banks in Bangladesh, a competitive

situation in the sector has been created. Now there are 48 commercial banks in

Bangladesh which are enlisted with Bangladesh Bank, among them four (4) are NCBs,

five (5) are specialized banks, twenty nine (29) are private commercial banks and ten

(10) are foreign commercial banks. The emergence of private banks has added a new

dimension to the banking system in Bangladesh. The private commercial banks show a

steady growth in terms of number of branches, deposit and advances.


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CHAPTER-03

CORPORATE REVIEW OF NATIONAL BANK

33..11 HHIISSTTOORRYY OOFF NNAATTIIOONNAALL BBAANNKK LLIIMMIITTEEDD

National Bank Limited has its prosperous past, glorious present, prospective future

and under processing projects and activities. Established as the first private sector

Bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the

largest private sector bank with the passage of time after facing many stress and strain.

The member of the board of directors is creative businessman and international

economist. For rendering all modern services, NBL, as a financial institution

automated all its branches with computer network in accordance with the competitive

commercial demand of time. Moreover, considering its forth- coming future the

infrastructure of the Bank has been much more to NBL. Keeping the target in mindNBL has taken preparation branches by the wear 2000-2001.

The emergence of National Bank Limited in the private sector is an important event in

the banking area of Bangladesh. When the national was in the grip of severe recession,

Govt. took the farsighted decision to allow in the private sector to revive the economy

of the country. Several dynamic entrepreneurs came forward for establishing a bank

with a motto to revitalize the economy of the country.

National Bank Limited was born as the first hundred percent Bangladesh owned Bank

in the private sector. From the very inception it is the firm determination of NationalBank Limited to play a vital role in the national economy. We are determined to bring

back the long forgotten taste of banking services and flavors. We want to serve each

one promptly and with a sense of dedication and dignity.

The President of the Peoples Republic of Bangladesh Justice Ahsanuddin Chowdhury

inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha

Commercial Area, Dhaka started functioning on March 23, 1983. The 2nd Branch was

opened on 11th May 1983 at Khatungonj, Chittagong. Today we have total 103

Branches all over Bangladesh.

A representative office was established in Yangon, Myanmar in October, 1996 by our

bank and obtained permission from the government of Bangladesh to handle border

trade with Myanmar .opportunities is being explored for further business avenues

there.

Now NBL is on line to establish trade and communication with the prime international

banking companies of the world. As a result NBL will be able to build a strong root in

international banking horizon .Bank has been drawing arrangement with well

conversant money transfer service agency Western union. It has full time

arrangement for speedy transfer of money all over the world.


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Banking is not only a profit oriented commercial institution but it has a public bas

and social commitment admitting this true NBL is going on with its diversified

banking activities NBL introduced monthly Savings Scheme, special Deposit Scheme,

and Consumers.

Credit Scheme and savings Insurance scheme etc. To combine the people of lower and

middle income group.

A team of highly qualified and experiment professional headed by the managing

Director of the bank who has vast banking experience operates bank and at the top

three is an efficient Board of Directors for making policies.

33..22 VVIISSIIOONN OOFF NNAATTIIOONNAALL BBAANNKK LLIIMMIITTEEDD

Establishing as a top grade efficient bank through best application of modern

information technology and business activities, offering high standard client servicesand Proper coordination of foreign trade business in the core of their vision.

33..33 MMIISSSSIIOONN OOFF NNAATTIIOONNAALL BBAANNKK LLIIMMIITTEEDD

With a view to achieving commercial objective of the bank, their sincere and all out

efforts stay put unabated. Respected client and shareholders are attracted to us for our

transparency, accountability, social communities, and high quality of clientele services.

33..44 OOBBJJEECCTTIIVVEE OOFF NNAATTIIOONNAALL BBAANNKK LLIIMMIITTEEDD

Bring modern banking facilities to the doorsteps of general public throughdiversification of services, thereby arousing saving propensity among the

people.

Foreign a cordial, deep rooted and farm banker customer relationship by

dispensing prompt and improved clientele services.

Taking part in the development of the national economy through productive

development of the banks resources as well as patronizing different social

activities.

Connecting clients to modern banking practices by the best application ofimproved information technology, so that they get encouraged to continue

and feel proud of banking with NBL.

Ensuring highest use of the professional workforce through enhancement of

their attitude and competence.

Responding to the need of the time by participating in the syndicated large

loan financing with like-minded banks of the country, thereby expanding

the area of investment

Elevating the image of the bank at home and abroad by sustained expansion

of its activities.


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33..55 SSTTRRAATTEEGGIIEESS OOFF NNAATTIIOONNAALL BBAANNKK LLIIMMIITTEEDD

To manage and operate the bank in the most efficient manner to enhance

financial performance and to control cost of fund.

To strive for customer satisfaction through quality control and delivery of

timely services.

To identify customer credit and other banking needs and monitor their

perception towards our performance in meeting those and update

requirement.

To review and update policies procedures and practices to enhance the

ability to extend better services to customer.

To train and develop all employs and provide them adequate resources so

that customer needs can responsibility addressed.

To promote organizational effectiveness by openly communicating

company plans, policies, practices and procedures to all employers in a

timely fashion

To cultivate a working environment that fosters positive motivation for

improved performance

To diversify portfolio both in the retail and whole sale market.

To increase direct contact with customer in order o cultivate a closer

relationship

33..66 BBUUSSIINNEESSSS GGOOAALL

To patronize, sponsor and encouraged games and sports, entertainment and other

socio-economic activities alongside providing the best services to the client.

33..77 TTHHEE FFUUTTUURREE TTHHRRUUSSTT

Full duplex on-line Banking

Introducing more innovative products and services

Opening new branchesExpansion of business network at home and abroad

SMS Banking

Introduction of new liability / Asset products


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33..88 CCOORRPPOORRAATTEE CCUULLTTUURREE

Employees of NBL share certain common values, which helps to create a NBL culture.

The client comes first

Search for professional excellenceOpenness to new ideas& new methods to encourage creativity

Quick decision making

Flexibility and prompt response

A sense of professional ethics

33..99 GGRROOWWTTHH AANNDD DDEEVVEELLOOPPMMEENNTT OOFF NNBBLL

The NBL carries out all traditional functions, which a commercial bank performs such

as mobilization of the deposit, investment of funds, financing export and import

business, trade and commerce and industry.

The banking sector in the country faced different problems thought the year. Even

through the board and management never stopped its effort to maximize wealth, which

is reflected by 143.97percent profit growth in 2007, highest ever in the last 15 years.

The bank earned the 676.45 core revenue in 2007 as interest, income from investment

and commission & exchange earning, which who Tk. 530:69 crore in the provision

year. As a result the total operating profit rode to Tk. 221.51 crore in 2007 from

Tk.114.68 crore in the previous year.

33..1100 BBRRAANNCCHHEESS OOFF NNBBLL

NBL, which was started at Dilkusha Branch on March 23 rd, 1983, was the first majorcommercial Bank. In Bangladesh operating throughout the country as well as the age

of the bank is only 25 years .During this period it has established total 112 branches

over the country and made smooth network inside the country as well as thought the

world. The number of branches as well as territory wise is mentioned in the table.

Area wise branches

Division area Number of branches

Dhaka division 42

Chittagong 25

Rajshahi division 17

Khulna division 14

Sylhet division 14

Table 01: Branches of NBL


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33..1111 MMAANNAAGGEEMMEENNTT HHIIEERRAARRCCHHYY OOFF NNBBLL

Managing director

Deputy managing director

Senior executive vice president

Executive vice president

Senior vice president

Vice president

Senior assistant vice president

Assistant vice president

Senior principle officer

Prince officer

Senior officer

Officer

Assistant officer

Junior officer

Figure 01: Management Hierarchy


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CHAPTER-03

FFOORREEIIGGNNEEXXCCHHAANNGGEE

44..11 MMEEAANNIINNGG OOFF FFOORREEIIGGNN EEXXCCHHAANNGGEE

Foreign Exchange means exchange foreign currency between two countries. If we

consider Foreign Exchange as a subject, then it means all kind of transactions related to

foreign currency. In other wards foreign exchange deals with foreign financial

transactions.

H.E. Evitt defined Foreign Exchange as the means and methods by which rights to

wealth expressed in terms of the currency of one country are converted into rights to

wealth in terms of the currency of another country

4.2 REGULATORY REQUIREMENTS OF FOREIGN EXCHANGE

Any import and export of our country is regulated by different local and international

laws and regulatory bodies. The core guidelines under the preview of which import

and export of our country have to be performed are:

Import Policy

Export Policy

Guidelines for foreign exchange transaction of Bangladesh Bank (Vol.1 &2).

Circular issued by Bangladesh Bank Circular issued by NBR

Circular issued by CCI&E

UCPDC (ICC publication no.600) & ISBP, URC, URR.

Public Notice

Ministry of Commerce Circular

Other Authorization (i.e. NBC Dept)

Among the regulatory bodies, Chief Controller of Import and Export, Bangladesh

Bank play major role in monitoring and ensuring compliance of various regulations

44..33 WWHHYY EEXXCCHHAANNGGEE IISS TTOO BBEE CCOONNTTRROOLLLLEEDD

Foreign Exchange is to be controlled for the following reason:

To stabilize the rate of exchange.

To protect domestic Industries.

For proper implementation of plans.

To increases the bargaining strength.

To check over invoicing & under invoicing.

To check the black marketing and smuggling.

For regulating the international movements of goods.


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44..44 FFUUNNCCTTIIOONNSS OOFF FFOORREEIIGGNN EEXXCCHHAANNGGEE DDEEPPTT..

Foreign Exchange is mainly combination of three parts:

Foreign Remittance.

Export.

Import.

These three parts are most essential part of Foreign Exchange Operations of NBL at

Foreign Exchange Branch as well as other AD branches. Not only NBL but also all

banks of Bangladesh have to play these roles in Foreign Exchange Operation. I will

discuss about these topics in later chapters.

44..55 FFOORREEIIGGNN EEXXCCHHAANNGGEE CCOONNDDIITTIIOONN OOFF NNBBLL

44..55..11 FFOORREEIIGGNN RREEMMIITTTTAANNCCEE

Year 2004 2005 2006 2007 2008

Foreign Remittance 9035.50 13618.20 21353.90 27560.80 39877.80

Table 08: Foreign Remittance

In 2008, foreign remittance brought into the

country through NBL was USD 582.47 million

showing an increase of USD 179.90 million

over the previous year, which registered an

attractive growth of 45%. This growth was

possible due to introduction of different instant

payment products and technology including

extending SWIFT, Online, EFT etc. and further

efforts are being made for more speedy

payments.

Figure 02: Foreign Remittance

Foreign Remittance

9035.5

27560.8

13618.2

21353.9

39877.8

0

10000

20000

30000

40000

50000

2004 2005 2006 2007 2008

Year

Amount


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44..55..22 IIMMPPOORRTT

Year 2004 2005 2006 2007 2008

Import 22020.30 31648.20 42458.50 6275.90 78226.32

Table 09: Import

The bank opened a total number of 21,210 L/Cs

amounting USD 1,130.96 million in trade in 2008 with a

growth of 25 percent over the previous year. The maincommodities were scrap vessels, rice, wheat, edible oil,

capital machinery, petroleum products, fabrics &

accessories and other consumer items.

Figure 03: Import

4.5.3 EXPORT

Year 2004 2005 2006 2007 2008

Export 17105.30 21344.10 28019.20 31824.00 36284.44

Table 10: Export

The bank has been nursing the export finance with a

special attention since its inspection. In 2008 ithandled 16,234 export documents valuing

USD531.03 million with a growth of 14 percent over

the last year. Export finances were made mainly to

readymade garments, knitwear, frozen food and fish,

tanned readymade leather, handicraft, tea etc.

Figure 04: Export

Import

42458.5

62759

31648.2

22028.3

78226.32

0

20000

40000

60000

80000

100000

2004 2005 2006 2007 2008

Year

Amount

Export

17105.321344.1

28019.2

36284.44

31824

0

5 0 0 0

10 0 0 0

15000

2 0 0 0 0

2 5 0 0 0

3 0 0 0 0

3 5 0 0 0

4 0 0 0 0

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

Year

Amount


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5.4 COMMERCIAL INVOICE

A commercial invoice is the accounting document by which the seller charges the

goods

to the buyer. A commercial invoice normally including the following information:

Date

Name & address of buyer & seller.

Order or contract number, quantity & description of the goods, unit

price and the total price.

Weight of the goods, number of packages and shipping marks &

number.

Terms of delivery & payment.

Shipment details.

5.5 CERTIFICATE OF ORIGIN OF GOODS

A certificate of origin is a signed statement providing evidence of the origin of the

goods.

5.6 INSPECTION CERTIFICATE

This is usually issued by an independent inspection company located in the exporting

country certifying or describing the quality, specification or other aspects of the goods,

as called for in the contract and / or the letter of credit. The buyer who also indicates

the type of inspection usually nominates the inspection company he /she wish the

company to undertake.

5.7 INSURANCE POLICY OR CERTIFICATE

The insurance certificate document must.

Be that specified in the credit.

Cover the risks specified in the credit.

Be consistent with the other documents in its identification of thevoyage and description of the goods.

Unless otherwise specified in the credit:

Be a document issued and / or signed by an insurance company

or its agent, or by underwriters.

Be dated on or before the date of shipment as evidenced by the

shipping documents or establish that cover is effective at the

latest from such date of shipment.

Be for an amount at least equal to the GIF value of the goods

and in the currency of the credit.


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5.8 PROFORMA INVOICE OR INDENT

Seller's quotation or agreement between seller & buyer. In this-the seller declared the

rate, quantity, quality, manufacturing & other information about goods and that

accepted by buyer. .5.9 G.S.P. CERTIFICATE (GENERALIZED SYSTEM OF PREFERENCE)

When tariff concession is sought from those developed countries providing preferential

treatment to exporters of the developing countries, a GSP certificate should be

obtained from the EPB. In GSP scheme the tariff providing country is payer country &

tariff consumer or receiver country is receiver country. Up to the period there are 16

developing countries under this scheme facility. From Bangladesh export development

burro the industrialists may get necessary information & practical procedure.

5.10 PACKING LISTHere the detailed descriptions of goods packed in cases are written. Such as total

quantity in lot, per packet, total weight of the shipment, per packet etc are written.

5.11 DOCUMENTARY CREDIT

In simple terms a documentary credit is conditional bank undertaking of payment.

Expressed more fully, it is written undertaking by a bank (Issuing Bank) given to the

seller (Beneficiary) at the request and in accordance with the instructions of the buyer

(applicant) to effect payment (i.e. by making a payment or by accepting or negotiatingbills of exchange) up to a stated sum of money, within a prescribed time limit &

against stipulated documents.

These stipulated documents are likely to include those required those required for

commercial invoice, certificate of origin, insurance policy or certificate and bill of

lading or combined transport document.

There are various types of documentary credits. A revocable credit can be amended or

cancelled at any time without prior warning or notification to the seller.

An irrevocable credit can be amended or cancelled only with the agreement of all

parties. As there are often two banks involved the issuing bank & the advising bank,

the buyer can ask or an irrevocable credit to be confirmed by the advising bank. If the

advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit.

There are four types of documentary credits according to payment methods:

Sight credit

Acceptance credit

Cash credit

Deferred payment credit


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Documentary letter of credit

The documentary Letter of Credit is an arrangement whereby a bank (issuing bank)

acting at the request of a customer (applicant of the Letter of Credit):

To make payment to or to the order of other person (the beneficiary) or to payaccept or negotiate Bill of Exchange (Drafts) drawn by the beneficiary.

Authorizes such payment to be made or such drafts to be paid, accepted or

negotiated by another bank against stipulated documents, provided the terms &

conditions of the Letter of Credit are complied with.

Procedure of documentary credit:


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Details of the diagram:

The buyer & the seller conclude a sales contract providing for payment by

documentary credit.

The buyer instructs his / her bank i.e. issuing bank to issue a credit in favor of

the seller i.e. beneficiary.

The issuing bank asks another bank, usually in the country of the seller, to

advice or confirms the credit.

The advising or confirming bank informs the seller that the credit has been

issued.

As early as possible the seller receives the credit & is satisfied that he / she can

meet its terms and conditions, he / she is in a position to load the goods and

dispatch them.

The seller then sends the documents evidencing the shipment to the bank wherethe credit is available in bank. This may be the issuing bank, or the confirming

bank, or any bank named in the credit as the paying, accepting or negotiating

bank, or it may be the advising bank or any bank willing to negotiate under the

credit.

The bank checks the documents against the credit. If the documents met the

requirements of the credit, the bank will pay, accept, or negotiate according to

the terms of the credit. In case of a credit available by negotiation, the issuing

bank or the confirming bank will negotiate without recourse. Any other bank

including the advising bank if it has not confirmed the credit, may negotiate,

same for payment.

The bank if other than the issuing bank sends the documents to the issuing bank

The issuing bank checks the documents and if they meet the credit

requirements, either

Effects payment in according with the terms of the credit, either to the seller if

he / she has sent the documents directly to the issuing bank or to the bank that

has made funds available to him in anticipation. Or

Reimburses in the pre-agreed manner the confirming bank or any bank that has

paid, accepted or negotiated under the credit.

When the documents have been checked by the issuing bank and found to meetthe credit requirements, they are released to the buyer upon payment of the

amount due, or upon other terms agreed between him / her & the issuing bank.

The buyer sends the transport document to the carrier who will then proceed to

deliver the goods.


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CHAPTER-06

LETTER OF CREDIT (L/C)

Letter of Credit is an undertaking by a banker of the importer to the exporter, to theeffect that the amount of the L/C will be duly paid. The banker on behalf of the

importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to

the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It

creates confidence in the mind of the exporter so far as payment of the bill is

concerned. It is also facilitate the exporter to get the benefit of discounting the bill

before the date lf maturity.

6.1 PARTIES OF LETTER OF CREDIT TRANSACTION

Issuing Bank: It is the buyer's bank. The bank that agrees to the request of the

applicant and issues its letter of credit in terms of the instructions of the

applicant.

Advising Bank: It is the seller's or beneficiary's Bank. The bank usually

situated in the seller's or beneficiary's country (most of the time with which

there exists corresponding relationship with the buyer or issuing bank), request

to advice the credit to the beneficiary.

Confirming Bank: Sometimes issuing bank request advising bank or another

bank to add confirmation to the letter of credit. When that bank do this then

such bank is called confirming bank. So advising bank can be act as confirming

bank.

Issuing Bank

(Bangladesh)

Advising Bank(India)

NegotiatingBank

(India)

ReimbursingBank

(Japan)


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Reimbursing Bank: This is the bank that is nominated by the issuing bank to

pay (it is also known as paying bank) or to accept drafts. It can be situated in

another country. In this connection it is to say that American Express Bank &

Nat West Bank act as reimbursing bank in case of National Bank Limited. The

account, which maintains National Bank Limited with Nat West Bank &American Express Bank, is called "Nostro Account" and in rivers the account,

which is maintained by Nat West Bank & American Express Bank with

National Bank Limited, is called "Vostro Account"

Negotiating Bank: The bank, which makes payment to the exporter after

scrutiny, the documents submitted by the exporter with the original letter of

credit then it is called Negotiating Bank.

Nominated Bank: The bank that is nominated by the issuing bank to pay

(nominated bank is known as paying bank) or to accept drafts (nominated bank

is known as accepting bank) or to negotiate (nominated bank is known as

negotiating bank). Usually the advising bank is request & authorized to be the

nominated bank unless the credit allows negotiation by any bank.

Seller: Beneficiary of the letter of credit is seller.

6.2 BASIC FORMS OF DOCUMENTARY LETTER OF CREDIT

The letter of credit can be either revocable or irrevocable. It needs to be clearly

indicated whether the letter of credit Revocable or Irrevocable. When there is no

indication then the letter of credit will be deemed to be a revocable L.C. The details areas follows:

Revocable letter of credit: A revocable credit is one, which can be amended

or cancelled by the issuing bank. At any moment without "prior notice" to the

beneficiary. So this is clear that revocable credit can be revoked any time

without prior notice.

Irrevocable letter of credit: An irrevocable credit is one, which cannot be

cancelled or amendment able any time without the consent of each party.

Through this letter of credit the issuing bank gives a definite, absolute and

irrevocable undertaking to honor its obligations, provided the beneficiary

complies with all the terms & conditions of the credit.

Government letter of credit: That letter of credits, which are done by the

Defense Ministry and other Ministries of the government.

Master or mother letter of credit: The L.C. which come from outside the

country to the exporter from importer that is mother or master letter of credit.


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Other classes of letter of credit:

Revolving letter of credit: When the L.C. is used again & again in

same amount for a specific period of time that is called revolving letter

of credit. Transferable letter of credit: Exporter can transfer his / her right of

letter of credit in full or partly to a third party. In generally, the exporter

is not the supplier but act as a middleman with in the supplier &

importer.

Back-to-Back letter of credit: The letter of credit, which done by the

security of mother letter of credit.

Clean or open letter of credit: The letter of credit, which provides

assurance of payment bill of exchange without submission, of any

export documents that is called clean letter of credit.

Confirmed letter of credit: When the Irrevocable letter of credit issued

by issuing bank to the exporter as assurance of the L.C., then as per

advice or documents the authorized representative or representative

bank's provide assurance or payment guarantee that is confirmed letter

of credit.

At sight letter of credit: That letter of credit which expires ninety days

i.e. within this period the documents must be sending to the negotiating

bank.

Deferred payment letter of credit: That letter of credit which expires

one hundred & eighty days i.e. within this period the documents mustbe send to the negotiating bank.

Contract letter of credit.

Refinance Letter of Credit.

Marginal Letter of Credit.

Traveler's Letter of Credit.

6.3 CLASSIFICATION OF LETTER OF CREDIT AS PER FUNCTION:

LC under cash

LC under loan LC under grant

LC under wage

Back to back LC.


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6.4 STEPS IN LETTER OF CREDIT OPENING

On receiving the documents or papers from the importer the letter of credit opening

bank is to perform the following functions in connection with opening the letter of

credit:

A. To scrutinize the documents thoroughly and to consult with import policy,

Bangladesh Bank & International Division's circular.

B. To prepare an "offering sheet". This offering sheet is nothing but a prescribed

office note on which the branch manager will sanction the margin to be

obtained from the importer.

C. Commission of letter of credit to be calculated as 50% of the total amount,

equivalent to Bangladesh currency.

D. P&T charges to be realized for TK. 100 (fixed charge) if the letter of credit

dispatched through Airmail. If it is a cable or telex letter of credit the P&T

charges to be realized at actual.

E. Foreign correspondents adjusting charges (FCC) to be realized TK. 1500

(Fixed amount).

F. To make entry in "letter of credit opening register".

G. Accounting treatment to prepare vouchers in prescribed forms:

Bank's charges voucher

Importer's Current Account... .................. .....Dr.

Foreign correspondents charges adjusting A/C.... Cr.

P & T charges recovered A/C... ..................... Cr.

Commission Account... ........................... ....Cr.

Margin voucher

Importer's current Account........................... Dr.

Marginal Deposit A/C (against import L/C)............ Cr.

Liability voucher

Liability of constituents for acceptance A/C........Dr.

(For opening letter of credit)

Acceptance for constituents A/C..................... Cr.

(For opening letter of credit)

H. To dispatch the letter of credit as follows:

First & second copy - Advising Bank, which in turn forward the

original copy to the exporter.

Third copy - Reimbursing Bank.

Fourth & Fifth copyImporter

Sixth copyC.C.I. & E.

Seventh to Ninth copyLetter of credit opening bank's copy.


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6.5 REQUIRED DOCUMENTS FOR LETTER OF CREDIT OPENING

Proposal letter (in proposal letter it must be mentioned that - price of goods,

CCI & E registration, pass book number, LCA form dully filled in signed &

sealed, Import form full set, insurance policy & addendum, P.I. number). Application and agreement for irrevocable LC with adhesive stamp of TK.150.

Import license

HS. Code.

TIN.

VAT registration.

Indenting certificate.

Performa invoice - two copies (with in this it indicate - Performa bill no. &

date, item, particulars, quality, quantity, rate, and amount of goods, total

invoice value (E &O.E.)

LCA (Letter of Credit Authorization) form for industrial consumer - four

copies. (Within this - IRC number, total amount)

Signature of Director of the firm and manager of National Bank Limited.

IMP form - Four copies (by this the declaration of the firm's directors)

Money receipts of insurance policy.

After preparing the procedure the bank provide offer in prescribed "offering

sheet".

Approval certificate of Bangladesh Bank on behalf of the importer.

6.6 PARTICULARS INVOLVED IN OFFERING SHEET

Name of the party, Sanctioned limit, Facility applied for letter of credit

(amount & previous outstanding).

Forward exchange

Foreign bills purchased.

Guarantees.

Trust receipts.

Clean packing credits.

Advance against imported goods.

Goods particulars

Import license

Margin already at credit.

Margin to be obtained.

Guaranteed by.

Balance of current account.

Average Balance of bank account.

Net worth of the firm.

Customs duty.

Country of export. Other conditions.


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6.7 JUSTIFICATION FOR FITNESS OF LETTER OF CREDIT OPENING

Application from importer.

Bio-data of the applicant.

Current account opened by the applicant in the branch.

Supplier's acceptance & rate of goods. Is it a brand item or not?

Contract on prescribed form of bank (stamp TK. 150).

Performa invoice from supplier.

66..88 MMEETTHHOODD OOFF SSEETTTTLLEEMMEENNTT

Based on the method of settlement the documentary letters of credit can be opened in

two ways;

Sight letter of credit

A Sight letter of credit is a credit in which the seller obtains payment upon

presentation of documents in compliance with the terms and condition.

Deferred letter of credit

A Deferred letter of credit is a credit in which the seller will be paid a fixed

or determinable future time. The buyer is obligated to pay the face amount

at maturity.

66..99 OOPPEERRAATTIIOONN OOFF DDOOCCUUMMEENNTTAARRYY LLEETTTTEERR OOFF CCRREEDDIITTThe following five (5) major steps are involved in theOperation of Documentary

Letter of Credit

Issuing,

Advising,

Amendment(if necessary)

Presentation

Settlement.

ISSUING A LETTER OF CREDIT

Before issuing a L/C, the buyer and seller located in different countries, concludes a

sales contract providing for payment by documentary credit. As per requirement of

the seller, the buyer then instruct the bank - the issuing bank to issue a credit in

favour of the seller(beneficiary). The credit application which contains the full details

of the proposed credit, also serve as an agreement between the bank and the buyer.

After being convinced about the necessary conditions contained in the application

form and sufficient conditions to be fulfilled by a buyer for opening a credit, the

opening bank then proceeds for opening the credit to be addressed to the beneficiary.


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ADVISING A LETTER OF CREDIT

Advising through a bank is a proof of apparent authenticity of the credit to the seller.

The process of advising a credit consists of forwarding the original credit to the

beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify

the signature (s) of the officer (s) of the opening bank and ensure that the terms andconditions of the credit are not in violation of the existing exchange control regulations

and other regulation relating to export.

AMENDMENT OF L/C

Parties involve in a particularly the seller and the buyer cannot always satisfy the

terms and conditions in full as expected due to some obvious and genuine reasons. In

such a situation, the credit should be amended. Amendment of L/C may be for-

Time Extension:

The time duration of L/C can be extended by writing an application by the opener of

L/C and signature of the opener should be verified provided the LCA is valid or the

agreement is valid up to that period.

Change in L/C amount:

Increase of L/C amount may be done provided that the LCA covers the increase in

amount. L/C amount can be decreased provided the relevant contract or indent isamended accordingly and with the consent of beneficiary. For increasing the amount of

L/C the following accounting procedure will be passed:

Debit: Acceptance for Constituent Liability

Credit: Constituent liability for acceptance

PRESENTATION OF DOCUMENTS

The seller being satisfied with the terms and conditions of the credit proceeds to

dispatch the required goods to the buyer and after that, has to present the documentsevidencing dispatching of goods to the negotiating bank on or before the stipulated

expiry date of the credit. After receiving all documents, the negotiating bank then

checks the documents against the credit. If the documents are founded in order, the

bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the

documents and if they are found as per credit requirements, either

Effects payment, or

Reimburses in the pre-agreed manner.


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SETTLEMENT

Settlement means fulfilling the commitment of issuing bank in regard to effecting

payment subject to satisfying the credit terms fully. This settlement may be done under

three separate arrangements as stipulated in the credit, these are

1. Settlement by payment

Here the seller presents the document to the paying bank and the bank then

scrutinizes the documents, if satisfied the paying bank makes payment to

the beneficiary and in case this bank is other than the issuing bank, then

send the documents to the issuing bank. If the issuing bank is satisfied with

the requirements, payment is obtained by the paying bank from the issuing

bank.

2. Settlement by Acceptance

Under this arrangement, the seller submits the documents evidencing the

shipment to the accepting bank accompanied by the draft drown on the

bank at the specified tenor. After being satisfied with the documents, the

bank accepts the documents and the draft and if it is a bank other than the

issuing bank, then sends the documents to the issuing bank stating that it

has accepted the draft and at maturity the reimbursement will be obtained in

the pre-agreed manner.

3. Settlement by NegotiationThis settlement procedure starts with the submission of document by the

seller to the negotiating bank accompanied by a draft drown on the buyer or

any other drawee, at` sight or at a tenor, as specified in the credit. After

scrutinizing that the documents meet the credit requirements, the bank may

negotiate the draft, this bank, if than the issuing bank, and then send the

documents and the draft to the issuing bank. As` usual, reimbursement will

be obtained in the pre-agreed manner.

66..1100 WWHHEENN UUSSIINNGG LLEETTTTEERRSS OOFF CCRREEDDIITT,, BBEE AAWWAARREE OOFF TTHHEE

FFOOLLLLOOWWIINNGG

A letter of credit is about documents and not goods. It will not insure the

quality of the goods received.

It is important to understand all required documents before signing and it is

also important to be sure all stipulated conditions can be met.

Ensure time frames can be met since the inability to meet time schedules is the

number one reason letters of credit fail.

The failure to produce the required documentation on time can nullify the letter

of credit.


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Even minor errors in documentation such as spelling mistakes can render a

letter of credit invalid, so it is critical to be careful with the documentation.

A letter of credit is not an absolute guarantee the beneficiary will receive payment.

The issuing bank is obligated to pay under the letter of credit only when thestipulated documents are presented, and all the terms and conditions of the letter of

credit have been met to the bank's satisfaction.

66..1111 HHOOWW LLEETTTTEERRSS OOFF CCRREEDDIITT WWOORRKK

A letter of credit is a promise to pay. Banks issue letters of credit as a way to

ensure sellers that they will get paid as long as they do what they've agreed to do.

Letters of credit are common in international trade because the bank acts as an

uninterested party between buyer and seller.

A documentary letter of credit is opened by the purchaser's local bank (the

credit-opening bank).

Via the credit-transmitting bank, the documentary letter of credit reaches

the vendor. It checks whether the terms of the documentary letter of credit

match the terms of your commercial contract. Only if the vendor is convinced

can he send the goods to the purchaser.

The necessary documents (invoice, transport document, insurance

documents) are handed over by the vendor to the credit-transmitting bank.

After checking these documents, the credit-transmitting bank pays the sum that

the purchaser owes to the vendor directly.The credit-transmitting bank sends the documents to the credit-opening

bank that, after checking the documents in turn, pays the amount due to the

credit-transmitting bank.

Via the credit-opening bank, the documents finally reach the purchaser,

who can use these documents to collect the shipped goods.

Finally, the buyer pays the amount owed to the local bank.


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Figure 05: The processing of Letter of Credit

66..1122 PPRREESSEENNTTIINNGG AA LLEETTTTEERR OOFF CCRREEDDIITT

Once a letter of credit has been received, it needs to present to the bank for payment

along with other documents which may include:

Commercial invoice

Consular invoice

Insurance documents

Bill of lading

Certificate of origin

Packing list

Inspection certificates

Import permits

The bank will not pay if there are discrepancies and the documentation is not in order.

Importer or

Applicant

Issuing Bank

Advising Bank

or confirming

Bank

Exporter or

Beneficiary

2. Applicant

for LC issue

3. Issue of LC

4. Advising of

LC

Payment against

documents to

beneficiar

7. Send document toissuing bank

6. Taking up

documents and

a ment

5. Shipment of goods

and presenting

documents

9.

Receipt of

goods

1.

International sale

contract
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66..1133 CCOOMMMMOONN MMIISSTTAAKKEESS MMAADDEE WWIITTHH LLEETTTTEERRSS OOFF CCRREEDDIITT

Exporters make the following common mistakes, which cause them to lose the sale or

not get paid.

Presenting documents late, after the letter of credit has expired.

Shipping their goods after the specified date.

Making a partial shipment when partial shipment is not allowed.

Not presenting the proper documents.

Not legalizing the documents.

Not obtaining required insurance.

Submitting copies instead of originals.

Spelling mistakes.

Mathematical mistakes.
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CHAPTER-07

IIMMPPOORRTT

77..11 MMEEAANNIINNGG OOFF IIMMPPOORRTT

An import is any good or service brought into a country from another country in a fair

and acceptable fashion, typically for use in trade. Imported goods or services introduce

domestic consumers to newer things by foreign producers.

Companies usually import goods and services to supply to the domestic market at a

cheaper price and provide goods that are superior compared to goods manufactured in

the domestic market.

77..22 WWHHOO IISS AANN IIMMPPOORRTTEERR??

The person who deals in import business obtaining import Registration Certificate

(IRC) in terms of importers, exporters and indenters (registration) order-1981 from the

CCI&E submitting the following papers is treated as importer.

1. Valid Trade License

2. National ID Card

3. Asset Certificate

4. VAT Registration Certificate

5. Bank solvency Certificate

6. Trade Association Certificate

7. Certificate of Incorporation

8. Memorandum and Articles of Association

77..33 TTYYPPEESS OOFF IIMMPPOORRTT

There are two types of import

1. Commercial Import

2. Industrial import

1.Commercial Import:

Importer does commercial import only for trading purpose. These products are

finished goods. Such as rice, wheat, soybean oil etc.

2.Industrial import:

Importer does industrial import for industrial use only. These products are raw

materials and capital machinery. Such as; raw cotton, Crude oil etc.


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77..44 GGOOOODDSS AARREE NNOOTT IIMMPPOORRTTAABBLLEE

The following types of goods are not importable-

Books, Newspaper, periodicals, documents and other papers, posters

photographs, films, gramophone records, audio and video cassette tapes etccontaining matters likely to outrange the religious feeling and beliefs of any

class of the citizen of Bangladesh.

Unless otherwise specified in this order, old, second-hand and recondition

goods, factory reject add goods of job-lot or stock-lot of secondary or sub-

standard quality.

Maps, chart and geographical globes which indicate the territory of Bangladesh

but do not do so in accordance with the maps published by the department of

survey, Government of the peoples republic of Bangladesh.

Horror comics, obscene and subversive literature including such pamphlets,

posters, newspaper, periodicals, photographs, films, gramophone records, audio

and video cassette tapes etc.

Reconditioned office equipment, photocopier, type-writer machine, telex,

phone, computer and fax.

Unless or otherwise specified in this order, all kinds of waste.

Goods hearing any words or inscriptions of a religious connotation the use or

disposal of which may injure the religious feelings and beliefs of any class of

the citizen of Bangladesh.

Goods bearing any obscene picture, writing inscription or visible

representation.

77..55 GGEENNEERRAALL PPRROOVVIISSIIOONNSS FFOORR IIMMPPOORRTT

Bangladesh import policy order 2006-2009 places control on the importation of some

specific products. The import of a number of products is the sole reserve of nominated

government trading organizations. The import regime consists of;

A banned list: Unless otherwise specified the items banned for import in this

list shall not be importable.A restricted list: Items which are importable on fulfillment of certain

conditions specified in the list shall be importable on fulfillment of certain

conditions.

Freely importable items: Unless otherwise specified, any item, which does

not appear either in the restricted list or which has been mentioned as

importable subject to certain condition shall be freely importable.


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77..66 IIMMPPOORRTT PPRROOCCEEDDUURREE ((SSTTEEPPSS IINNVVOOLLVVEEDD IINN DDEEAALLIINNGG WWIITTHH LL//CC))

Procurement of IRC from the concerned authority.

Signing purchase contract with the seller

Requesting the concerned bank importers bank/ issuing bank to open L/C

on behalf of importer favoring the exporter/ seller/ beneficiary.

The issuing bank open/ issue the L/C in accordance with the instruction/

request of the importer and request other bank (advising Bank) located in

sellers/ exporter to advise the L/C to the beneficiary. The issuing bank may

also request the advising Bank to confirm the credit, if necessary.

The Advising Bank advises/ inform the seller that the L/C has been issued.

As soon as the exporter/ seller receive the L/C and is satisfied that he can

meet the L/C terms and conditions; he is in a position to make shipment of

the goods.

After making shipment of goods in favour of the importer the exporter/seller submit the document to the negotiating bank for negotiation.

The negotiation Bank scrutinized the documents and if found ok negotiates

the documents and sends the documents to the L/C issuing Bank.

After receiving the documents the L/C issuing bank also examines the

documents and if found ok makes payment to the negotiating bank.

The L/C opening bank then requests the importer to receive the document

on payments.

The importer after paying all dues receives the documents from the L/C

issuing bank and then releases the importer goods from the port authority.

77..77 DDOOCCUUMMEENNTTSS NNEEEEDD TTOO OOPPEENN AA CCAASSHH LL//CC

To open cash LC NBL wants some documents from importer. These are given below

Valid IRC

Valid Trade license

TIN Certificate

VAT Certificate

Up to date income tax certificateCIB (Credit Information Bureau) report

Pro-forma invoice

Application (in importer pad)

Credit report

Fill up IMP form

LC authorized form

Insurance cover etc.


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77..88 PPRROOCCEEDDUURREE TTOO BBEE FFOOLLLLOOWWEEDD BBYY BBAANNKKSS FFOORR

AACCCCEEPPTTAANNCCEE//IISSSSUUAANNCCEE OOFF LLCCAA FFOORRMMSS

(1)Acceptance of LCA Forms by the nominated banks:

a. LCA Forms and other relevant papers shall be submitted by therecognized industrial units to the private sector and registered commercial

importers to their respective nominated bank for the purpose of import by

opening L/C.

b. While accepting LCA Forms from a private sector importer the nominated

banks shall ensure that the concerned importer has a valid Import Registration

Certificate (IRC). Unless a private sector importer specifically is exempted

from IRC, LCA Forms shall not be accepted from him/her, or L/C shall not be

opened in his/her favour without valid and legally renewed IRC.

c. L/C for import of capital machinery and initial spares for setting up a new

industrial unit may, however, is opened without any Import Registration

Certificate (IRC) and without obtaining exemption certificate from the Chief

Controller. No formal sanction shall be necessary from the sponsoring authority

for such import against cash foreign exchange in respect of industrial units in

the free sector.

(2) Compulsory recording of ITC Number

Bank shall not process any LCA Form or open L/C without properly recording the

appropriate ITC Number on the LCA Form or L/C. Bangladesh Bank shall monitor the

compliance by the banks of the above requirements.

(3) Registration of LCA Form and opening of L/C

In case of import under cash foreign commodity aid, grant, loan and other sources for

which registration with Bangladesh Bank is necessary, the nominated bank shall

forward the L/C Authorization Form in quintuplicate to the nominated bank concerned

and third and the fourth copies thereof to the nominated bank concerned and third and

the fourth copies thereof to the concerned Import Control Authority with in fifteen

days for record.

(4) LCA Forms under cash foreign exchange

In case of import under cash foreign exchange L/C Authorization Forms shall be

required to be registered with the Bangladesh Bank duty in those instances where prior

approval from the Bangladesh Bank is required for buying foreign exchange.

(5) Transmission of the copy of L/C and copy of amendment if any for record of the

Import Control Authority within fifteen days.


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77..99 VVAARRIIOOUUSS MMEETTHHOODD OOFF IIMMPPOORRTT FFIINNAANNCCIINNGG

There is various method of Import Financing which is regulated by legal framework and

import policy. These are

Non-Funded Financing

Post import (funded) Financing

NNoonn--FFuunnddeedd FFiinnaanncciinngg::

Letter of Credit constitutes the most important Non-Funded Financing in import

trade. There are a very common form of import financing because they provide a

high degree of protection for both buyer and seller.

PPoosstt iimmppoorrtt ((ffuunnddeedd)) FFiinnaanncciinngg::

There are major three forms of funded post import financing offered by the banks.

These are given below-

I. Payment Against Documents (PAD)

II. Loan Against Imported Merchandise (LIM)

III. Loan Against Trust Receipt (LTR)

I. Payment Against Documents (PAD):

Payment made by the bank against lodgment of shipping documents of goods imported

through letter of credit falls under this types. When importer bank finds documents in

order and if there is any discrepancies have which is acceptable by the importer, import

bill have to give to foreign bank or exporter bank. Payments have to give within 5

working days. Importer bank inform to the importer about arrival of documents.

Importer must give payments within 21 days otherwise importer have to give interest

to the bank on that amount. PAD generally used when L/C is at sight.

When payment is given by National Bank Ltd, the following entry given

PAD A/C ----------- Dr

Nostro A/C -------------------Cr

But when party gives payment to National Bank, the following entry given

Party/Applicant A/C ----------- Dr

PAD A/C -------------------Cr


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II.Loan against Imported Merchandise (LIM):

This is funded credit facility allowed for retirement of shipping documents and release of

goods imported through L/C taking effect control over the goods by pledge in godowns

under banks lock and key. This is a temporary advance connected with import which is

known as post-import finance and falls under the category Commercial Lending.

When the importer are unable to retire the import bills from their own sources and

approach to issuing bank for clearance of goods under LIM account, the bank examine

the proposal and evaluate the credit worthiness of the applicant considering all relevant

aspects and may sanction LIM for a very short period on the basis banker-customer

relationship.

III.Loan against Trust Receipt (LTR):

National Bank keeps security (such as- land, Building etc) against LTR. Party can repay

LTR amount partly. National Bank maintains a different ledger account for LTR in which

several information have such as date, particular, debit and credit amount, initial, product

name, interest amount, loan A/C no, interest rate, mode of payment, expiry date and

margin etc. LTR interest rate varies party to party. Generally National Bank uses 13% to

15% interest rate. LTR validity date may be 30 days/ 60 days/ 120 days which depends on

sanction of NBL head office.

LTR interest rate = DaysBalanceRate of interest / 360 days

77..1100 IINNSSTTRRUUCCTTIIOONNSS IISSSSUUEEDD BBYY BBAANNGGLLAADDEESSHH BBAANNKK FFOORR OOPPEENNIINNGG AANNDDOOPPEERRAATTIIOONN OOFF LLEETTTTEERR OOFF CCRREEDDIITT FFOORR IIMMPPOORRTT OOFF GGOOOODDSS

All Letter of Credits and similar undertakings covering imports into Bangladesh

must be documentary Letter of Credits and should provide for payment to be

made against full sets of onboard (shipped) transport documents (BL, AIB, TR

etc.) showing dispatch of goods covered by Credit to a destination in Bangladesh;

Authorized Dealer is allowed to open divisible, transferable Letter of Credits for

import into Bangladesh under cash LCAF (Letter of Authorization Form);

It is not permissible to open Letter of Credits in favor of beneficiaries in

countries from which import into are banned by the component authority;

The full description of goods to be imported along with unit price and quantity to

be given in the Letter of Credit;

Confidential report of the exporter to be obtained by the AD himself where the

amount of Letter of Credit exceeds TK. 2,00,000 in case of import against

proforma invoices issued direct by foreign supplier and TK. 5,00,000 against

indent issued by local agents of the suppliers;

Payments against discrepant documents may be made after the goods have been

cleared from the customs on the basis of the locative LCAF;

Advanced remittance against import may be made after getting prior permissionfrom Bangladesh Bank where the goods are of specialized or capital nature.


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77..1111 PPRREEPPAARRAATTIIOONN OOFF PPRROOPPOOSSAALL AANNDD SSUUBBMMIITTTTIINNGG IITT TTOO TTHHEE

CCOOMMPPEETTEENNTT AAUUTTHHOORRIITTYY FFOORR OOBBTTAAIINNIINNGG PPEERRMMIISSSSIIOONN OOFF OOPPEENNIINNGG

LLEETTTTEERR OOFF CCRREEDDIITT

Before opening Letter of Credit the applicant must take permission from the competent

authority. Whether the authority has to be taken form the Branch or from the Head

Office of NBL depends on the amount of Letter of Credit and the percentage of margin.

A proposal for obtaining permission for opening Letter of Credit generally contains the

following points:

Name and address of the importer;

Name and address of the Guarantor if any;

Particular of Merchandise to be imported along with name of the item

Harmonized System (H.S.) Code, country of origin, quantity, unit price and

purpose of import.

Particulars/ Terms of LC along with name and address of the beneficiary, tenor

of payment, port of loading and discharge, shipment validity and expiry date etc.;

Landed cost of the goods;

Market price of the goods at Dhaka and Chittagong (if applicable);

Name of the previous banker with outstanding liability (if any);

Number of CD accounts and transaction performance through this account;

Present liability position with the bank;

Present liability position of allied/sister concerns with the bank

Letter of Credit performance of the party during the year/previous year;

77..1122 DDOOCCUUMMEENNTTSS RREECCEEIIPPTT AANNDD SSCCRRUUTTIINNYY

After opening the Letter of Credit the next step would be to await shipment followed by negotiation of documents by a bank abroad. The beneficiary of the Letter of Credit

(supplier),after effecting shipment of the goods as per Letter of Credit terms, prepare orcollect necessarydocuments as required under the terms of Letter of Credit and presentsthe drafts to thenegotiating bank along with the supporting documents for negotiation.However, generally the following documents are

asked to send:

Bill of lading or Airway Bill or other evidence of shipment (e.g. Railway

Receipt, Truck Receipt, Barge Receipt)

Certificate of Origin;

Commercial Invoice;

Draft or bill of exchange;

Inspection of Survey Certificate;

Marine Insurance Policy;

Packing List;

Quality Control Certificate.


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77..1133 IIMMPPOORRTT PPOORRTTFFOOLLIIOO OOFF NNAATTIIOONNAALL BBAANNKK LLTTDD

Import portfolio consists of the goods or items are being imported through the bank, total

letter of credit opened by the bank, volume of goods etc. National Bank open a total

number of 21,210 L/Cs amounting USD 1,130.96 million in import trade in 2008 with a

growth of 25 percent over the previous year.

77..1133..11IIMMPPOORRTT SSTTAATTEE OOFF AAFFFFAAIIRRSS OOFFNNBBLL

Loan against Trust (LTR):

Year 2006 2007 2008

LTR (Interest) 113514180.00 96724946.00 83737000

Table 15: LTR (interest)

From the data we can saw that, in the year of

2006 foreign exchange branch of NBL get

interest income from LTR Tk 11, 35, 14,180million which was higher than last two year.

In the year of 2007 LTR interest was Tk 9, 67,

24,946 million which was higher than the year

2008. The LTR interest position was lowest than

previous two year.

Figure 06: LTR (interest)

LTR ( Interest )

83737000

96724946113514180

0

20000000

40000000

60000000

80000000

100000000

120000000

2006 2007 2008

Year

Amo

unt


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PAD (Interest):

Year 2006 2007 2008

PAD (Interest) 6376776.71 6172881.00 12232000

Table 16: PAD (Interest)

From the data we can saw that, in the year of 2006

foreign exchange branch of NBL get interest

income from PAD Tk. 63, 76,776.71million

which was higher than the year of 2007year. From

the above data we can also saw that in the year of2006 this branch earn from PAD interest was

increase and it was decreased year of 2007 but

this amount again increased in the year of 2008

which was Tk 1,22,32,000 million.

Figure 07: PAD (Interest)

L/C commission (Cash):

Table 17:L/C commission (Cash)

From the data we can saw that, in the year of

2006 foreign exchange branch of NBL get

interest income from L/C commission Tk. 75,

32,859 million which was lower than the last

two year. Bit in the year of 2007 the amountof L/C commission was increased which was

tk1, 10, 12,310 million. And in the year of

2008 this amount become grew mostly which

was Tk. 1, 30, 08, 000 million.

Figure 08: L/C commission (Cash)

Year 2006 2007 2008

L/C commission

(Cash)

7532859.00 11012310.00 13008000

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