1.1 Introduction
In the modern society commercial Banks occupy a position of economic importance. They play a significant role to meet the needs of the society such as capital formation, large-scale production, industrialization, growth of trade and economy etc.
EXIM Bank Limited is an unconditional and specialized financial institution that performs most of the standard banking services and investment activities on the basis of profit and loss sharing system conforming to the principles of Islamic Shariah. EXIM Bank Limited doesn’t pay interest to the depositors. Instead depositors participate in profitability of the bank. The bank participates in financing long-term projects on the basis of profit-loss sharing instead of granting credits facilities with interests. This paper, however attempts to analyze the Export and Import transactions of EXIM Bank Limited with special reference to accounting treatments.
1.2 Background of the Report
As a partial requirement of MBA program offered by the Faculty of Business Studies, University of Rajshahi every student of MBA class should under go an internship program. According to the requirement, I have completed my Internship program at EXIM Bank Limited in Narayangonj Branch, On the basis of my practical experiences as well as theoretical knowledge; I have prepared this report on “Export and Import transactions of the EXIM Bank Limited with special reference to accounting treatments”.
1.3 Objective of the Report
The main objective of practical orientation is to get a clear-cut idea about Export and Import process of EXIM Bank Ltd. with accounting treatments. With this purpose we will acquire knowledge about banking process, functions of this financial organization. Other objectives of this report are
• To analyze the Foreign Exchange activities of EXIM Bank Ltd.
• To examine the Import and Export process of EXIM Bank Ltd.
• To evaluate the Export and Import process of EXIM Bank Ltd. with special reference to accounting records.
• To review the various Rules, Regulations and Acts on Foreign Trade of a bank.
• To identify the problems faced by the customers and bakers of Foreign exchange.
• To recommend some suggestions for the improvement of foreign exchange transactions.
• To determine the factors that influence foreign transactions
1.4 Rationality of the Study
The internship programs of the department of Accounting and Information Systems, University of Rajshahi are an integral part of the MBA program of the department. It is obligatory to undertake such a task by the students who desires to complete their MBA degree. This also provides an opportunity to the students to minimize the gap between theoretical knowledge and practical one. During the internship program the teachers of the department whom they are attached to actively and constantly guide the students. Each student is required to work on a specific topic based on the practical knowledge acquired during the period of the internship program and then submit it to the teachers. Islamic Banking has discovered a new horizon in the field of banking arena, which offers various distinctive operational activities. So my teacher directed me to prepare a report on Export Import operations act of EXIM Bank Limited. I have prepared this report to fulfilling that requirement.
1.5 Methodology of the Study
The study is performed based on the information extracted from different sources collected by using a specific methodology.
Both primary and secondary nature of data and information has been used for this preparation of this report. The methodology is mentioned below:
Population:
All the branches of EXIM Bank Limited in Bangladesh have been taken into consideration as the population of this report.
Sample:
EXIM Bank Limited, Narayangonj Branch has been selected as a sample of this study.
Data collection:
The “Primary sources” are as follows:
• Face to face conversation with the respective officers and staffs of the Branch.
• Practical work exposures from the different departments of the branch covered.
• Relevant file study as provided by the officers concerned.
The “Secondary sources” of data and information are:
• Annual Reports of EXIM Bank Ltd.
• Various books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies.
• Different ‘Procedure Manual’, published by EXIM Bank Limited.
• Different circular sent by the Head Office of EXIM Bank Limited and by the Bangladesh Bank.
1.6 Limitations of the Study
There is a certain boundary to cover this study. To achieve the objective of the study, i.e. through knowledge about the organizational function specially Export and Import process and activities of EXIM Bank Ltd. It was not possible due to shortage of time to cover each and every activity performed by the bank. So the study has covered only the foreign trade, i.e. Export and Import transactions of the Bank.
Like any other articles and theories, this study is not free from limitations. I have tried my level best to overcome these limitations through extensive study, hard and sincere devotion to the assigned duty. The major limitations are:
• Time constraint was major limiting factor for the study. The duration of the report was only three weeks.
• The study was limited by the size of the sample.
• Some essential data could not be gathered because of confidentiality.
• Many procedural maters were to observe in the operations by the top management level, which may also be a sort of restriction.
CHAPTER-02
Orientation with EXIM Bank Limited
2.1 Overview of EXIM Bank
EXIM Bank Ltd is the name of a newly formed commercial bank but is the first of its kind in Bangladesh. It has been incorporated in Dhaka, EXIM Bank Limited as a public limited company and its head office is located at Printers Building, 5, Rajuk Avenue, Motijheel Commercial Area Dhaka 1000.
In the world of consumerism, the business organization of the world strive for the consumers satisfaction as a number one business strategy whatever may be the product of the organization, either service or non-service. Service is the product a bank. There is a saying that customer service starts right from the stairs of the bank building. The guard at the door is the first person represents of the bank, receives a customer with wishes in smiling face.
2.2 Historical Background of EXIM Bank
EXIM Bank Ltd was incorporated under the companies act 1994, on the 2nd June 1999. EXIM Bank Ltd believes in togetherness with its customers, in its march on to growth and progress with service. As a commercial bank it will do all traditional banking business including introduction of a wide range of savings and credit product, retail banking and ancillary services with the support of modern technology and professional skills.
The Export Import Bank Limited of Bangladesh commenced formal commercial banking operating from 3rd August 1999 with the permission of Bangladesh Bank. The sponsors of the bank are leading business personalities and reputed industrialists.
The bank has a sound capital base: – its authorized capital is TK.1000 million while its initial paid up capita is TK. 225 million subscribed by the sponsors. To solidify its capital base the paid up capital been raised to TK. 450 million within a reasonable period by public offering of shares of the company. The bank will be immensely benefited further from the able leadership of the chairman and the valued advice and guidance of the advisory board.
Originally the name of the bank was BEXIM Bank of Bangladesh Ltd. Later the management of BEXIM Bank of Bangladesh Ltd changed the name of the bank to EXIM Bank Ltd.
The Board of directors wants to carry out the management of this service industry’s administration and credit portfolio independent without any undue influence from outside. The Board formulates its policy and gives policy directions to the management. Transparency and accountability been strictly ensured at all levels of the bank. The bank operates with integrity, competence and a farsightedness abiding by all the principles and provisions as laid down in the bank Company Act, 1999, the guidelines of Bangladesh Bank etc.
Considering the inherent desire of the religious Muslims of Bangladesh, EXIM Bank Ltd decided to convert the entire conventional system of the bank into Islamic Bank with effect from 1st July, 2004.
2.3 Objectives of the EXIM Bank
Bangladesh is now an integral part of the global market. As such there is an urgent requirement for Bangladesh to place traditional banking practices in harness with the global trades of a free market economy by flowing international banking customers, practices and standards. Today clients of a bank in Bangladesh are also exposed to international markets. They have to stay update with their practices and standards to meet the demands of achieving harmony with the standards of a free economy. Hence, by getting into both corporate and retail banking and rapid innovation and networking the bank believes that it can accomplish its goals.
EXIM Bank Limited fully appreciates the importance and implication of the rapid lye margining competition in the banking and finance sector of Bangladesh. It intends financing its customer suited to his or her place in the market. In this regards EXIM Bank emphasizes in its employment the software aspects of human resource capability. It also emphasizes competence among its banking professional to cater to varied customer requirements to the modern time.
The core objectives are
To carry on, transact, undertake and conduct the business of banking in all its branches and to transact and do all maters and things incidental there to in Bangladesh and aboard.
To receive, borrow or raise money on deposits, loan or otherwise, upon such terms as the company may approve and to give guarantees and indemnities in respect of all debts and contracts.
To establish welfare oriented banking system.
To play a vital role in human development and employment generation.
To invest money is such manner as many, from time to time, is thought proper.
To carry on the business of buying and selling bullion, gold and other valuable assets.
2.4 Strategies of the EXIM Bank Limited
The business of banking consists of borrowing and lending of money. As in other businesses operation must be based on capital, but bank employ comparatively little of their own capital in relation to the total volume of their transactions. The Purpose of capital and reserve accounts its primarily providing an ultimate cover against loses on loan and investment.
Final Strategy:
Introduction of online banking services, ATM cards, etc. is something that the bank looks forward to introducing as soon as possible be cause of the current demand in the market place. Hence rapid innovation is definitely a key strategy of this bank.
2.5 Mission, Vision and philosophy of the EXIM Bank Limited
Mission:
Every financial institution wants a reasonable profit for its long term survival and also wants to obtain a sustainable position in the banking section in the country.
In keeping this in mind, EXIM Bank’s corporate missions are:
To provide high quality financial services in export and import trade.
To provide excellent quality customer service.
To maintain corporate and business ethics.
To become a trusted repository of customers money and their financial advisor.
To make our stock superior and rewording to the customers/share holders.
To display term speed and professionalism.
To have a sound capital base.
Create wealth for the share holders.
Vision:
To provide standard financial services.
Wealth maximization.
Philosophy:
Local Bank global network.
Together toward tomorrow.
2.6 Corporate culture of the EXIM Bank Limited
This bank is one of the most disciplined banks with a distinctive corporate culture. Here the Bank believes in shared meaning, shared understanding and shared sense making. The people of the Bank can see and understand events, activities and situation in a distinctive way. They mould their manners and etiquette, character individually to suite the purpose of the bank and the needs of customers who are of paramount importance to them. The people in the bank see themselves as tight knit term/family that believes in working together for growth. The corporate culture they belong has not been imposed; it has rather been achieved through their corporate conduct.
2.7 Hierarchy of the EXIM Bank Limited
2.8 List Of Share holders
2.8.1 List of Director’s Share:
2.9 Profile of EXIM Bank
2.10 View of EXIM Bank Limited (Narayanganj Branch)
There are mainly three divisions in Narayanganj Branch. The General Banking division (GB) deals with the day to day transactions. The Investment/Advance division gives advance to the customer and monitor whether he repays regularly or not. The Foreign Exchange division is the highest earning division among all the three divisions that deals all the three division that deals their operations by too sub-departments export (EXP) and import (IMP).
There are 4283 clients in Narayanganj Branch of various accounts on dated 2nd March, 2005. Summery of account/scheme:
Name of Account Number of Account’s
Al-Wadia Current deposit account 320
Mudaraba savings deposit account 602
Mudaraba Short notice deposit account 101
Mudaraba Term deposit account 353
Mudaraba Steady money scheme 83
Mudaraba Super savings deposit 520
Mudaraba Multiplus saving scheme 104
Mudaraba Money grower monthly saving scheme 2198
Mudaraba Education scheme 2
Total account/scheme 4283
2.11 Structure of EXIM Bank (Narayanganj Branch)
CHAPTER-03
Foreign Exchange0
3.1 Introduction
In the modern world no country is self-sufficient, one country is to depend on other countries and from this point of view there arises the question of foreign trade and foreign currency transactions. That is, the international trade involves foreign exchange transactions particularly for receipt and payment against export and import of goods and services form one country to another. Without foreign exchange transactions we cannot think of foreign trade. Of course, these are various rules and regulations to be followed in connection with the foreign trade and foreign exchange transactions.
It is well known fact that the money is a medium of exchange for all transactions take place inside the country as well as outside the country. In Bangladesh, we have the Taka for financing the internal trade and other obligation. So, the home currency has to be converted into currencies of other currencies. That part of the economic science that deals with the conversion of Home Currency into Foreign Currency for the purpose of setting international obligations is called Foreign Exchange.
3.2 Foreign Exchange Regulation Act, 1947
Foreign Exchange Regulation (FER) Act, 1947 (Act No. VII of 1947) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then, in Bangladesh. The Act is reproduced from time to time. Bangladesh Banks responsible for administration of regulations under the Act. Bangladesh Bank’s offices and their jurisdictions provide a list. (See Appendix).
Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications, which are published in the Bangladesh Gazette. Notifications issued by the Bangladesh Government and the erstwhile Government of Pakistan and the Bangladesh Bank and the erstwhile State Bank of Pakistan are reproduced. Directions having general application are issued by the letters.
The major objectives of the act are to conserve the limited foreign exchange resources and to ensure that the available foreign exchange is utilized only for priority requirements, the economic and financial interests of Bangladesh and the maintenance of the proper accounting of foreign exchange receipt and payments. Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank reviews the exchange control measures from time to time and revises the instructions on policy and measures, whenever necessary through different Foreign Exchange (FE) circulars.
Authorized dealers in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day to day dealings. Actually, the Authorized dealers at the level where transitions with the customers take place implement all the regulatory amendments or changes. Authorized dealers are to ensure compliance with attempt, direct or indirect, to evasion of the ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued they are under.
Bangladesh Bank issues licenses to deal in foreign exchanges empowered by the Foreign Exchange Regulation Act, 1947. Central Bank may issue general licenses with authority to perform limited functions only. The Authorized dealers must maintain adequate and proper records of all foreign exchange transactions and furnish such particulars in the prescribed records of all foreign exchange transactions and furnish such particulars in the prescribed returns for submission to the Bangladesh Bank. They should continue to preserve the records for a reasonable period for ready reference as also for inspection, if necessary, by Bangladesh Bank’s officials.
Following paragraph summarize the instructions issued under the FER Act as well as the prudential instructions issued by Bangladesh Bank (as of 30th September, 1996) to be followed by ADs in their day-to-day foreign exchange transactions.
Bangladesh Bank
Bangladesh Bank (BB) means the Bangladesh Bank established under the Bangladesh Bank Order, 1972 (President’s Order No. 127 of 1972).
Taka
Taka means the Bangladesh Taka unless otherwise spcified.
Dollar
Unless otherwise indicated the term dollar used in this publication shall mean the US dollar.
Authorized Dealers
Wherever used in this publication, the term Authorized Dealer or AD would mean a bank Authorized-by Bangladesh Bank to deal in foreign exchange under the FER Act, 1947.
3.3 Foreign Exchange Regulation act, 1994
This Act regulates the exchange of foreign currencies, remittances and opening of foreign currency account under various classifications. According to this law, FC Accounts can be opened without initial deposits, and bears no interest and both the account holder and the nominee can operate the account. The entire remittance from abroad is free from income tax. It also states the documents required for opening of such account.
3.4 Deregulatory Measures
Since 1976 a lot of reform measures have been undertaken in Bangladesh. On October 20, 1993 Bangladesh Taka was declared convertible on current account account transactions and in April, 1994 Bangladesh government has been awarded with the status of article VII of IMF.
The major deregulatory measures and changes taken place during last few years have been pointed out in the following paragraphs-
Bangladesh Bank in exercise of the powers conferred by the Foreign Exchange Regulations act, 1947 issue licenses to commercial bands to deal in foreign exchanges.
Recently the Central Bank also permits a numbers of Moneychangers to exchange cash foreign currency notes, coins or foreign currency instruments such as Travelers Cheques etc.
With the exception of a few reserved sectors, foreign investors
are free to make investment in Bangladesh in industrial enterprises. Foreign investors are free to remit their Post-tax profits and dividend to their own country.
Foreign owned as wall as joint venture industrial units located
in Bangladesh might freely borrow funds in foreign currency from abroad. Local bands may extend working capital loans or term loans in local currency to foreign controlled or foreign owned firms operating in Bangladesh.
Annual foreign exchange quota for business travel abroad for
the new exporters has been set at US $ 6000. Merchandise exporters may retain 25% of realized FOB value of their export in foreign currency accounts.
Non-resident foreign currency deposit (NFCD) accounts may
now be maintained as long as the account holders desire.
Bangladesh nationals having bank accounts abroad who were
opened while working there may now maintain such accounts even after return to Bangladesh .
A Bangladeshi national returning from abroad may bring to
Bangladesh up to 2 kilograms of gold or silver in bullion/ingot from subject to payment duties and taxes as levied by the Government.
Education sectors have been declared fully convertible. Prior
permission of Bangladesh Bank is not required for releasing foreign exchange in favor of Bangladesh students studying abroad or willing to proceed abroad for studies.
Authorized Dealers may release foreign exchange up to US $
10,000 for medical treatment abroad on the basis of recommendation of the Medical Board constituted by the Health Directorate and cost estimate from the foreign medical institutions.
Remittance of moderate amounts of FE for family
maintenance abroad of Bangladesh nationals are allowed by Bangladesh Bank on written request supported by certificate from the Bangladesh mission in the concerned country.
Bangladesh Bank has stopped sales and purchases with
Authorized dealers of any currency other than the US Dollar, to encourage the Authorized dealers to buy and sell other currencies in the inter bank market.
To encourage Authorized Dealers to avoid frequent transactions
with Central Bank and instead to resort to inter bank deals , Bangladesh bank has raised its transaction threshold to US $ 50,000. Bangladesh Bank also widened to Taka 0.10 the spread between its own buying and selling rates of US Dollar and has left the Authorized Dealers free to quote their own rates for inter bank transactions and transactions with non-bank customers.
Bangladesh Foreign Exchange Dealers Association (BAFEDA)
has been formed and a Code of conduct for treasury operations and Inter-Bank foreign exchange market has formulated.
3.5 AUTHORIZED DEALERS AND MONEY CHANGERS
Bangladesh Bank issues licenses normally to scheduled banks to deal in foreign exchange if it is satisfied that the bank applying for this license has adequate manpower trained in foreign exchange, there is prospect to attract reasonable volume of foreign exchange business in the desired location and the applicant bank carefully complies with the instructions of the Bangladesh Bank especially with regard to submission of periodical returns. Bangladesh Bank may issue general licenses or licenses with authority to perform limited functions only.
Licenses with limited scope are also issued to exchange foreign currency notes, coins and travelers cheques in places where money changing facilities are required. The authorizations are granted to persons or firms of adequate means and status who, in the opinion of the Bangladesh Bank, will be able to conduct their dealings strictly in accordance with the Foreign Exchange Regulations.
Applications for the grant of AD licenses should be made to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka.
Applications for the grant of licenses to act as Authorized Money Changers should be made to the Foreign Exchange Policy Department of the area where the applicant’s business is located. The applications should contain full particulars as regards the main business conducted by the applicant, the location of the business premises, the names and addresses of the applicant’s bankers. The application should be routed through the applicant’s banker who should furnish a report on the financial status of the applicant.
3.6 BANGLADESH BANK’S TRANSACTIONS WOIH ADS
Bangladesh Bank’s purchases and sales from and to the ADs are in US Dollar only, on spot basis. All such transactions with Bangladesh Bank are required to be in multiples of US$ 10,000, subject to a minimum of US$ 50,000. ADs are free to quote their own rates, ready and forward, for transactions in the inter bank market and with their customers.
The Central Banks of Bangladesh, India, Iran, Nepal, Pakistan, Sri Lanka, Bhutan and Myanmar have an Agreement to settle current transactions between these countries through the Asian Clearing Union (ACU) mechanism. All such payments to the ACU member countries excepting those covered by loan/credit agreements are accordingly settled through the ACU mechanism in Asian Monetary Unit (AMU), also called ACU dollar which is defined as equivalent to the US dollar.
The ACU Agreement referred to above provides for settlement of the following types of payments:
Payments from residents in the territory of one participating country to residents in the territory of another participating country.
Payments permitted by the country in which the payer resides.
ADs shall maintain Nostro accounts in ACU dollars with their correspondent banks in ACU member countries for the purpose of settlements through ACU dollar accounts may be opened by the ADs in their books in the names of their correspondents in ACU member countries.
An AD needing to fund its ACU dollar Nostro account with a correspondent bank in an ACU member country shall do so through Bangladesh Bank against surrender of the required amount in US dollar, or of equivalent Taka at Bangladesh Bank’s selling rate. Bangladesh Bank will advise the central bank of the concerned ACU member country to make the amount available to the transferee bank in that country. After making the payment, the central bank of the recipient ACU member country shall advise the GM of the ACU secretariat to credit its account by debit to Bangladesh Bank’s account.
Bangladesh Bank on receipt of the advice, shall make the fund available to the recipient AD and shall advise the GM of the ACU secretariat to credit its account by debit to the account of the central bank of the transferor ACU member country
Bangladesh Bank operates a foreign currency clearing system enabling the AD banks to settle their mutual claims in US dollar, Pound Sterling, Euro and Japanese Yen arising from inter bank transactions; to economize the time and cost involved in settlements through correspondents abroad.
The Bangladesh Bank charges interest on the debit balance in an account on daily product basis and debit the bank’s account at the end of each month and pays interest on the amount of credit balance at the rates prescribed from time to time. Operation of the clearing system is centralized is the International Department of Bangladesh Bank, Head Office, Dhaka; but the ADs in other centers may transfer funds to other banks through their head/main office in Dhaka.
3.7 FORWARD DEALINGS IN FORELGN EXCHANGE
ADs, on their own, are free to buy and sell foreign currencies forward in accordance with the internationally established practices however, in all cases the ADs must ensure that the cover is intended to neutralize the risks arising from definite and genuine transactions. Be it forward sale or purchase, ADs must cover their own risk within the shortest possible time.
All forward contracts should be treated as firm and should be closed out on expiry. In such cases, the ADs should charge the difference between the contracted rate and the TT clean spot buying or TT spot selling rate, as the case may be, ruling on the date the contract is closed out. The forward contract should be closed without charging any difference if the rate moves in favor of the customer on the date of the closure. Similarly, on difference should be charged for closing out a forward sale contract if the TT clean spot buying rate on the date of closure is at par or higher than the booked rate. No forward contract should be renewed at the old rate. All cases of renewal should be treated as new contracts and the rates as applicable for purchase-sale of forward contracts on the date of renewal should be applied.
The ADs may undertake swap transactions to cover their risks arising from forward transactions. However, they are advised to refrain from taking speculative positions through swap transactions.
All documents (copy of LC, contracts etc.) relating to forward contracts and Swap transactions must be, preserved for subsequent inspection by the Bangladesh Bank.
3.8 OUTWARD REMITTANCES
Most outward remittances are approved by the ADs on behalf of the Bangladesh Bank following declaration of Taka as convertible for current accounts payments from March, 1994. Only a few remittances of special nature require Bangladesh Bank’s prior approval.
All remittances from Bangladesh to a foreign country or local currency credited to on resident Taka accounts of foreign banks or convertible Taka account constitutes outward remittances of foreign exchange. ADs must exercise greatest caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released, they should also maintain proper records for submission to Bangladesh Bank as also for inspection from time to time.
In all cases of purchase of foreign currency an application must be made to an AD and, wherever necessary to Bangladesh Bank. For payments against imports into Bangladesh, the prescribed application form in form IMP (See Appendix) and for other types of remittances forms TM (See Appendix). TM form must be used for reporting by the ADs even when remittance is approved by Bangladesh Bank in any other manner, for instance by issuing a special permit. On receipt of the application in the prescribed form, the ADs may effect the sale of foreign exchange if they are empowered to approve the application. If the transaction requires prior approval of the Bangladesh Bank, the form should be forwarded by the AD to the Bangladesh Bank for consideration.
Applications for Bangladesh Bank’s prior approval for outward remittances, wherever required, should be submitted to Bangladesh Bank only through the ADs and not by their customers directly; all such applications should be forwarded by the ADs to Bangladesh Bank by their own messengers or by post.
It is most important that, once forms have been approved by or on behalf of the Bangladesh Bank, the ADs carry out the transactions only on behalf of the original applicants for whom the forms were approved.
Permits issued (where applicable) by the Bangladesh Bank must be utilized within the period of its validity indicated in the permits. The amount released must not exceed the authorized limit. Also, the instructions, if any, given in the permits with regard to the amounts to be released periodically e.g. monthly or quarterly must be strictly adhered to.
Remittances made against permits or approval letters of Bangladesh Bank should be reported on TM form. The AD must state on the TM (See Appendix) form the number of the permit against which the remittance has been made by him and must certify that the remittance has been endorsed by him on the permit. The remittance must be endorsed on the back of the permit giving the date of the remittance under the stamp and signature of the AD. When the permit is exhausted or no longer required, it should be returned to the Bangladesh Bank by the AD along with the TM form on which the last remittance is reported.
All authorizations excepting TM forms approved by the Bangladesh Bank or by the ADs on behalf of the Bangladesh Bank remain valid for a period not exceeding 30 days from the date of approval unless they are expressly stated as valid for a specified longer period or unless they have been revalidated for a further period. TM form approved by the Bangladesh Bank will, however, remain valid for a period of three calendar months from the date of approval by the Bangladesh Bank. Permits issued by the Bangladesh Bank are also valid for specified periods as stated on the permits. The ADs should not effect any remittance against approved Forms or Permits, which have lapsed unless they have been duly revalidated.
Original copies of all IMP forms, TM forms covering remittances effected by the ADs must be submitted to the Bangladesh Bank along with the appropriate Returns in the event of any remittance, which has already been reported to the Bangladesh Bank on the prescribed return being subsequently cancelled either in full or in part, the ADs must report the cancellation of the outward remittance as an inward remittance. A letter giving the following particulars should support the return in which the reversal of the transaction is reported :
The date of the return in which the outward remittance was reported.
The name and address of the applicant.
The amount of the sale effected originally.
The amount cancelled.
Reasons for cancellation.
The term “Inward Remittances” includes not only remittance by T.T., M.T., Drafts etc., but also purchases of bills, purchases of drafts under Travelers’ Letters of Credit and purchases of Travelers’ Cheques.
The ADs may freely purchase foreign currencies or raise debits to non-resident Taka Accounts of the respective bank branches and correspondents. Remittances equivalent to US$ 2000 and above should be reported in Form C attached to the appropriate schedule. However, declaration on Form C by the beneficiary is not required against remittances sent by Bangladesh nationals working abroad. The purpose of remittances should be clearly stated on the Form C by the beneficiary is not required against remittances sent by Bangladesh nationals working abroad. The purpose of remittances should be clearly stated on the Form C. Where the country of origin of funds and currency in which remittances received are the same, the ADs may submit a consolidated Form C in respect of those remittances attaching there with a separate list showing details of remittances comprising the amount reported on Form C. Remittances received against exports should be certified and reported on EXP Forms. In case of remittance received in advance for exports the ADs should obtain a signed declaration from the beneficiary on the back of the “Advance Receipt Voucher” certifying the purpose of remittance.
There is no objection to the ADs obtaining reimbursement from non-resident banks in freely convertible foreign currency in respect of Taka bills and drafts purchased by them under instructions from such a non-resident bank whether under Letters of Credit or under other arrangements.
If an inward remittance already reported to the Bangladesh Bank is cancelled, either in full or in part, because of non-availability of beneficiary, the ADs must report the cancellation of the inward remittance as an outward remittance on TM form. The return in which the reversal of the transaction is reported should be supported by a letter giving the following details
Reference of the return in which the inward remittance was reported
Name and address of the beneficiary
Amount and the reason for cancellation and
Amount of the purchase and effected originally.
ADs may open convertible Taka accounts in the names of foreign organizations/ nationals viz., diplomatic missions, UN organizations, non-profit international bodies, foreign contractors and consultants engaged for specific projects under the Govt. semi Govt. agencies and the expatriate employees of such missions/organizations who are resident in Bangladesh.
These accounts may be credited with foreign currency brought in or remitted from abroad or transferred from a foreign currency account or another convertible Taka account. For transfer from another convertible Taka account, the Taka amount from the transferor’s account would be converted into foreign currency for transfer and credit to the recipient account by reconversion into Taka. No money emanating from a business originating in Bangladesh and otherwise repatriable to Bangladesh can be credited to these accounts.
A convertible Taka account may be debited for payments in foreign currency abroad, for local expenses, for transfers to foreign currency accounts or other convertible Taka accounts or for credits to a non-convertible Taka account.
The ADs may open Taka STD (7-30 days special notice) accounts in the names of foreign diplomatic missions and their expatriate personnel, foreign airlines and shipping lines operating in Bangladesh, international non-profit organizations including charitable organizations, UN organizations and their respective expatriate personnel and pay interest thereon provided that the amount of interest accrued on balances of these accounts will be disbursed locally in non-convertible Taka and that no part of the earned interest will be remittable abroad at any stage.
1. FOREIGN INVESTMENT:
Foreign Investors are free to make investment in Bangladesh in the industrial enterprises excepting a few reserved sectors. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors.
Prior permission of the Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against foreign investment in Bangladesh; general permission is accorded in this behalf subject to the following conditions:
The industrial venture will have secured permission from the Board of Investment (BOI)/ Controller of Capital Issues, under the Capital Issues (Continuance of Control) Act 1947, about its capital issue. To avail of the facilities and institutional support provided by the Government, entrepreneurs/sponsors may secure registration with the Board of Investment;
Before issue of shares against foreign investment in freely convertible foreign exchange brought in from abroad through the banking channel, the funds thus brought in should be encashed to Taka with an AD;
Before issue of shares against foreign investment in the form of capital machinery, the machinery will have to be cleared from the Bangladesh Customs authorities at the port of entry;
Foreign Investment and Inspection Department, Bangladesh Bank, head office should be informed about the issue and transfer of shares to non-residents pursuant to (a),(b) & (c) above, within 14 days of such issue/ transfer, along with the following documents/papers:
(i) Attested copy of registration, if any, of the foreign investment in the industrial ventures accorded by the BOI;
(ii) Attested copy of the permission for the capital issue accorded by the BOI/Controller of Capital Issues:
(iii) Original certificate of encashment of foreign exchange in Taka in case of issue of shares against foreign exchange received from abroad through the banking channel; and
(iv) For issue of shares against foreign investment in the form of capital machinery, the exchange control copy of bill of entry evidencing clearance of the capital machinery from the Custom Authorities, copies of the relative import permit, invoice and bill of lading.
Transfer of Bangladeshi shares and securities from one non-resident holder to another non-resident would not require prior Bangladesh Bank approval.
Non-resident persons/institutions including non-resident Bangladesh nationals may buy Bangladeshi shares and securities in Bangladesh against freely convertible foreign currency remitted from abroad through the banking channel. Transactions relating to such investments including repatriation of dividend/ interest earnings and sale proceeds shall be made through a Non-resident Investor’s Taka Account (NITA) according to the following procedure:
(i) The non-resident investor shall open a NITA with any AD in Bangladesh, with freely convertible foreign currency remitted from abroad through normal banking channel.
(ii) Balances in the NITA may freely be used to buy Bangladeshi shares/securities.
(iii) The AD must ensure that the NITA is debited or credited for purchase or sell of shares at the prices prevailing in the stock market on the day of the relative purchase/sale.
(iv) Relevant instructions contained in The Securities and Exchange Commission (SEC) Notifications regarding placements, allotments and issuance of right shares are to be carefully complied with.
Incidental expenses related to sales and purchases of shares/ securities and to operation of the accounts may be debited to NITA.
After the non-resident investor has purchased the shares/securities, the related certificates/scripts can be deposited /kept with any person/organization nominated by the investor. The investor can as well take them outside the country, if he so desires.
In addition to the routine reporting regarding inward and outward remittance to and from the NITAs in the usual monthly returns, the ADs will famish quarterly statements of transactions in the NITAs, as per prescribed proforma, to the Foreign Investment and Inspection Department, Bangladesh Bank, head office, Dhaka. The ADs will also submit with the quarterly statements their own certificates/ certificates from the auditors of the concerned companies regarding payment/ withholding or exemption of taxes payable on the capital gains and on dividend/ interest earnings of the non-resident holders, as applicable.
2. OPERATIONS IN SECURITIES
Section 2 of the FER Act defines “security” as shares, stocks, bonds, debentures, debenture stock and Government securities, deposit receipts in respect of securities and units or subunits of unit trusts. A “foreign security” is defined as a security issued elsewhere than in Bangladesh and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in Bangladesh. “Security” also includes coupons or warrants representing dividends or interest and life or endowment insurance policies.
A There is no restriction under the FER Act on the import of securities into Bangladesh. No securities can however be exported or taken out of Bangladesh without general or special permission of the Bangladesh Bank. Residents in Bangladesh who are holders of foreign securities and who wish to send the securities to banks, brokers or agents abroad for the purpose of sale, transfer etc. should apply to the Bangladesh Bank through an AD for necessary export permit. Bangladesh Bank is also prepared to consider applications for the exchange of foreign shares and/or securities held by residents of Bangladesh with Bangladesh shares and/or securities held by residents abroad. Applications for this Purpose should be made through an AD or Stock and Share Broker. Such applications would be considered favorably provided the Bangladeshi shares/ securities desired to be imported from abroad are approximately of the same market value as foreign shares and/or securities that are desired to be exported
Persons resident in Bangladesh who are or become owners of foreign securities are permitted to hold or retain such securities provided they have acquired them in a manner not involving a breach or violation of the foreign exchange regulations. Holders of foreign securities who wish to sell, transfer or otherwise dispose of or deal in securities must, however, ensure that the proposed transactions do not contravene the provisions of the FER Act and the orders issued by the Government of Bangladesh and/or the Bangladesh Bank there under and must obtain prior perdition of the Bangladesh bank where ever necessary.
Under the existing foreign exchange regulations all persons resident in Bangladesh who are or become the owners of any security in respect of which the principal, interest or dividend is or are payable in the currency of any foreign country or in respect of which the owner has the option to acquire the payment of principal, interest or dividend in such currencies, are required to submit a return to tile Bangladesh Bank within one month of their acquiring the securities giving certain particulars in respect of the said securities.
Foreign exchange is the part of foreign trade. It’s a procedure to convert foreign currency to foreign currency and also foreign currency to home currency.
Foreign trade is a procedure to convert the home currency to foreign currency and foreign currency to foreign currency and also make arrangement to import and export business as per requirement of the client/customer.
Foreign Currency means any currency other than Bangladesh Currency.
Currency includes all coins, currency notes, bank notes postal notes, money orders, cheques, drafts, traveler’s cheques, letter of credit, bill of exchange and promissory notes.
Bangladesh Currency means currency, which is expressed or drawn in Bangladesh Taka.
Foreign exchange means foreign currency and includes all deposits, credits and balance payable in foreign currency as well as Draft, Traveler’s cheques, Letter of credit, Bills of Exchange drawn in local currency but payable in foreign currency.
– Foreign Exchange Regulation Act, 47, Sec 2 (a)
Foreign exchange means foreign currency and includes any instrument drawn, accepted, made or issued under clause 13 of section 16 of the Bangladesh Bank Order, 1972 all deposits and credits and balances, Travelers cheques, Letter of credit and bills of exchange, expressed or drawn in Bangladesh currency but payable in any foreign
– Bangladesh Bank order 1972.
Foreign exchange in common usage means foreign currency. But in fact foreign exchange means not the foreign currency but the rate of exchange. The necessity for conversion of the currency into another arise for international transactions:
– G.H Khan
The mechanism through which payments are effected between two countries having different currency systems is termed as foreign exchange. It is related with the exchange method & mechanism through which the payments in connection with international trade are transacted.
-A Banking Expert.
Denote the means of payment in which currencies are converted into each other and with which international transfers are made the activity of transacting business in such means.
– A Banking Expert.
It is the means and methods which rights to wealth convert into expressed interns of the currency of one country right to wealth inters of the currency of the currency of another country.
– Prof.H.E.Evitt.
System or process of converting one national currency into another and of transferring money from one country into another.
-Dr. Paul Einzig.
CHAPTER-04
Foreign exchange operation of EXIM Bank
Foreign exchange department of EXIM Bank Limited deals with foreign currency and the transaction of it. The major jobs of this department is listed below:
1. Letter of Credit (for Export and Import)
2. Dollar/Traveler’s Cheque (TC) Endorsement
3. Foreign Remittance
4. Foreign Currency Account
1) LETTER OF CREDIT (LC):
In case of any foreign trade requirement of L/C is a must. As we know, there is no guaranteed relationship between import and export. As a result, they use a media to secure their goods and currency. So. Exporter and Importer use their respective bank as a media and L/C is a legal obligation between Exporter and Importer. In case of a single L/C, it is necessary to prepare six credit vouchers and one debit voucher. After preparing those vouchers it should be sent to the computer section for computer entry.
2) DOLLAR AND TRAVELER’S CHEQUE ENDORSEMENT:
EXIM Bank is a Authorized Dealer of American Express T/C. At the same time, they can buy and sell T/C and dollar. Every morning they get a telex from the Head Office, which carries the rate of the foreign currency transaction of the day. EXIM Bank fixes the rate by them. At the end of the each month the branch used to submit all the supportive documents (all foreign transactions documents and balance of the foreign currency) to the Bangladesh Bank and their Head Office.
3) FOREIGN REMITTANCE:
Foreign DD and paying or receiving any bill from foreign country is known as foreign remittance. The amount of foreign remittance is very significant in EXIM Bank, Narayanganj Branch
4) FOREIGN CURRENCY ACCOUNT:
A Foreigner, a Wage earner working in foreign country can open this account, but it is possible to open a foreign currency (Dollar) account in Narayanganj branch. The account holder gets a cheque book against the account and has to mention the amount in respective currency.
Foreign trade financing is an integral part of banking business especially for EXIM Bank Limited. Letter of credit is the key instrument in the foreign exchange business. The import section deals with L/C in the perspective of the exporters. In case of import, the importers are asked by the exporters to open a letter of Credits so that their payment against goods is ensured.
Tuypes of Letter of Credit:
The Letter of credit can be either Revocable or Irrevocably. It needs to be clearly indicated whether the L/C is Revocable or Irrevocable. In the absence of any indication, it will be deemed to be a Revocable Letter of Credit (UCPDC 1993 Revision, ICC No. 500).
Revocable L/C:
A Revocable Letter of 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 at any time without prior notice.
Irrevocable L/C:
An Irrevocable credit is one, which cannot be cancelled or amended any time without the consent of each party. Through this L/C, the issuing Bank gives a definite, absolute and irrevocable undertaking to honor its obligations, provided the beneficiary complies with all the terms and conditions of the credit.
4.2.1 Different Types of Letter of Credit provided by EXIM Bank
Back to Back L/C
Back-to-Back L/C is defined as a credit, which is opened at the instructions and the request of the Beneficiary of the original Export L/C on the strength credit. Back to Back is a term given to an ancillary credit, which arises where the seller’s uses the credit, granted to him by the Issuing Bank to his supplier. Sometimes Back-to-Back credit is called Counter Veiling Credits, i.e. credit and counter credit.
There are two types of Back-to-Back credit:
Foreign Back to Back Credit
Local Back to Back Credit
Revolving L/C
A revolving credit is a credit, which provides for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. It can be revolved with respect to either:
Time
Amount (i.e. total value of the credit)
Transferable L/C
A transferable credit is a credit, which can be transferred in whole or part by the original beneficiary to one or more “Second beneficiaries”. It is normally used when the I ‘t beneficiary does not supply the goods himself, but acts as an intermediary between the supplier and the ultimate buyer.
4.2.2 Documents required for Opening L/C:
L/C Application and agreement from duly filed and signed by proposed importer.
Exchange control copy of L/C Authorization Form.
Indent or Proforma invoice (one kind of price list describing the details on the items wanted to import.
Insurance cover note with premium paid receipt.
Offering Sheet.
L/C opening sheet.
L/C Forms (in set).
L/C Amendment Form (in set).
L/C Forwarding Form.
IMP Form (set in quadruplicate).
Liability Voucher.
Voucher for L/C Advising Charge & Realizing of margin.
4.2.3 Discrepancy & Indemnity
After the shipment of goods, the Exporter submits the Export documents to Authorized Dealer for Negotiation of the same. Here Authorized Dealer is Exporters Bank. The Banker is to ascertain that the documents are strictly as per the terms of UC. Before negotiation of Export Bill, the Banker should scrutinize and examine each and every document with great care and must go through the Original L/C. In the time of scrutiny, any kind of lacking can be found by the Banker. This is called Discrepancy. The Discrepancy may be classified as major or minor. There are some Discrepancies which are removable. If the Discrepancies are removable, the Exporters are to be advised and the Discrepancies are to be moved. If the Discrepancies are minor, the Export bills against submission of indemnity. Documents with Discrepancies should be negotiated. With the permission of the Exporters, such documents are to be sent on collection.
4.3.1 The Letter of Credit (L/C) Opening Process
The various steps involved in the operation of a Letter of Credit are described as follows:
l . The importer and exporter make a contract before a L/C has been issued.
2. The importer applies for a L/C to his banker known as the issuing bank. He may have to use his credit lines.
3. The issuing bank opens the L/C that is channeled through its overseas correspondent bank, known as the Advising bank.
4. The Advising bank informs the exporter (beneficiary) of the arrival of the L/C.
5. Exporter ships the goods to the importer or other designated place as stipulated in the L/C.
6. Meanwhile, the exporter also prepares his own documents & collects transport documents or other documents from relevant parties. All these documents will be sent to his banker, which is acting as the Negotiating bank.
7. Negotiation of export bills happens when the banker agrees to provide him with finance. In such case, he obtains payment immediately upon presentation of documents. If not, the documents will be sent to the issuing bank for payment or on an approval basis as in the next step.
8. Documents are sent to the issuing bank (or reimbursing bank, which is a bank nominated by the issuing bank to honor reimbursement from negotiating bank) for reimbursement or payment.
9. Issuing bank honors it’s undertaking to pay the negotiating bank on condition that the documents comply with the L/C terms and conditions.
10. Issuing bank releases documents to the importer when the latter makes payment to the former or against the latter’s trust receipt facility.
11. The importer takes delivery of goods upon presentation of the transport (usually shipping) documents.
4.3.2 Parties Involved in Letter Of Credit (L/C)
The Applicant
The applicant is the party who approaches a bank in order to issue the L/C. Generally, the applicant is an importer who reaches an agreement with the exporter before approaching the bank to issue the L/C. The applicant is also normally obligated to reimburse the issuing bank for any payments made under the L/C.
The Issuing Bank
The bank issuing the L/C is known, as the issuing bank and it is usually the bank with which the importer maintains an account. The issuing bank undertakes an absolute obligation to pay upon presentation of documents drawn in strict conformity with the terms and conditions of the L/C.
The Advising Bank
The correspondent bank in the beneficiary’s country to which the issuing bank sends the L/C is commonly referred to as the advising bank. The advising bank simply advises the L/C without any obligation on its part. However, the advising bank shall take reasonable care to check the apparent authenticity of the credit that is advices.
The Beneficiary:
The beneficiary or exporter is the party entitled to draw payment under the L/C. The beneficiary will have to present the required documents to avail payment under the L/C.
The Confirming Bank:
The confirming bank confirms that the issuing bank has issued a L/C. The confirming bank becomes directly obligated on the credit to the extent of its confirmation and by confirming, it acquires the rights and obligations of an issuer. The advising bank usually does L/C confirmation or a third bank in the beneficiary’s locate.
The Negotiating Bank:
The bank that agrees to examine the documents under the L/C and pay the beneficiary is called the negotiating bank. Typically, the advising bank is nominated as the negotiating bank.
Reimbursing Bank :
The bank nominated by the issuing bank to provide reimbursement to the negotiating bank or the payee bank is referred to as the reimbursing bank.
In EXIM bank limited foreign exchange is divided in to two parts according to the major activities:
Import oriented foreign exchange
Export oriented foreign exchange
4.4.1. IMPORT SECTION
Import and Export (control) Act 1950 regulate the Import and Export trade of the country. There are a number of formalities, which Importer has to fulfill before import goods. These formalities are explained bellow –
simply advises the L/C without any obligation on its part. However, the advising bank shall take reasonable care to check the apparent authenticity of the credit that it advises.
4.4.1.1 Import Registration Certificate (IRC)
The first thing one needs to carry on a business of import is called Import Registration Certificate. But registration is not required for importing goods, which do not involved remittance of foreign exchange like medicine; riding materials etc. can be imported without registration by the users within monetary limit. Documents to be required for Import Registration Certificate are as follows-
Income Registration Certificate
Nationality Certificate
Certificate from Chambers of Commerce and Industry Registered Trade Association
Bank Solvency Certificate
Copy of Trade License
Requisite fees
On receiving application, the respective CCI & E officer will scrutinize the documents and conduct physical verification and issue demand note to the prospective importers to furnish the following papers through their nominated Bank –
• Original copy of treasury deposited as IRC fees
• Assets Certificate
• Affidavit from 1st class Magistrate
• Rent receipt
• Two passport size photograph
• Partnership deed in case of partnership firms
• Certificate of Registration, Memorandum and Articles of Association in case of Limited Company.
After scrutinizing and verifying, the nominated Bank will forward the same to the respective CCI&E office with forwarding schedule in duplicate through Banks, CCI&E then issue Import Registration Certificate to the Applicant.
4.4.1.2. FUNCTION OF IMPORT SECTION
1. IMP – Form:
The form IMP contains the followings –
Name and address of the Authorized deales.
Amount of remittance to be permitted (i.e. L/C amount)
LCA form no. Date and value in Taka.
Description of goods.
Invoice value in foreign currency, (i.e. L/C amount)
Country of origin.
Port of shipment
Name of steamer / Airline (i.e. By road/ship/air)
Port of importation.
Indenter’s name and address.
Indenter’s registration number with CCI&E and Bangladesh Bank.
Full name and address of the applicant
Registration number of the applicant with CCI & E.
Type of LCAF.
(See Appendix).
2. IMPORT PROCEDURES:
The procedures, which follows at the time of Import are as, follow-
The buyer and the seller conclude a sale contract provided for payment by documentary crudity.
The buyer instructs his Bank (the issuing Bank) to issue a credit in favor of the seller / Exporter / Beneficiary.
The Issuing Bank then send messages to another Bank (Advising Bank/Confirming Bank), usually situated in the country of seller, advice or confirm the Credit Issue.
The Advising / confirming Bank then informs the seller through his Bank that the Credit has been issued.
As soon as the seller receives the credit, if the credit satisfy him the he can reply that, he can meet its terms and conditions, he is in position to load the goods and dispatch them.
The seller then sends the documents evidencing the shipment to the Bank where the Credit is available (nominated Bank). This can be the issuing Bank or Confirming Bank; Bank named in the Credit as the paying, accepting and Negotiation Bank.
The Bank then checks the documents against the credit. If the documents meet the requirements of the credit, the Bank then pay, accept or negotiate according to the terms of credit. In the case of credit available by negotiation, Issuing Bank will negotiate with recourse.
The Bank, if other then the issuing Bank, sends the documents to the issuing Bank.
The issuing Bank checks the document and if they found that the document has meet the credit requirements, they realize to the buyer upon payment of the amount due or other terms agreed between him and thee issuing Bank.
The buyer sends transport documents to the carrier will then proceed to deliver the goods.
An importer is required to have the followings to import through the Bank
• A bank account in the bank.
• Import Registration certificate.
• Tax paying identification number.
• Performa invoice indent
• Membership certificate
• LCA (Letter of credit application) form duly attested.
• One set of IMP form.
• Insurance cover note with money receipts.
• Others.
3. IMPORT MECHANISMS:
To import, a person should be competent to be an importer. According to import and export control act, 1950, the officer of the chief controller of import and export provides the registration (IRC) to the importer. After obtaining this, this person has to secure a letter of credit authorization (LCA) from Bangladesh Bank and then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. he is also called opener or applicant of the credit.
4. PROPOSAL FOR OPENING OF L/C:
In case of an L/C of a small amount only the prescribed application form i.e. the LCA (Letter of credit application) form is enough to open an L/C. but when the L/C amount is reasonably high, then the importer is asked to submit a proposal to the bank authority to have a limit of L/C amount. This proposal should be approved in the meeting of the executive committee of the Bank. The sufficient features of a proposal are –
Full particulars of bank account.
Nature of business.
Required amount of limit.
Payment terms and conditions.
Goods to be imported.
Offered security.
Repayment schedule.
A credit officer scrutinizes this application and accordingly prepares a proposan (CLP) and forward it to the Head office Credit Committee (HOCC). The committee, if satisfied, sanctions the limits and returns back to the branch. Thus the importer is entitled for the limit.
5. L/C APPLICATION:
BDI provides a printed form for opening of L/C to the importer. This form known as credit application form. A special adhesive stamp is affixed on the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin percentage. The importer gives the following information –
Full name and address of the importer
Full name and address of the beneficiary
Availability of the credit by sight payment acceptance / negotiation /differed Payment.
Time bar within which the document should be presented
Sales type (Cff/FOB/C&F)
Brief specification of commodities, price, and quantity, indent no, etc.
Country of origin
Bangladesh Bank registration No.
Import license / LCAF No.
IRC No.
Account No.
Documents required
Insurance cover note/policy No., date, amount.
Name and address of the insurance co.
Weather the partial shipment is allowed or not.
Weather the Trans shipment is allowed or not.
Last data of shipment.
Last date of negotiation
Other terms and condition if any.
6. LETTER OF CREDIT AUTHORIZATION (LCA) FORM:
The LCA form contains the followings-
Name and the address of the importer.
IRC No. And yerar of renewal.
Amount of L/C applied for.
Description of items / to is imported.
ITC number (s)/HS code.
Stamp and signature of the importer with seal.
7. SCRUTINIZATION OF L.C APPLICATION:
The bank officials scrutinizes the application in the following manners –
The terms and condition of the L/C must be complied with UCPDC 500 and Exchange control & import trade regulation.
Eligibility of goods to be imported.
The L/C must not be opened in favour of the importer.
Radioactivity report in case of food item.
Survey reports or certificate in case of machinery.
Carrying vessel is not of Israel or Serbia- Montenegro.
Certificate declaring that the item is in operation not more than 5 years in case of car.
On scrutiny, if the application is found fit then the L/C is opened and particulars of the same are recorded in the L/C register Then the transmission of L/C is done through tested Telex or Fax to advise the L/C to beneficiary. If the amount exceeds US$ 10.00 the bank takes the credit report of the beneficiary (CIB report) to ensure the worthiness of the supplying goods.
8. ACCOUNTING TREATMENT IN CASE OF L/C OPENING:
Now if the respective officer thinks that the application is fit to open an L/C, the following accounting treatment are given —
After that, L/C number and the above entries are given in the L/C register. The contra Entries stating the liability of the bank and the client are as follows—
The transmission of L/C is done through tested telex/mail/fax/Swift to advise the L/C to the beneficiary.
9. AMENDMENT OF L/C:
Parties involved in L/C, 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. The bank transmits the amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or cancelled y the issuing bank at any moment and without prior notice to the beneficiary. But incase of irrevocable letter of credit, it neither be amended nor cancelled without the agreement of issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge and debited from the party account accordingly.
Adding confirmation:
the confirming bank gives confirmation. An add confirmation letter contains the followings –
L/C no.
L/C amount
Items to be imported
Name and address of the Applicant
Name and address of the beneficiary
Tenor
Date of shipment
Date of apiary
Port of loading
Port of discharge
Charges no which party
Name of the advising bank
Name of the reimbursing bank
Name of the confirming bank
10. PRESENTATION OF THE DOCUMENTS:
The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that has to present the documents evidencing dispatching of goods to the negotiating bank no or before stipulated expiry date of the credit. After receiving all documents, the negotiating bank on or before stipulated expiry documents against the credit. After receiving all documents the negotiating bank, then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to ESIM bank limited checks the documents. The usual documents are —–
Invoice
Bill of Lading
Certificate of origin
Packing list
Shipping advice
Non negotiable copy of bill of lading
Bill of exchange
Pre-shipment inspection report.
Shipment certificate.
11. EXAMINATION DOCUMENYTS:
EXIM Bank officials check weather these documents have any discrepancy or not. Here discrepancy means the dissimilarity of any documents with the terms and conditions of L/C.
12. RETIREMENT OF SHIPPING DOCUMENTS:
On security if is found that, the documents drawn are in order EXIM, lodges the documents in PAD and few vouchers are passed.
RETIREMENT OF IMPORT BILLS:
Importer will deposit the claim amount
Banker will prepare and pass Retirement Vouchers
Certifying Invoices
Passing of Vouchers
Entry in the Register
Endorsement in the B/E and transport document i.e. B/L AWB, TR etc.
At the end of the total procedure, taking the retirement of Import Bills/Clearing Certificate from the Bank, the Importer will clear the goods from the port through the Clearing Agent and Forwarding Agent.
On the other hand, completing the above all steps in the issuing Bank will prepare “Foreign Exchange Transaction Schedule” and send one copy to international division of Head Office and another one copy to recommendation.
13. PAYMENT PROCEDURE OF THE IMPORT DOCUMENT:
This is the most sensitive task of the import department. The officials have to be very much careful while making payment. The task constitute the followings-
Date of payment- Usually payment is made within seven days after the documents have been received. If the payment is become differed, the negotiating bank may claim interest for making delay.
Preparing sale memo- a sale memo is made at B.C rate to the customer. As the TT & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally an inter branch exchange trading crudity advice is sent to ID.
Requisition for foreign currency- for arranging necessary fund for payment a requisition is sent to the ID.
Transmission of telex- a telex is transmitted to the correspondent bank ensuring the payment is being made.
4.4.2. EXPORT SECTION:
Literally, the term Export, we mean that carrying of anything from one country to another. On the other hand Banker’s define Export as sending of visible things outside the country of dale. Export Trade plays a vital role in the development process of an Economy. With the Export earning, we meet our Import Bills.
4.4.2.1 Export Registration Certificate (ERC)
Like any other business it needs Registration. The chief Controller of Import and Export (CCI&E) makes export registration. For Registration, prospective Exporters required to apply through Q.E.X.P from the CCI&E along with the following documents-
Trade License 50
Income Tax Clearance
Nationality Certificate
Bank’s Solvency Certificate
Asset certificate
Registered Partnership Deed
4.4.2.2 Function of Export Section
1. EXP. FORM:
All Export of which the requirements of declaration vide para-1 of chapter XXI of Exchange Control Manual of Bangladesh Bank applies must be declared on the EXP forms by the customer, now issued by the Authorized Dealers. (See Appendix).
2. DISPOSAL OF EXP. FORMS:
Original: From Custom Authority to Bangladesh Bank after shipment of goods.
Duplicate: From Negotiating Bank to Bangladesh Bank after Negotiation.
Triplicate: From Negotiating Bank to Bangladesh Bank after realization of the proceeds of the Export Bill.
Quadruplicate: Retained by the Negotiating Bank as Office Copy.
3. EXPORT PROCEDURE:
A person desirous to export should make application to obtain ERC from CCLNE. Then the person should take step for export purpose into the bank for obtaining EXP form. He must submit following documents:
Trade license
ERC
Certificate from concerned Government Organization
After satisfaction on the documents the banker will issue EXP form to the exporter. Now exporter will be getting shipping and other documents from the shipment procedure. Exporter should submit all these documents along with letter of indemnity to his bank for negotiation.
4. BACK TO BACK L/C (BTB L/C):
Back to Back L/C Open:
It is a secondary letter of credit opened by the advising bank in favour of a domestic/foreign supplier on behalf of the beneficiary original foreign L/C. As the original letter of credit of bank by import letter, it is called Back-to-Back L/C. The second L/C is opened on the strength of the original L/C for a smaller amount.
Back to Back L/C (Foreign):
When the B-To-B L/C is opened in a foreign country supplier it is called B-To-B L/C (Foreign). It is generally payable within 120 days at site.
Back to Back L/C Export Development Fund (EDF):
EDF provided by the ADB to Bangladesh Bank for export promotion of Third-World-Country like Bangladesh. When the bank is not an a position to support the amount of B-to-B L/C then they apply for loans to the Bangladesh Bank for B-To-B (EDF).
Back to Back L/C (Local):
When the Back-to-Back L/C is opened for local purchase of materials, it is called Back-to-Back L/C (Local). It is generally payable within 190 days at site.
Procedures for Back to Back L/C:
Exporter should make application for Back to Back LAC
Export L/C or Master L/C under is lien
Opening of Back to Back L/C
Terms and conditions for Back to Back L/C
That the customer has credit time line facility
That L/C is issued as per UCPDC 500
That on the Export L/C a negotiating clause is present
That there is no provision for blank endorsement of B/L
That payment clause is thereon the L/C issuing bank ensuring payment
Consideration for Back to Back L/C:
Whether client can manufacture within time period
The UN it price of the finished preformed invoice should be considering while allowing margin
Consider the expiry date and shipment date
Onside inspection whether manufacturing is carried out
Payment under Back to Back L/C:
Deferred payment is made in case of BTB L/C as 60,90,120,180 data of maturity period. Payments will be given after realizing export proceeds from the L/C issuing bank from the abroad.
5. REPORTING OF BANGLADESH BANK:
At the end of the every month reporting of Bangladesh Bank is mandatory regarding the whole month export operation, the procedures in this respect is as follows –
To fill-up the E-2/P-2 schedule of S-1 category. The whole month import amount, quantity, goods category, country currency, etc. all are mentioned. Respective IMP forms are attached with the schedule to fill E-3/P-3 for all invisible payment.
Original IMP is forwarded to Bangladesh Bank with mentioning invoice value
Duplicate IMP is skipped with the bank along with the bill of entry.
6. DOCUMENTATION FOR EXPORT PURPOSE:
Following major documents are required for export purpose –
Commercial invoice
Bill of lading
EXP. Form
Bill of exchange
L/C copy
Packing List
Certificate of Origin
Quality Control Certificate
Weight List
Inspection Certificate
Other (if required)
7. PROCEDURE FOR COLLECTION OF EXPORT BILL:
There are two types of procedures regarding collection of Export Bill –
Foreign Documentary Bill for Collection (FDBC)
Foreign Documentary Bill for Purchase (FDBP)
Foreign Documentary Bill For Collection (FDBC):
Exporter can collect the bill through negotiating bank on the basis of collection. Exporter in this case, will submit alt the documents to the negotiating bank for collection of bill from importer. The exporter will get money only when the issuing bank gives payment.
In this connection bank will scrutinize all the documents as per terms and conditions mentioned in L/C.
Accounting Treatment
Entry given twice in this register.
When document is forwarded to the issuing bank
When proceeds realized
Foreign Documentary Bill Fro Purchase (FDBP):
When exporter sale all the export documents to the negotiating bank is known as FDBP. In this case, the exporter will submit all the documents to the bank. The bank gives 60-80% amount to the exporter against total L/C value.
Accounting Treatment:
Before realization of proceeds: Adjustment after realization of proceeds
8. LOCAL DOCUMENTATY BILL FOR PURCHASE (LDBP):
Incoming of L/C customer come with the L/C to negotiate.
Documents given with L/C
Scrutinizing documents as per L/C opening bank
Forward the documents to L/C opening bank
L/C issuing bank give acceptance and forward acceptance letter
Payment given to the party by collection basis or by purchasing Documents.
Accounting Treatment:
9. SECURED OVERDRAFT (SOD) EXPORT:
Secured Overdraft is one kind of credit facility enjoying by the exporter from the export section. It is generally given to meet the back-to-back L/C claim. Sometimes it is given to the exporter by force for meet back-to-back L/C claim due to delay of Master L/C payment.
10. Packing Credit (PC):
It is one kind of credit sanctioned by the export department to meet the exported goods shipment timely. The bank will give the facility after deduction of back-to-back L/C value form total L/C value.
4.5 Foreign Exchange and Foreign Trade of EXIM Bank Limited
Import Business:
Import business is considered as an important segment of foreign exchange business. During the year, 2004 the bank opened 16339- import letter of credit and the import volume stood at Tk. 26781.80 million with a growth of 39.05% comparison with the previous year.
Source: Head Office, EXIM Bank of Bangladesh Limited.
Export Business:
The growth of the export business has significantly been increased by 48.22% it stood at Tk 22418.40 million as of December 31, 2004 against Tk 15124.60 million of the previous year.
4.6 Foreign Remittance:
Foreign Remittance of the bank stood at Tk 113.79 million as of December 31, 2004 as against Tk 235.00 million in 2003
Foreign Trade:
EXIM Bank, with its major focus on export and import trade financing and International Trade constitute the main steam of business activities of EXIM Bank. It offers a full range of trade finance and service namely, Issue Advice and confirmation of documentary credit, arranging forward exchange coverage pre-shipment and post shipment finance negotiation and purchase of Export bills, Discounting bill of Exchange, collection of bills in ward and outward remittance.
4.7 Correspondent Banking Relationship:
4.7.1 Outside Bangladesh:
The bank had a fairly wide global correspondent network expanding correspondence relationship with 200 Banks in over 180 countries with which the bank’s customers mainly trade. This correspondence relationship accrued substantial benefit to the bank.
4.7.2 Inside Bangladesh:
In Bangladesh the bank has fairly relationship for dealings 29 Banks with their different branches.
CHAPTER-05
Conclusion of the Report
5.1 Summery of Export & Import procedure Followed by EXIM Bank Ltd.
5.2 Evaluation of the process
5.3 Conclusion
5.1 Summery of Export & Import procedure Followed by EXIM Bank Ltd.
The EXIM Bank Ltd. is one of the special banks which are engaged in Export and Import transactions. For this purpose EXIM Bank Ltd.follows following rules and regulations
1. Foreign Exchange regulation Act,1947:
Foreign exchange regulation (FER) Act, 1947 (Act no. VII of 1947.) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then in Bangladesh.
2. Foreign Exchange regulation Act,1994:
This act regulates the exchange of foreign currencies, remittances and opening of foreign currency account under various classifications according to this law, FC Accounts can be open without initial deposits, and bears no interest and both the account holder or the nominee can operate the account. The entire remittance from aboard is free from income tax. It also states the documents require for the opening of such account.
3. Bangladesh bank’s instructions issued under the FER Act as well as the prudential instruction (as of 30th September, 1996) to be followed by ADs in their day to day foreign exchange transaction:
Bangladesh Bank:
Bangladesh Bank (BB) Means established under the Bangladesh Bank order, 1972 (President’s Order No. 127 of 1972)
Taka:
Taka means the Bangladesh taka unless otherwise specified
Dollar:
Unless otherwise indicated the term dollar used in this publication shall mean the US dollar.
Authorized Dealers:
Where ever used in this publication, the term authorized dealer or AD would mean a bank authorized by Bangladesh Bank to deal in foreign exchange under the FER Act, 1947.
4. Forward dealings in foreign exchange
5. Outwards remittance
6. Inward remittance
7. Convertible and non convertible taka accounts.
5.2 Evaluation of the entire process:
International trade constitutes the main stream of business activities of EXIM Bank Ltd. It offers a full range of trade financial services mainly, issues advises and confirmation of documentary credit; arranging forward exchange coverage; pre-shipment and post shipment finance; negotiation and purchase of export bills; discounting bill of exchange; collection of bills and outward remittance etc.
EXIM Bank Ltd. has correspondent relationships with over 200 banks spread across 180 countries to facilitate trade and payment and related services. The Bank has been maintaining relationship with leading international banks and has successfully established credit lines with major banks to support global trade service.
For the above mentioned purposes and activities, the EXIM Bank Ltd. follows the Foreign Exchange Regulation Act, 1947; Foreign Exchange Regulation Act, 1994; Bangladesh Bank’s guidelines and instructions. As well as our national rules and regulations EXIM Bank Ltd. Has to follow the International Rules and Regulation for the above mentioned functions
With reference to accounting treatments of various transactions EXIM Bank Ltd. consciously follows rules of the Company Act, 1994; Security and Exchange Rule, 1987; the advises and instructions of the Institute of Chartered Accountant of Bangladesh (ICAB); the Institute of Cost and Management Accountants of Bangladesh (ICMAB) and the instructions of Bangladesh Bank.
As well as our National Rules and Regulations EXIM Bank Ltd. also follows the International Rules for accounting treatment, like International Accounting Standard (IAS); Generally Accepted Accounting Principles (GAAP), the instructions of Financial Accounting Standard Board (FASB).
Both in general banking and Export Import transactions, EXIM Bank Ltd. Has been using computerized technology and online banking system which is essential in global trade.
So the entire Export and Import process and their accounting treatments in the books of accounts of EXIM Bank Ltd. Is quite good and satisfactory as far as the rules and procedures are observed.
5.3 Conclusion
The purpose of the report was to examine and evaluate of the Export and Import transactions of EXIM Bank Ltd. With special emphasis to accounting treatments. As a Narayanganj branch face a tremendous presser with the customer and the department’s officials try to handle the customer carefully.
The total volume of Import business performed by the bank during the year 2004 was TK.26781.86 Million compared to TK.19260.01 Million in 2003 registering an increase of 39.44%. The total volume of Export handled by the bank during same period TK.22418.40 Million compare to TK.15124.60 Million in 2002 registering an increase of 48.22%.
In Narayanganj branch total Import during the year 2004 is TK.969.109 Million compared to TK.509.776 Million in 2003 registering and increase of 36.55%. The total Export during the year 2004 is TK.113.154 Million compared to TK.39.02 Million in 2003 registering and increase of 189.99%.
The Foreign Exchange operation of EXIM Bank Limited apart from the conventional banking makes the bank capable to be a good bank in Bangladesh. Its earning from interest from foreign trade indicates its strength to survive and other achievements too is the sign of its competence. Growth of the bank is very satisfactory. It has been able to achieve an appreciable progress in all areas of its operation.
Although EXIM Bank Ltd. is yet to be fully automated, the bank has already installed adequate technology to meet its present’s requirement and is proceeding aggressively to enhance its technology further. Many products are offered in the market in recent days and more innovative and diversified products are in the process of offering. The products are well received by the market, which is evident from the growth pattern of the book. The Bank has also introduced various welfare schemes for its employees with a view to retain its trained and experienced human resource on longer term basis and to create a sense of belongingness. It is hoped that the bank will be able to serve our economic needs and be performing well in future too.
