Analysis of Foreign Exchange Banking Services

The case study is titled “Analysis of Foreign Exchange Banking Services of The BASIC Bank Limited”. As a student of BBA this study will be more significant in my practical life. I have worked for three months at Shanti Nagar Branch of BASIC Bank Limited to complete the internship program as an academic requirement.

 OBJECTIVES OF THE STUDY

(i) Main Objectives:

•     The main objective of the study is to highlight on the major documents used  by  BASIC  Bank  Ltd.  While  dealings  with  foreign  exchange banking to understand how the services are rendered.

(ii) Specific Objectives:

•     To identify the documents used in foreign trade of BASIC Bank Ltd.

•     To appraise export, import & remittance of the same bank.

•     To identify problems of foreign exchange banking of the selected bank.

•     To suggest suggestions for improvement of foreign banking of the given bank.

Scope of the Report

This report will cover Analysis of Foreign Exchange Banking Services of BASIC Bank Limited. It will give a wide view of the different stages of operational procedure of BASIC Bank Limited, starting from the Import, Export and Remittance with total Foreign Exchange Procedures.

 METHODOLOGY OF THE STUDY:

a.  Primary Data were collected by the following ways:

•     Direct communication with bank officials & clients;

•     Exposure on different desk of the bank;

•     Observing various organizational procedures.

b.  The  Main  Secondary  Sources  from  Which  Data  were  Accumulated  are  as follows:

•     Annual Report of BASIC Bank Ltd;

•     Periodicals published by the Bangladesh Bank;

•     Different publications regarding foreign exchange operation;

•     From Newspapers and Internet.

•     Different Official Records of BASIC Bank Limited.

I have covered both head office and SHANTI NAGAR branch of BASIC Bank. But the body of the report is prepared in the light of the branch. Only International Department (ID) part is covered in the Head office.

LIMITATIONS OF THE STUDY:

Despite all out co-ordination from the bank officials, I faced some limitations. The main problem  I faced  in preparing  the paper was  the inadequacy and  lack  of availability of required data. This report is an overall view of Foreign Exchange Operations of The BASIC Bank Ltd. But there is some limitation for preparing this report. These barriers, which hinder my work, are as follows:

Difficulty in accessing latest data of internal operations.

Learning & gathering experience of all the banking functions was really tough.

Another limitation of this report is Bank’s policy is not disclosing some data and information for obvious reason, which could be very much useful.

Large-scale research was not possible due to time constraints.

Non-availability of some preceding and latest data in a systematic way..

I was placed to this department for only 3 months of time and working like a regular employee hindered the opportunity to put the better effort for the study.

With all of this limitation I tried my best to make this report as best as possible. So readers are requested to consider these limitations while reading and justifying any part of my study.Background of The BASIC Bank:

The BASIC Bank Limited (Bangladesh Small Industries & Commerce Limited) registered under the Companies Act 1913 on the 2nd of August 1988, started its operations from the 21st of January 1989. It is governed by the Banking Companies Act 1991. In 2001 the bank has changed its earlier name Bank of Small Industries and Commerce Bangladesh Limited and the changed name has been registered with the Register of Joint Stock Companies.

At  the  outset,  the  Bank  started  as  a  joint  venture  enterprise  of  the  Bangladesh  Credit Commerce (BCC) foundation with 70 percent shares and Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being non functional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the  Bank  on  4th   June  1992.  Thus  the  bank  is  state-owned.  However,  the  Bank  is  not nationalized; it operates like a private bank as before. The bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing Small scale Industries (SSI).

BASIC is unique in its objectives. It is a blend of development and Commercial Banks. The memorandum and Articles of Association of the Band stipulate that 50% of loanable funds shall be invested in Small and Cottage industries Sector.

CAPITAL POSITION:

Authorized capital              :  Tk. 2,000 million

Paid up capital                    :   Tk. 1309.77 million

Total Reserve and Surplus  :   Tk. 1681.39 million up to 31.12.2008

The Bank is requested to transfer 20 percent of its net profit before tax to Capital Fund as per the Banking Companies Act 1991.

 Functions:

The Bank offers:

a.  Term loans to industries especially to small-scale enterprise.

b. Full-fledged commercial banking services including collection of deposit, short-term trade finance, working capital finance in processing and manufacturing units and financing                    and facilitating international trade.

c. Technical support to Small Scale Industries (SSIs) I order to enable them to run their enterprise successfully.

d. Micro-credit to the urban poor linkage with Non-Government Organizations (NGOs) ith view facilitating their access to the formal financial market for mobilization of funds.

In order to perform the above tasks, BASIC works closely with the clients, the regularly authorities the shareholders (GOB), banks and other financial institution.

CORPORATE STRATEGY

Financing establishment of small units of industries and business and facilitate their growth

Small Balance Sheet size composed of quality assets. D Steady and sustainable growth.

D Investment in a cautious way.

D Adoption of new banking technology.

ORGANIZATIONAL GOALS

To employ funds for profitable  purposes in various fields with special emphasis on small scale industries.

•      To undertake project promotion on identify profitable areas of investment.

•      To search for newer avenues for investment and develop new products to suit such needs.

•      To establish linkage with other institutions which are engaged in financing micro enterprises.

To cooperate and collaborate with institutions entrusted with the responsibility of

promoting and aiding SSI sector.Organizational Structure:

 To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The management looks after the day-to-day operation of the Bank.

BOARD OF DIRECTORS:

As stated earlier the government holds 100 percent ownership of the Bank. The Government of Bangladesh  appoints all the Directors of the Board. The secretary of the Ministry of Industries is the Chairman of the Bank. Other Directors of the Bank are high Government and central Bank executives. The Managing Director is an ex-officer member of the Board of Directors. There are at present 7 Directors including the Managing Director.

MANAGEMENT:

The management is headed by the Managing Director. He is assisted by the Deputy Managing  Director,  General  Managers  and  Departmental  Heads  in  the  Head  office. BASIC is different in respect of hierarchical structure from other banks in that it is much more vertically integrated as far as  reporting to the Chief executive is concerned. The Branch Managers of the Bank report direct to the Managing Director and, for functional purpose, to the Heads of Departments. Consequently, quick decision making in disposal of assess is ensured. 

RESOURCES AND CAPABILITIES

BASIC Bank Limited is well prepared to and capable  of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services.

A great deal of investment for developing the physical resource base of the Bank has been made. The Bank has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are twenty-seven conveniently located branches throughout Bangladesh. There are ten branches in the capital city of Dhaka, six in Chittagong and one each in Narayanganj, Narsingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulvibazar, Comilla, and Barisal.

Major features of these branches are:

•      Fully computerized accounts maintenance.

•      Well decorated air conditioned facilities.

•      A fully operational computer network which is currently being implemented. The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate any Branch Banking and ATM Services.

•      Money counting machine for making cash transactions easy and prompt.

•     Fifteen out of twenty six branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade.

Human Resources

BASIC Bank Limited has a well diversified pool of human resources which is composed of people with high academic background. Also, there is a positive demographic characteristic – most employees are comparatively young in age yet mature in experience. As of December 2003 the total employee strength is 523. The strength is 435 excluding the menial staff. BASIC Bank Limited has been investing its resources with a view to developing an efficient and professional work force. Two approaches are mainly used in this regard.

 ORGANOGRAM:

BASIC Bank’s services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million.

The industrial loan reflected a significant growth of 23.91 percent over  the  previous  year. Total   outstanding   industrial  loans including  term  and  working  capital  stood  at  Taka 17,226.40 million at the end of 2008 compared to Taka 13,901.40 million of 2007.  Total outstanding   term loan stood at Taka 6,206.75 million as on December 31, 2008 compared to Taka 5,055.58 million in 2007 reflecting a growth of 22.77 percent. The outstanding working capital finance extended to industrial units stood at Taka 11,784.08 million at the end of the reporting period compared to Taka 9,525.98 million in 2007. Growth rate here was 23.70 percent. BASIC Bank’s services are specially directed towards promotion and development of small industries. Its exposure to small and medium industries sector accounted for 56.52 percent of the total loans and advances. During the year total of 87 projects were sanctioned term loan. Out of which 26 were new and the rest  were under BMRE of the  existing projects. As on 31 December 2008, 801 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging; glass; ceramic; and other non-metallic goods and jute products. Recovery rate of project loan was 90.81 percent.

Commercial Credit:

The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export  cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December 31, 2008 total outstanding commercial loans stood at Taka 9,278.26 million Compared to Taka 7,681.74 million in 2007.

(Source: Annual Report 2008, BASIC Bank Ltd.)

Micro Credit:

BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery. These are:

1. Lending to the NGOs who on-lend to their members. At present there are 15 such NGOs.

2. Lending direct to the targets groups or ultimate borrowers under the Bank’s own management.

3. Lending direct to the member-borrowers and NGOs providing non financial services like group formation and monitoring and supervision on exchange for a supervision fee.

At the end of 2008, total amount of Taka 764.46 million remained outstanding as against Taka 680.13 million in 2007. Recovery rate during this period remained at a satisfactory level of 98.00 percent.

The bank achieved substantial growth in export in 2008 and the performance of the bank in import  business was also satisfactory. The Bank handled total export business of Taka 27,359.77 million and import business of Taka 22,270.87 million in 2008. The export and import business grew by 28.65 percent and 32.60 percent respectively. Major items of exports were garments, jute products, textile, leather etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, food items and other essential commodities.

(Source: Annual Report 2007, BASIC Bank Ltd.)

The Bank become a proud member of SWIFT (Society for Worldwide Inter bank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade business and fund transfer.

Other Activities:

The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc. Then also provides funds to investment and leasing companies. Then Bank has recently created a venture capital fund for equity support to innovative but risky projects.

Credit Rating Report (Entity Rating)

Credit Rating Information and Services Limited (CRISL) has assigned AA- (pronounced as double A minus) rating in the long term and ST-1 rating in the short term to the Bank for the year 2008 Banks rated AA- in the long term are adjudged to be of high quality, offer higher safety and have high credit quality. This level of rating indicates a corporate entity with a sound credit profile and without significant problems. Risks are modest and may vary slightly from time to time because of economic conditions Banks rated ST-1 in the short term are considered as the highest certainty of timely payment. Short-term liquidity including internal fund generation is very strong and access to alternative sources of funds is outstanding. Safety is almost like risk free Government short- term obligations

BASIC Bank Limited has launched a Monthly Deposit Scheme (BASIC Fortune) on April 14, 2009. At present, this scheme is available in the following online branches: Bangshal, Dhanmondi, Karwanbazar, Uttara, Gazipur Chowrasta, Rajshahi, Rangpur, Saidpur, Comilla, Jessore, Barisal, Chowmuhana, Sholashahar, CEPZ, Dewanhat, Dilkusha, Narsingdi,Sirajganj, Moulovibazar, Mirpur, Babubazar, Tanbazar, Zindabazar, Bogra, Gulshan, Khatunganj, Asadganj, Khulna, Shantinagar, Jubilee Road and Main branch.

Performance at a Glance of Shanti Nagar Branch:

i) Performance of Shanti Nagar Branch at a glance as on January 31, 2008

GENERAL BANKING

General banking is the starting point of all the banking operations. It is the department, which provides day-to-day services to the customers Main Functions of general banking department are the followings:

1.  Accounts Opening Section

2.  Accounts Section.

3.  Local Remittance Section

4.  Collection And Clearing

5.  Cash Section

ACCOUNTS OPENING SECTION

ACCEPTING DEPOSIT

Bank is a financial intermediary, which mobilizes fund from surplus unit and allocates it to deficit unit. Surplus unit means the people who have surplus money and willingness to save. Deficit unit means the people who need money for industry, trade, business, or for personal use but don’t have sufficient money of their own for such purposes. Bank mobilizes the fund by accepting deposits from depositors and allocates the fund by providing loan to borrower.

Banker-customer  relationship  begins  with  the  opening  of  an  account  by  the  customer. Opening of an  account binds the same into a contractual relationship. But the selection of customer is very crucial. In fact, fraud and forgery of all kinds start by opening of an account by the customer (s). So, the bank takes extra care in its selection. One of the basic functions of commercial banks is to accept deposits. For accepting deposits  both demand and time,

BASIC Bank (Shanti Nagar Branch) offers the following types of accounts-

TYPES OF ACCOUNTS WITH TERMS AND CONDITIONS

This part covers only following types of accounts-

1.  Savings Bank Account

2.  Current Account

3.  Short Term Deposit (STD) Account

SAVINGS BANK ACCOUNT

This deposit is primarily for small-scale savers. Hence, there is a restriction on withdrawals in a week. Heavy withdrawals are permitted only against prior notice. Some Important Points are as follows-

GENERAL CHARACTERISTICS

As per BB instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability

a. Minimum opening deposit of Tk.5000/= is required;

b. Interest is paid on this account. BASIC offers a reasonable rate of interest for SB A/C.

c. Generally, banks require a 7-day prior notice if the total amount of one or more withdrawals on any date exceeds 25% of the balance of the account unless is given.

d. The number of withdrawals over period of time is limited. Only two withdrawals are permitted per week. If there are more than two withdrawals are made in a week, no interest will be paid on rest amount for that month.

e. Generally householders, individuals and other small-scale savers are the clients of this account

CURRENT ACCOUNT

Current account is purely a demand deposit account. There is no restriction on withdrawing money from the account. It is basically justified when funds are to be collected and money is to be paid at frequent interval. It is most suitable for private individuals, traders, merchants, importers and exporters, mill and factory owners, limited company’s etc. Some Important Characteristics are as follows-

a. A minimum balance of TK.5000 has to be maintained.

b. CD  accounts  are  unproductive  in  nature  as  banks  loan able  fund  is  concerned. Sufficient fund has to be kept in liquid form, as current deposits are demand liability.

c. Thus huge portion of this fund become non-performing. For this reason banks do not pay any interest to CD Account holders.

d. There is no restriction on the number and the amount of withdrawals from a current account.

STD (SHORT TERM DEPOSIT) ACCOUNT

Normally various big companies, organizations, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice. In BASIC, customers usually give an instruction that their  current account will be debited whenever its deposited amount crosses a certain limit and this amount will be transferred to the STD account

COMMON FORMALITIES REQUIRED FOR EVERY ACCOUNT

Introducer’s signature on Account Opening Form to be verified by Manager under full signature.

Two copies of passport size photograph of account opener(s) duly attested by the introducer.

ACCOUNTS SECTION

Accounts department maintains all records of transactions and all types of statement. At the end  of  transaction  hour  all  concerned  section  sends  vouchers  of  transactions  to  this department. Accounts department compares all figures/ amount, contents of transactions with supplementary statement prepared by  computer.  If any discrepancy arises regarding any transaction then this department reports to the  concerned department. Following are the activities of accounts department:

To record all transaction in the cash book.

To record all transaction in the cash book.

To prepare daily, weekly, monthly, half-yearly and yearly fund position.

To prepare all kinds of statements related to Bangladesh Bank, Head office and

National Board of Revenue (NBR).

To prepare monthly salary statement, provident fund statement and administrative expenditure statement.

To make charges for different types of duty.

LOCAL REMITTANCE SECTION

Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer (s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds. These are–

Demand draft (DD)

Telegraphic Transfer (TT)

Call Deposit Receipt (CDR).

PAY ORDER (PO)

 Pay order is an instrument, used to remit fund within a clearing zone. Unlike cheque, there is no possibility of dishonoring PO. The PO can only be encashed through the branch that has issued the instrument.

PAY ORDER ISSUING PROCESS

For issuing a PO, following formalities are to be maintained. These are-

•       Duly filled up the application form by the customer.

•       Deposit money either in cash or by cheque with necessary charges.

•       Prepare the instrument and make necessary entries in the Bills Payable Register where payee’s name, date, PO no. etc are noted.

•       Deliver  the  instrument  to  the  customer  after  scrutinized  and  approved  by authority by taking signature of the customer on the counterpart.

DEMAND DRAFT (DD)

DD is called ‘Banker’s Draft’. It is an instrument, issued by a particular branch, drawn on another branch of the same bank, instructing to pay a certain sum of money. It is very popular instrument for remitting fund from one corner of a country to another.

If DD amount is more than Tk.50000/=, a test code is given on IBCA. The a/c treatments will be-

When DD is issued:

Cash/Customer A/C……………………Debit

H/O A/C ‘X’ branch…………………………Credit

Income A/c commission………………..……Credit.

TELEGRAPHIC TRANSFER (TT)

Sometimes the remitter of the funds requires fund immediately. In that case, the banker is requested to remit the funds telegraphically. Different modes are Telegram, Telephone, Telex and Fax. Telegraphic Transfer is the most rapid and convenient but expensive method. The drawer and the payee should have accounts with  BASIC bank. TT is issued against cash, cheque, and letter of instruction

COLLECTION AND CLEARING SECTION

 Customers do pay and receives bill from their counter party as a result of transaction. BASIC Bank Limited collects the bills on behalf of their customers. Collection mechanisms in BASIC Bank are clearing, Outward Bill For Collection, Inward Bills for Collection.

CLEARING

When the bill is within the range of the clearinghouse it is sent for collection through clearing section. As far as safety is concerned customers get crossed cheque for the transaction Crossed check can’t be encashed  from the counter; rather it has to be collected through banking channel i.e., clearing. If a client of BASIC Bank received a check of another bank which is located within the clearing range and deposit the  instrument in his account at BASIC Bank. Then  BASIC Bank will collect the money through clearing house. After received the check BASIC Bank will credit client account. However, the amount is credited in the customer a/c but he will not get the money until the check is honored.

 CASH SECTION

Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. The vault is insured up to Tk.20 lac. Insured amount yet to be enhanced to Tk. 40 lac. Operation of this section begins when the banking hour starts. Cash officer begins his/her transaction with taking  money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. If the cash stock goes beyond this limit, the excess cash is then transferred to BASIC bank main branch. The main functions of this section are-

1.     Cash Receipt

2.     Cash Payment

CASH RECEIPT

 Cash receipt procedure is given below-

i. The depositor first fills up the Deposit-in-Slip.

ii. Depositor deposits the money.

iii. Officer receives the money, counts and then enters in the Cash Receipt Register, and finally signs with seal and dates the deposit-in-slip.

CASH PAYMENT

Some important check points for making the payment are as follows-

1. Endorsement

Endorsement is done by putting signature of the drawer on the back of the negotiable instrument for the purpose of negotiation. By ‘blank endorsement’, an order instrument is made as ‘bearer’

2. Crossing

Generally two types of crossing are practiced, namely- General Crossing and Special Crossing. Basically it gives a direction to the paying bank not to pay the check amount over the counter. General crossing includes ‘A/C payee’ crossing only. Drawing two parallel and transverse lines do it. On the other hand, special crossing is like general crossing but in addition bank name is also mentioned. This gives the direction to the same to pay the check only to the banker, whose name appears in the crossing or to his agent.

Foreign Exchange- its meaning and definition:

Foreign exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we  talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign trade gives rise to foreign exchange. Modern banks facilitate trade and commerce by rendering valuable services to the business community. Apart from providing appropriate mechanism for making payments arising out of trade transactions, the banks gear the machinery of commerce, especially in case of international commerce, by acting as a useful link between the buyer and the seller, who are often too far away from and too unfamiliar with each other. According to foreign exchange regulation act 1947, “Anything that conveys the right to wealth in another country is foreign exchange”. Foreign exchange department plays significant roles through providing different services for the customers.  Opening or issuing letters of credit is one or the important services provided by the banks.

 Foreign Exchange :

Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.

Bangladesh Bank issues Authorized Dealer (AD) license by observing the bank’s performance and also the customers associated with the bank for conducting foreign dealings.

Export Section :

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB.

Bangladesh exports a large quantity of goods and services to foreign households. Ready made textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its ready made garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its ready made garments products to U.S.A. Most of the exporters who export BASIC Bank are ready made garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

SCRUTINY AND NEGOTIATION OF EXPORT BILLers are to ascertain that the documents are strictly as per terms of L/C. Before negotiation of the export Bill the bankers are to scrutinize and examine each and every document’s with care. Negligence on that part of the bankers may result in non repatriation or delay in realization of export proceeds are incorrect documents may put the importers abroad into unnecessary troubles.

The scrutiny of the Bill of Exchange (Draft) and other related documents should ensure that.

The documents are presented for negotiation before the expiry of the relative credit.

The amount does not exceed the amount available under the credit.

All the documents stipulated in the L/C are submitted.

The corrections and alteration are properly authenticated in all documents.

Export documents checking:

i.     General verification:

a) L/C restricted or not

b) Exporter submitted documents before expiry date of the credit. c) Shortage of documents etc.

ii.   Particular verification:

a) Each and every documents should be verified with the L/C.

iii.    Cross verification:

a) Verified one documents to another.

While  checking  the  export  documents  following  things  must  be  taken  in consideration.

L/C terms:

Each  and  every clause  in  the L/C  must  be complied  with  meticulously and  ensure the following:

i.   That the documents are not state.

ii.  That  the  documents  are  negotiated  within  the  L/C  validity,  it  a  credit  expire  on  a recognized bank                holiday its life is automatically become valid up to the next works day.

iii. That the documents value does not exceeds the L/C value.

Draft/Bill of Exchange

Draft is too examined as under.

i. Draft must be dated

ii. It must be made out in the name of the beneficiary’s bank or to be endorsed to the bank.

iii. The negotiating bank must verity the signature of the drawer.

iv. Amount must be tallied with the invoice amount.

v. It must be marked as drawn under L/C No……. dated……. issued by…….Bank.

Presentation of export documents for negotiation:

 After shipment, exporter submits the following documents to BASIC Bank for negotiation.

a.   Bill of Exchange or Draft;

b.  Bill of Lading

c.   Invoice

d.  Insurance Policy/Certificate

e.  Certificate of origin

f.   Inspection Certificate

g.   Consular Invoice

h.  Packing List

i.   Quality Control Certificate

j.   G.S.P certificate

Import Section :

Imports are foreign goods and services purchased by consumers, firms & Governments in Bangladesh. To  import, a person should be competent to be a ‘importer’. According to Import and Export Control Act, 1950, the Office Of Chief Controller Of Import and Export provides the registration (IRC) to the importer.

BASIC Bank checks the documents. The usual documents are,-

i. Invoice

ii. Bill of lading

iii. Certificate of origin iv. Packing list

v. Weight list

vi. Shipping advice

vii. Non-negotiable copy of bill of lading viii. Bill of exchange

ix. Pre-shipment inspection report

x. Shipment certificate

Import Procedures:

Registration with CCI&E

a.  For engaging in international trade, every trader must be first registered with the

Chief Controller of Import and Export.

b. By paying  specified  registration  fees  and  submitting  necessary papers  to  the CCI&E. the trader will get IRC  (Import Registration Certificate).After obtaining IRC, the person is eligible to import.

Purchase Contract between importers and exporter:

a. Now the importer has to contact with the seller outside the country to obtain the proforma invoice / indent which describes goods.

b.  Indent is got through indenters a local agent of the sellers.

c.  After the importer accept the preformed invoice, he makes a purchase contract with the exporter declaring the terms and conditions of the import.

d.  Import procedure differs with different means of payment. In most cases import payment is made by the documentary letter of credit (L/C) in our country.

 Collection of LCA form:

Then the importer collects a Letter of Credit Authorization (LCA) form BASIC Bank, Shanti Nagar Branch.

Opening a Letter of Credit (L/C)

In international environment, buyers and sellers are often unknown to each other. So seller always seek guarantee for the payment for his goods exported. Here is the role of bank. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’.

 Parties to Letter of Credit

1.  Importer ( Buyer)/ Applicant

2.  The issuing Bank (Opening Bank)

3.  The Advising Bank ( Notifying Bank)

4.  Exporter /Seller ( Beneficiary)

5.  Confirming Bank

6.  Negotiating Bank

7.  The paying/Reimbursing?

Accepting/Remitting Bank Applicant:

The person/Body who requests the bank (opening bank) to issue the letter of credit. As per instruction and on behalf of applicant, the bank opens L/C in line with the terms and condition of the seller contract between the buyer and the seller.

Opening /Issuing Bank:

The Bank which open/issue letter of credit on behalf of the applicant/importer. Issuing bank obligation is to make payment against presentation of documents drawn strictly as per terms of the L/C.

The Bank through which the L/C is advised/forward to the beneficiary (exporter). The responsibility of advising bank is to communicate the L/C to the beneficiary after checking the authority of the credit. It acts as an agent of the issuing bank without having any engagement on their part.

Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter.

Confirming Bank:

The Bank  which  under  instruction  the  letter  of  credit  adds  confirmation  of  making payment in addition to the issuing Bank. It is done at the request of the issuing having arrangement with them. This confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank.

Negotiating Bank:

Negotiating Bank is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same.

Sometimes it can also be confirming bank.

Reimbursing/Paying Bank:

The Bank nominated in the letter of credit by the issuing bank to make payment stipulated in the document, complying with reimbursing bank.

 Application For L/C limit:

Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer submits an application to the Department of BASIC Bank Limited furnishing the following information, –

i. Full particulars of bank account maintained with BASIC Bank Shanti Nagar branch.

ii. Nature of business

iii. Required amount of limit

iv. Payment terms and conditions

v. Goods to be imported

vi. Offered security

vii. Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

The L/C Application:

After getting the importer applies to the bank to open a letter of credit on behalf of him with required papers.

i. Documentary Credit Application Form:

BASIC Bank provides a printed form for opening of L/C to the importer. This form is known as Credit Application form. A special adhesive stamp is affixed on the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage.

ii.  Proforma Invoice: It states description of the goods including quantity, unit price etc.

iii. The insurance cover note: The name of issuing company and the insurance number are to be mentioned on it.

iv. The Letter of credit authorization (LCA) form: LCA form should be duly attested.

v. The Form-IMP.

vi. Tax Information Certificate

vii. Forwarding for Pre-Shipment Inspection (PSI): Importer sends forwarding letter to exporter for Pre-Shipment Inspection. But all types of goods do not require PSI.

Securitization of L/C Application:

The BASIC Bank Official scrutinizes the application in the following manner, –

a. The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation.

b. Eligibility of the goods to be imported.

c. The L/C must not be opened in favor of the importer.

d. Radioactivity report in case of food item.

e. Survey report or certificate in case of old machinery

f. Carrying vessel is not of Israel or of Serbia- Montenegro

g. Certificate declaring that the item is in operation not more than 5 years in case of car.

Examination of shipping documents:

One of the basic principles of documentary credit is that all parties deal with document and not with goods (Articles 6 of UCPDC-600). That is why the documents should be scrutinized properly. If any discrepancy in the documents is found, that is to be informed to the party. A checklist may be followed for examining the documents.

 1.  Late shipment

2.  Late presentation

3.  L/C expired

4.  L/C over-drawn

5.  Partial shipment or transshipment beyond L/C terms.

BILL OF EXCHANGE (B/E)

1.  Amount of B/E differ with invoice.

2.  Not drawn on L/C issuing Bank.

3.  Not signed

4.  Tenor of B/E not identical with L/C.

5.  Full set not submitted.

COMMERCIAL INVOICE (C/I)

1.  Not issued by the Beneficiary.

2.  Not signed by the Beneficiary.

3.  Not made out in the name of the Applicant.

4.  Price, quantity, seals terms of the goods not corresponds to the Credit.

5.  Not marked one fold as Original.

6.  Shipping Mark differs with B/L & Packing List.

Corporate Social responsibility (CSR)

Today, Corporate Social Responsibility (CSR) is a fundamental part of business. The notion of CSR is  gaining fast acceptance globally as every business should have its contribution voluntarily to the society, to its customers, to employee, to the communities and to the environment. CSR is an obligation beyond statutory obligation and BASIC Bank Ltd. Believes that such obligation paves the opportunity to build better relationship with all stakeholders. BASIC Bank Limited a state owned scheduled bank, adjudged as one of the soundest banks in Bangladesh is running on slogan “Serving People for Progress”. The slogan manifests the commitment of the bank to comply its social responsibility. Recognizing the importance of CSR and being a socially responsible organization BASIC Ban took some initiatives stated below:

FINANCING SMI

The bank is unique in its object. It is statutorily obligated towards the promotion and development of small and medium industrial sector. As per mandate of memorandum 50% of loan able fund of the bank also put emphasis on the interests of stakeholders, give due consideration to sustainable  development of communities and environment issues in all aspect of its operation.

SPORTS AND CULTURE

As part of corporate social responsibility the bank engage itself in sponsoring sports. The bank sponsored “26th and 27th National Junior Chess Championship” and “Inter-district National Women Handball Tournament-2007”.

DISASTER RELIEF

BASIC Bank provide donation to people affected by natural calamities. In 2007 the bank contributed Tk.25.00 lac as donation to the Chief Adviser’s Relief & welfare fund for the flood affected people. Another Tk.25.00 lac of donation was made to the Chief Adviser’s relief & welfare fund for SIDR affected people.

EDUCATION

BASIC Bank patronizes meritorious students. “BASIC Bank gold Medal” was introduced by the bank for the meritorious students of the department of banking, University of Dhaka. Besides BASIC Bank has been accommodating internship facility for the fresh and meritorious graduates from public and private universities and different business school to give them on job and practical experience about banking. Such program helps the  participants to choice and plan their carried more confidently. In 2008 a total of 144 students were given same facility.

ENVIRONMENT PROTECTION

As a part of CSR contribution BASIC Bank is adopting environmentally responsible practice in its operation. In its business operation BASIC Bank always consider the effects of bank’s financed projects on environment. This issue is included as a part project appraisal.

Fuel driven vehicles are a major cause of air pollution and fuel procurement is a major source of expenditure of foreign currencies. Keeping these dual issues in mind we have been financing 23 CNG refueling projects of which 09 in 2008. These projects are environment friendly, pollution free and saving foreign currencies.

PROFESSIONAL DEVELOPMENT & ACHIEVING EMPLOYEE SATISFACTION

Efficient human resources are real capital of an institution and professional development is a must for banking career. Banking environment is changing regularly, employees have to face new challenges and compliance issues are getting momentum. To attain sustaince issues are getting momentum. To attain sustainable growth employees must gain regular training and education. To strengthen the capacity and sharpen the skills and productivity of our employees to face these changing situation and new challenges, we regularly arrange training on professional and contemporary  banking issue. The bank recognizes the valuable contribution of its employees made to the bank. BASIC Bank invests substantial amount in training and its training institute arrange regular training program and seminar to strengthen the knowledge, competence and expertise of the employee to face challenges in this steeply competitive  market. Besides a good number of employees were also attended training, workshop and seminar organize by different organization at home and abroad on various issues. In 2008 we trained total 556 employees of our bank of which 11 was trained abroad.

STAFF WELFARE

Staff welfare is an issue that receives topmost importance in BASIC Bank Ltd. Has a benevolent fund. Along with giving retirement benefit another objective of the fund is contributing for humanitarian works. The bank sanction grant from this fund for treatment of its employees and their dependents. BASIC Bank has introduced a Superannuation fund instead of attractive retirement benefit for the employees. Deserving candidates are also given promotion and increment regular. We are also contemplating to introduce performance awards.

Employee satisfaction is a key indicator of the attitude of the employee towards their work environment. So the bank always tries to give its employees healthy, clean and congenial atmosphere in the work place.

Opportunities

•     Enlarging business by opening new branches in rural areas

•     Innovation of new services

•     Increasing demand for import, export and L/C through proper promotional activities

•     Fully utilizing incentives provided to government banks

I think the Management should employ at least few more employee in foreign trade department as I have seen from my practical experience that many customers wait for a long time for any service as they see that only one concerned official is doing their best to meet the requirements of the customers but as the foreign trade procedure is designed with many small tasks.