Import Business: Case Study on Dhaka Bank Limited

Trade Finance represents import and export mechanism through which importer and exporter of a country can continue trade with the world. Usually an authorize dealer branch of a bank has the authority to provide trade facilities. Bangladesh bank gives the permission to do this type of business.

From the very beginning of its journey, Dhaka Bank gives major emphasis on trade financing. As an authorize dealer branch, Imamgonj branch has that permission. Imamgonj branch is one of the highest L/C opening branch in terms of no of L/C’s per year. Only import division is running at Imamgonj branch.

Import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad or within the country. Normally consumers, firms and Government organizations import foreign goods or services to meet their various necessities. The person or organizations who import goods & services from foreign countries is known as importer. One of the important functions of the commercial banks in the world is to undertake import of merchandise into the country and payment of foreign exchange towards the cost of the merchandise to foreign suppliers.

Import Trade of Bangladesh is controlled under the Import & Export Control Act (IEC), 1950. Authorized Dealer Banks will import the goods into Bangladesh following import policy, public notice, F.E. circular & other instructions from competent authorities from time to time.

Origin of the Report

The Institute of Business Administration, University of Dhaka requires each MBA student to undergo an internship under a reputed organization. At the end of which the MBA student has to submit a complete internship report in a reputed firm for hands on experience about the professional works. These 12 weeks long internship is considered as a 3-credit course. This project paper is guided and examined by the course teacher and also a supervisor from the assigned organization. For the project paper a student is awarded grade, which gets featured in his/her result sheet. This opportunity to do the report provides the students with a window to the professional world related to his/her field of study. It also gives the students invaluable work experience, which they later use in the pursuit of careers or higher studies in their field of specialization.

The program is a practical exposure of theoretically gained knowledge and can be considered as a preliminary trial to be acquainted with any organization and to make oneself confident enough to enter into service life and start building career. As the outside world is very much competitive for anyone after graduation, the program provides such an opportunity to build up the capability with most appropriate opportunities.

Dhaka Bank Limited is one of the most prominent banks in Bangladesh. It is well known for its organizational reputation, expertise, and professionalism. Dhaka Bank’s corporate division is well known for the way they do business, handle clients and maintain diversified portfolio. Trade Finance – being a special wing of Corporate Banking Division is responsible for facilitating import and export for our country. Working in this unit has proved to be a learning experience. This research report is based on the learning in this unit while doing internship.

 Objective

•    To find out the problems & prospects of import business under DBL.

•    To analyze of the import business and performance of Dhaka Bank Limited to arrive at certain conclusion about Import banking operation & Foreign exchange system.

Methodology

The nature of this report is descriptive, so instead of doing any survey or using sampling method, observation method is used to complete this qualitative research. Most of the necessary information has been collected by face to face interview with the people working in different departments, personal investigation with officers, staffs and clients, circulars sent by Head Office, studying published materials such as previous Annual reports, Internet, books, journals and practical work with maintaining daily diary which contains all the activities that has been observed in the bank.

Scope of the report

This report is based on my observation & studies during my internship period in Dhaka Bank, Imamgonj Branch. I have covered the different departments of this bank. There was no scope of doing outside survey rather the range and scope was narrowed to the branch operation and practices. The substance presented in this study may not be applicable outside DBL of Bangladesh and will not be used anywhere except Institute of Business Administration, University of Dhaka of Bangladesh.

Sources of data

The report is based on both primary and secondary sources of information. Interviewing the managers and officers of the bank, talking to the customers has provided the primary sources of information, Beside these, different publications of the bank, departmental working procedure manual regarding banking functions, foreign exchange operation and export-import policies, annual reports, file study, various branch reports and the bank website were the secondary sources of data.

Limitations

•   Dhaka Bank Limited maintains strict confidentiality about providing their financial information; therefore it was quite difficult to obtain all the necessary data that was required to complete the report. In some cases assumptions had to be used for some particular figures. Thus in those cases there could be a certain level of inaccuracy.

•    Major part of the report is based on the face-to-face interviews, which consists of view and opinions of those people. In some cases some of them were not able to provide concrete facts of figures. In this case as well as some assumptions ha to be made.

The emergence of Dhaka Bank Limited in the private sector is an important event in the banking industry of Bangladesh. Dhaka Bank Limited started its business as a public limited company on July 05, 1995 with the primary objectives to carry on all kinds of banking business in and outside of Bangladesh

Bangladesh economy has been experiencing a rapid growth since the ’90s. Industrial and agricultural development, international trade, inflow of expatriate Bangladeshi workers’ remittance, local and foreign investments in construction, communication, power, food processing and service enterprises ushered in an era of economic activities. Urbanization and lifestyle changes concurrent with the economic development created a demand for banking products and services to support the new initiatives as well as to channelize consumer investments in a profitable manner. A group of highly acclaimed businessmen of the country grouped together to responded to this need and established Dhaka Bank Limited in the year 1995.

The Bank has 53 branches, 01 business center and 06 SME center across the country and a wide network of correspondents all over the world. The Bank has plans to open more branches in the current fiscal year to expand the network.

The Bank offers the full range of banking and investment services for personal and corporate customers, backed by the latest technology and a team of highly motivated officers and staff. In our effort to provide Excellence in Banking services, the Bank has launched Online Banking service, SMS banking service, joined a countrywide shared ATM network and has introduced a co-branded credit card as well as e-business facility to the bank’s clientele through Online and Home banking solutions.

Dhaka Bank Ltd. is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments.

Analysis of Vision and Mission Statements

DBL dreams to provide excellence in banking for the general public, which includes both the consumer and the corporate clients. They want to build such an image that whenever people will think of a bank, they will think of Dhaka Bank just because of their services.

In order to build up such an image, DBL is targeting the young generation in particular because research has shown that people usually have a soft corner for the first bank of their lives and tends to stick to it if they are satisfied with its service. With this plan in mind, DBL is trying to project itself as a vibrant and dynamic organization by introducing state-of-the-art banking technology, which will make banking easier and hassle-free to the young generation.

In order to achieve superior growth & financial performance for its shareholders, DBL is radically transforming the way it does business. In 2003, DBL adopted a new IT infrastructure called the Flexcube and managed to integrate all the branches and functional departments into a computerized system. It enabled DBL to become ONLINE, meaning any transaction and operation can be done from any branches anywhere in Bangladesh – all information will be updated real-time in the central server. Thus customers are having a greater flexibility with their interaction with the bank. Apart from it, DBL is constantly inventing new products for the customers and according to the market demand. DBL also established Central Processing Centre for Trade Operation and Credit Operation to provide better services to their customers.

 Service excellence

It answers the questions hidden in the vision of DBL. DBL’s vision says – “Excellence in Banking” – for whom? It automatically answers – customers. Therefore this vision states that, DBL wants to grow as a customer focused company. How DBL will achieve that is answered in the mission statements – Service Excellence. It means, treating the customer right way, in every way a customer can be entertained and have a memorable experience through his / her time in DBL.

Professional Team with Constant Learning Process

To be the Premier Bank of the Country DBL must have that manpower, the professionals who will take DBL to that height. It is believed in DBL that PEOPLE is the main resource of any organization, technology and money cannot be of any use without proper persons to run them in proper way. For this reason, DBL constantly gives training to its employees. Trainings are conducted both in abroad and in our country. These trainings teach them to meet different customers, enhance their ability to think beyond, motivate them to go the Extra Mile and imprint the professional expertise in them to do their job more efficiently.

 Team Based Culture

DBL believes that, to become unique and a Brand Name, DBL has to have a working environment that motivates the employees to comply with the mission statements. DBL believes team work can always take a person in a higher place than his individual performance. In DBL, employees are not concerned with their own goals and targets – rather they work in a team and are concerned to fulfill team targets, finish team works. This always enables them to achieve much more than single contributions ever could.

Team based culture is not only limited to working in a team. The environment is very friendly. Employees feel like home. It is many times called DBL FAMILY and employees are called the Members of this family. It is only possible because every employee tries to have a good relation with others and maintain a healthy friendly culture inside. This also helps the Learning Process as any employee can learn from another employee, regardless of ranks or departments. Everyone is open to changes, knowledge and challenges.

Capital Structure & Corporate Profile

Commencing its operation on July 05, 1995 as a private sector bank with an authorized capital of Tk.1, 000 million and paid-up capital of Tk.100 million, the Bank raised its authorized capital to Tk.2, 650 million in 2005 an Tk6, 000 million in 2007.

The paid-up capital of the Bank amounted to Tk.2,128 million as of 31 December 2009. Paid-up capital increased by Tk.194 million (bonus share of 2008) in 2007. The total shareholders’ equity (capital & reserve) of the Bank as at the end of December 2009 stood at Tk.4965.68 million including sponsor capital of Tk.1192 million. The Bank also made general provision of Tk.625 million as per rate given by Bangladesh Bank against the unclassified loans and advances, which will be treated as supplementary capital. The strong growth in equity will help the Bank to expand its business.

Products and Services     

• Products
  • Corporate Banking
    • Securitization of Assets
    • Corporate Finance and Advisory Services
    • Syndication of Funds
  • Retail Banking
    • Deposit Double
    • Deposit Pension Scheme
    • Income Unlimited
    • Excel Account
    • Salary Account
    • Smart Plant
    • Gift Cheque
    • Personal Loan
    • Car Loan
    • Vacation Loan
    • Home Loan
    • Any Purpose Loan
  • SME
• Services
  • Corporate Banking
  • Retail Banking
  • Islamic Banking
  • Capital Market Service
  • SME
  • Offshore Banking
  • ATM Card
  • Credit Card
  • Locker

Products

Retail Banking

Dhaka Bank started Retail Banking Operations in 2001 and has become one of the leading banks among local private banks focusing on Retail Banking Business. Bank’s continuous efforts in brand building, introducing and supporting new products under Retail Banking along with having non-traditional delivery channels like DSAs (Direct Sales Agent) have resulted in brand awareness in target markets.

Dhaka Bank Limited has successfully established a Retail Banking Division in 2001 with the launching of Personal Loans and introducing Credit Card. Till December 2009, the Division has added the following asset products to its wings:

•           Any Purpose Loan- to meet any legitimate personal financial requirements

•           Car Loan

•           Home Loan

To have a better hold on Asset Liability Management, the Division also focused on the liability products and introduced the following liability products till 2009:

•           DPS (Deposit Pension Scheme)

•           Special Deposit Scheme (Monthly income)

•           Deposit Double Scheme

•           Excel account (OD-cum-Savings Account)

•           Smart Plant

In 2007, Retail Banking Division has introduced VISA Credit and Debit Cards. Emphasis will also be given on liability products, which ensures mobilization of funds. Considerable growth has been achieved in both Asset (107% approx.) and Liability (87% approx.) products during 2009.

The Division has always been focusing on maintaining a quality asset portfolio, which ensures growth as well as good return. The Retail Banking Division ensures quick disbursement of loans in line with market competitiveness.

Among Private Sector banks, Dhaka Bank has already made its mark in the retail banking segment. The promotions like “Baishakhi Offer”, a strategic tie up with Electra International Limited, distributor of Samsung brand products, and “Freeze the Summer Campaign” a strategic tie-up with Esquire Electronics Limited, distributor of Sharp/General Brand electrical appliances saw Dhaka Bank to experience more than a reasonable growth on the Retail Banking business in 2004.

In the year 2007, Dhaka Bank Ltd. has signed MOU with 8 (eight) renowned car dealers namely: Haq’s Bay, Car House Ltd., The Sylhet Car, Car Port, Legend Car, Nippon Auto Trading, M/s. Kabir Enterprise and Capital Motors. The MOU empowers car buyers to avail DBL Car Loan at a reduced rate of 15%. This MOU will be valid for two years. Dhaka Bank will continue the MOU signing campaign with other renowned car dealers in and around Dhaka and Chittagong.

Dhaka Bank also launched the operations of VISA Card and has replaced all its VANIK Card holders with VISA Cards.

Liability Retail Products of Dhaka Bank

The Liability products comprise the followings:

• Deposit Pension Scheme (DPS)
• Deposit Double Scheme (DDS)
• Income Unlimited / Special Deposit Scheme (SDS)
• Smart Plant
• Fixed Deposits (FDRs)

Deposit Pension Scheme (DPS)

•     Special type of Savings Scheme designed for the fixed income group;

•     Certain amount is deposited every month in an account (generally called a DPS account), which is accumulated over a specified period of time along with interest accrued during that period;

•     Upon maturity the total amount (monthly accumulated deposits + accrued interest) is made available to the DPS holder;

Product Parameters

•     Amount of monthly deposits:

      Minimum: BDT 500.00

      Any multiples of BDT 500.00 subject to maximum of BDT 20,000.00

•     Flexible tenure of the scheme: minimum tenure would be 48 months and maximum would be 144 months

•     Flexibility to open any number of DPS account.

      A client can open maximum 5 DPS accounts in client’s name, in his/her spouses name or in the name of his/her children or in joint names with any of his/her family members.

•     BONUS POINT: To earn 1% bonus on the total deposit amount, the scheme needs to be continued up to maturity. A client is allowed to default in paying maximum 2 installments within the tenure of the DPS to earn the bonus point.

•     Premature encashment: No interest will be given if it is encashed before 1 year. Account running more than a year will be eligible for the prevailing interest offered in the savings account.

•     Late payment fee: 5% late payment fee on the deposit installment amount which will be realized at the time of depositing the next deposit installment.

•     Premature closure charge: BDT 300.00 only

•     Payment mode: it is mandatory for the applicant to open a savings account for DPS account opening. Standing instruction for auto debit might be executed or payment over cash counter is to be resorted as payment mode.

•     Advance installment payment: Clients will have the option to pay any number of installments in advance. No interest will be considered for any advance installment.

•     OD facility against DPS: Up to 90% of the total deposited amount.

Restrictions and client eligibility

• Should be a Bangladeshi National;
• Should be an adult (above 18 years of age);
• Should be a person of sound mind;
• A minor operated by the legal guardian may also open the account;
• Should/Should not have a CASA (link) account with any DBL Branch;
• Monthly installment size and tenure is not alterable;

Closure of account:

The account will immediately cease to operate in case of the following:

–Death of the account holder

–Failure to pay 5 consecutive installments

Settlement of the account:

•     Death of the account holder: The account will be settled in line with the instructions laid down in the account opening forms.

•     Failure to pay 5 consecutive installments: The account will cease to operate and the account holder will get back the principal deposit with the accrued interest as per rule:

Deposit Double Scheme

Features

• Deposit amount turns double in 7 years 8 months;
• Tax applicable on interest portion at prevailing rate;
• Minimum Deposit BDT 50,000;(either singly or jointly)
• The clients have the option of depositing any amount in multiples of BDT 10,000 subject to max BDT 20 Lac in a single name and BDT 35 lac in joint name;
• Deposits should be multiples of BDT 10,000;

What happens during premature encashment?

-If encashed before one year then no interest will be earned

– If encashed after one year but before tenure then the prevailing SB rate will be entitled.

• OD Facility against Deposit: Up to 90% initial deposited amount. The lending rate will be tied up with the interest rate offered on the deposit.
• Existing FDR Application Forms and Receipts are used for marketing DDS.

Income Unlimited (SDS: Special Deposit Scheme)

Features

Deposit an amount for a fixed term and earn equal monthly returns during that entire term;

• Tax applicable on interest portion at prevailing rate;
• Minimum Deposit BDT 100,000; (Singly or jointly)
• Maximum Deposit BDT 5,000,000; (Singly or jointly)
• Tenure – fixed for 3 years;
• Opening/Existence of the CASA A/C is a must.
• Monthly after-tax return is BDT 712.50 per 1.00 lac;
• Deposits should be multiples of BDT 50,000;
• What happens during premature encashment? (same as Deposit Double Scheme, but the amount already paid to the clients monthly along with the tax should be adjusted accordingly)
• OD facility against deposit: Same as DDS/FDR
• Documentation: 1. A/c opening formalities 2. SDS application filling up 3. one copy PP size photograph & 4. one copy PP size photograph of the nominee duly attested by the applicant.
• Restriction & Client Eligibility: Same as DPS

Smart Plant

Features

• Multiply initial cash deposit by 10 times in 6 years;
• Any Bangladeshi citizen (18 years to 54 years)
• Tax applicable on interest portion at prevailing rate;
• Minimum Deposit BDT 10,000; Bank Loan Taka 40,000; combining each Unit is of Taka 50,000.00;
• Applicant can apply for multiple units in a single application form;
• Deposits should be multiples of BDT 10,000;
• Applicant can apply for max 500 units equivalent to Maximum BDT 5,000,000;
• Maturity – 7 years 8 months years;
• Monthly installment is BDT 913;
• The matured amount is only credited after the loan is fully repaid:
• Late Payment Charge: 2% per month on the installment amount;

What happens during premature encashment?

– If encashed within 01 year: No int, instrument will be encashed, Loan will be liquidated inclusive of accrued interst + balance amount will be given

– If encashed after 01 year: Prevailing Savings rate, instrument will be encashed, Loan will be liquidated inclusive of accrued interest + balance amount will be given (Closing fee is 1% of client’s deposited amount subject to min Taka 500.00

Client’s contribution Taka 10,000.00 + Taka 1,050 (Insurance Premium) + Taka 913.00 (first month installment)+ required stamp charge.

Insurance coverage: For max 10 units (Taka 10 lac of matured value), nominee will receive the insurance claim.

Branches issue Smart Plant Deposit Receipt in favor of the applicant & are required to duly lien mark and discharge the instrument in favor of the bank.

Loan facility available up to 90% of initial deposit;

Any Purpose Loan

Introducing “Any Purpose Loan” from Dhaka Bank Limited, Now one can get loan up to Tk. 500,000* to spend it any way one choose to. Just walk into any of our branches and walk out loaded

Car Loan

Car Loan is a term financing facility to individuals to aid them in their pursuit of having a car of their dream. The facility becomes affordable to the clients as the repayment is done through fixed installment s commonly known as EMI (equal monthly installment) across the facility period. Depending on the size and purpose of the loan, the number of installments varies from 12 to 60 months. In case of brand new cars the loan tenure will be maximum 72 months.

Gift Cheque

Dhaka Bank has recently refurbished its Gift Cheque. The features of the gift cheque are as follows:

• Can be encashed at any branch even if the encashing branch is not the issuing branch of the instrument.
• Interest will be applicable only if the instrument is encashed after three months from the date of issue in the following manner:
  1. No Interest if encashed before three months from the date of issue.
  2. 6% if encashed after three months and before twelve months from the date of issue.
  3. 7.25% if encashed after twelve months from the date of issue.

Personal Loan

SWOT analysis:

 Strengths:

• Dhaka bank is newly commercial bank in banking sector but it builds strong reputation in short take. They provide extra ordinary services to their customers.
• The financial condition of Dhaka bank Limited is very strong, its loan and deposit qualities better than any other commercial banks of Bangladesh.
• Strong network throughout the country and provide quality of service to every level of customers.
• Courtiers and correspondents relationship with more than 200 international and local banks created global accessibility and relationship with people.
• Installation and usage of highly sophisticated and automated system that enables the bank to have on time communication with all branches reduces excessive paper work and vanes time for valued customer transaction.
• ATM cards, which gives the “customer 24 hours withdrawal facilities from his /her account.
• Telebanking gives the customer the opportunity to make inquiries and services request over the phone.
• Cash advance from credit cards attracts more customers to interest with Dhaka bank Limited.
• SMS banking provides customers to get money from very remote area of Bangladesh.
• Central Processing Centre for both Credit and Trade Operation gives more facilities to customers.

 Weakness;

• One of the greatest weaknesses of Dhaka bank Limited is the shortage of manpower in every division. During the working hour of banks the employees cannot provide proper attention to the customer that enhances customer satisfaction.
• Higher service charge in some areas of banking operation sometimes discourages opening or maintaining accounts with this bank.
• Growth in assets depends on how fast deposits grow. But in the deposit side, DBL is facing some problems form their competitors. Because the competitors are giving a higher interest rate against deposit, which will deteriorate its position. Because of this a lot of depositor are living DBL.
• There is very little practice for motivating by the management.
• Sometimes it takes more time to deliver original documents to the customer as they have hurry urgency about it.

Opportunities:

• The greatest opportunity for DBL is lies in the increment of standard of living of a certain mass of the population.
• The credit facility offered by DBL has attracted security and status conscious businessmen as well as service holders with higher income.

Threats:

• The emergence of several private and foreign banks in the past few years offering similar services with less or free of charge for the facilities can be major threat for the bank.
• The central bank exercises strict control over all banking activities in local banks, like it sometimes impose restriction barrier in the normal banking operation and policies of the bank.
• Rival banks easily copy the products offering by DBL. Therefore, the bank is in continuous product innovation to gain temporary advantage over its competitors.

Dhaka Bank in 2009

Investment:

The Bank’s Investments during 2009 were mostly in long term Government Securities which stood at Tk. 8,600 million as against Tk. 7,239 million making a growth of 20% over the last year. The Government Treasury Bonds were purchased at higher rate of interest to cover the increased SLR (Statutory Liquidity Ratio) arising from the growth of deposit liabilities.

(Annual Report 2009)

Loans and Advances:

The Bank implemented the system of credit risk assessment and lending procedures by stricter separation of responsibilities between risk assessment, lending decisions and monitoring functions to improve the quality and soundness of loan portfolio. The Bank recorded a 6% growth in advances with a total loans and advances portfolio of Tk. 52,910 million at the end of December 2009 compared to Tk. 49,698 million at the end of December 2008.

(Annual Report 2009)

As of 31 December 2009 94.43% of the total Bank’s loan portfolio was regular while only 5.57% of the total portfolio was non-performing as compared to 3.84% of 2008. Bank made required provision as of 31 December against performing and non-performing loans as per rate and classification norm provided by Bangladesh Bank.  The volume of non-performing loans stood at Tk. 2,946 million in 2009 from Tk. 1,908 million in 2008. Of the loan total provision of Tk. 2,113 million, Tk. 625 million was general provision, which was 30% of the total provision. The rest Tk. 1,4888million was against the classified accounts.

 (Annual Report 2009)

Deposits:

The deposit base of the Bank continued to register a steady growth and stood at Tk. 60,918 million excluding call as of 31 December 2009 compared to Tk. 56,986 million of the previous year registered a 7% growth. The growth was supporting by branch network and high standard products & service provided to customers. The customer group of the Bank was Individuals, Corporation, NBFI, Government Bodies, NGO, and Autonomous Bodies etc.

The cost-free and low-cost deposits comprised of 28% of the deposits. Fixed deposits remained the main component of deposits contributing about 70% of the total deposits. Average Cost of Deposits was 8.68% in 2009 as against 9.40% in 2008.

 (Annual Report 2009)

Capital:         

Commencing its operation on July 05, 1995 as a private sector bank with an authorized capital of Tk. 1,000 million and paid-up capital of Tk. 100 million, the Bank raised its authorized capital to Tk. 2,650 million in 2005.

The paid-up capital of the Bank amounted to Tk. 2,128 million as of 31 December 2009. Paid-up capital increased by Tk. 194 million (bonus share of 2008) in 2009. The statutory reserve also increased by Tk. 427 million during the year by transferring 20% of pre­tax profit as per the Bank Companies Act 1991.

IMPORT MANAGEMENT

Introduction

Import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad. Normally consumers, firms and Government organizations import foreign goods or services to meet their various necessities. The person or organizations who import goods & services from foreign countries is known as importer. One of the important functions of the commercial banks in the world is to undertake import of merchandise into the country and payment of foreign exchange towards the cost of the merchandise to foreign suppliers.

Import Trade of Bangladesh is controlled under the Import & Export Control Act (IEC), 1950. Authorized Dealer Banks will import the goods into Bangladesh following import policy, public notice, F.E. circular & other instructions from competent authorities from time to time.

General provision for import:

Regulation of import – Import of goods under this order shall be regulated as under:

• Banned list: Banned goods are not allowed to import through the foreign exchange transaction. Such as Live swine, eggs of shrimps and prawns etc.

•    Restricted list: Any item, which is restricted by the “Import Policy Order 2006 -2009” in Annexure i(b) shall be importable only on fulfillment of the conditions (b) specified therein against the item.

•    Free importable items: The items, which are not, included either in the Banned list or restricted list shall be freely importable.

In addition to the conditions mentioned in the Restricted and Banned lists, the conditions restrictions and procedures for import of various items mentioned in the test portion of this order, shall as usual apply in case of import of those items.

 Import Mechanism

To import a person should an importer. In accordance with Import & Export Control Act, 1950, the office of the chief controller of Import & Export provides the registration (TRC) to the importer. After getting this, person has to secure a letter of credit authorization from Bangladesh Bank. Then he 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 Letter of Credit.

Functions of Import Section

The functions of this section are mainly to deal with various components such as:

•   Letter of Credit (LC)

•    Payment against Document (PAD)

•   Payment against Trust Receipt (PTR)

•   Loan against Imported Merchandise (LIM)

 Import Procedure followed by DBL

As an Authorized Dealer, Dhaka Bank Limited, Imamgonj Branch is always committed to facilitate import of different goods into Bangladesh from the foreign countries. Import Section of the branch is assigned to perform this job. And to serve its client’s demand to import goods, it always maintains required formalities that are collectively termed as The Import Procedure. Procedure of import from importers side:

a)        To open on account with a Bank.

b)        To get IRC (Import Registration Certificate) from CCI & E.

c)           To get TIN and VAT no.

d)       To procure Pro-forma Invoice / Indent (In case of some selective items, approval from concerned authority to be needed)

e)        To formal request place to the Bank to open L/C.

f)        To fill up the L/C Application Form mentioning required various clauses.

g)        To sign LCAF (It may be registered or not).

h)        To get Insurance Cover Note with money receipt.

i)          To sign IMP (this part is not mandatory as it is now computer generated form).

Submitting all the papers to the bank, the importer can apply for opening L/C. After taken delivery of imported goods from the Custom Authority the importer deposit the B/E (Bill of Entry) to the Bank, which ensure that Goods have entered in the country.

Import Registration Certificate

Import Registration Certificates are issued by the office of chief controller of Import & Export. Intending importers are to submit applications to CCI & E for registration along with required documents are as follows:

1)   Application,

2)   Trade License,

3)  Nationality Certificate,

4)  Income Tax Certificate along with TIN,

5)   Bank Certificate,

6)  Membership Certificate from Trade association of incorporation,

7)  Article and Memorandum of Association,

8)  Partnership Deed for partnership firm.

Documentary Letter of Credit

The Letter of Credit (L/C) is an undertaking by a bank to make payments on behalf of a specified party to a beneficiary under specified conditions. The beneficiary (Exporter) is paid upon presentation of the required documents incompliance with the terms of the L/C. The L/C process normally involves two banks, the exporter’s bank and the importer’s bank. The issuing bank is substituting its credit for that of the importer. It has essentially guaranteed payment to the exporter, provided the exporter complies with the terms and conditions of the L/C.

In any international trade, the buyers and sellers are of different countries. None of them know each other nor about their business integrity and creditworthiness. Various regulations prevailing in their respective countries about foreign trade are also unknown to them. Thus, the buyer wants to be assured of goods and the seller to be assured of payments. In such a situation commercial banks assure these things simultaneously by opening letter of credit guaranteeing payment to seller and goods to buyers.

By opening letter of credit on behalf of a buyer and in favor of a seller, commercial banks undertake to make payment to a seller subject to submission of documents drawn in strict compliance with the terms of the letter of credit giving title to goods to the buyer.

Documentary letter of credit is an arrangement whereby a bank acting at the request and in accordance with the instructions of a customer is to make payment to or to the order of a beneficiary or is to pay accept or negotiate Bill of Exchange drawn by the beneficiary against stipulated documents and compliance with stipulated terms and conditions.

The form of the letter of credit varies from bank to bank (at present but not earlier). All the parties to a letter of credit must have the same understanding about the terms and conditions used in the credit. The International Chamber of Commerce has formulated the “Uniform Customs and Practice for Documentary Credits” to avoid the scope for ambiguities and differences in interpretation of terms of the credit.

While opening letter of credit at the request of a buyer/importer, we normally examine the following:

i)          Buyer’s Credit worthiness.

ii)         Import Trade Regulations.

iii)        Exchange Control Regulations.

iv)        Supplier’s creditworthiness report.

v)         Marketability of goods.

vi)         Whether the price of commodity is reasonable and competitive.

 Types of Documentary Letter of Credit

Trade related letters of credit are known as commercial letter of credit or import/export letters of credit. A documentary letter of credit may be classified under the following types depending upon the particular provisions if contains.

i) Revocable and Irrevocable: The Revocable credit is those, which can be revoked without the concurrence of the beneficiary. It shall not affect the right of the bank to be reimbursed for any payment, acceptance or negotiation made by it prior to receipt of a notice about revocation of the letter of credit (Now Revocable L/C is banned in international trade). An irrevocable letter of credit is one, which cannot be revoked, amended or modified by the issuing bank without the concurrence of the beneficiary or any other interested party including the confirming bank. It is a definite undertaking of the issuing bank and constitutes the engagement of the bank to the beneficiary or any bonafide holders of the drafts drawn under the credit, provided the terms and conditions of the credit are complied with.

ii) Confirmed and unconfirmed: In the case of a confirmed credit, the beneficiary receives a credit confirmed by a bank in it’s own country. The confirmation constitutes a definite and legal undertaking on the part of the confirming bank that it will honor the payment or acceptance on presentation of stipulated documents.

In case of unconfirmed credit, the advising bank just advises the credit stating in the forwarding letter that it is not confirming the credit. In practice, the documents tendered under an irrevocable credit (though unconfirmed) are negotiated by banks in all countries as the risk is very limited.

iii) Transferable Credit: In a transferable credit, there contains a provision that the benefits under it can be transferred to a third party. All credits are to be treated as non-transferable in the absence of clear instructions that the credit can be transferred.

iv) Back to Back Credit: It is a secondary credit opened by a bank on behalf of the beneficiary of an original credit, in favor of a domestic/foreign supplier. The amount of back to back credit must not exceed the amount of original credit and the items/goods must be relevant to the original credit. It facilitates the beneficiary of the original credit to purchase raw and packing materials.

v)    The Red or Green Clause Credit: This type of credit authorizes the negotiating bank to make advances to the beneficiary for purchasing goods / raw materials from the local suppliers. In this case, a clause in the letter of credit is inserted indicating clear instruction about such advances. The ‘Red clause’ or Green clause’ is called because the clause is generally printed in Red or Green to distinguish it from the text of the credit.

vi)   Revolving Credit: Revolving credits are issued by bank for regular and continuous payments to the suppliers. There must be a provision in a revolving credit for making the credit available again as soon as the importer reimburses the issuing bank with the drafts already negotiated by the paying bank. The letter of credit will be revolved 2/3 or more times as stipulated in the credit.

vii)  Deferred payment L/C: The issuing bank undertakes to make payment against such type of L/C at a future date (e.g. 60/90/180/270/360 days after receipt of order documents). Mainly Capital machinery is imported through this type of L/C.

Parties involved to a Letter of Credit

A letter of credit is issued by a bank at the request of an importer in favor of an exporter from whom the importer has contracted to purchases some commodity/commodities. The importer, the exporter and the issuing bank are the parties to the letter of credit. There are however one or more than one banks involved in various capacities and at various stages to play an important operation of the credit.

a) The Buyer (Importer): Applicant is the party who applies to the issuing bank for the issue of the credit, i.e. the buyer, and usually the importer of the goods.

b) The Beneficiary (Exporter): The exporter in whose favor the credit is opened and too whom the letter of credit is addressed is known as the beneficiary. Beneficiary is the seller of the goods in whose favor the credit is issued.

c)  The Issuing Bank (Opening Bank): Issuing bank is the applicant’s bank which, by issuing the credit in favor of the beneficiary, gives its undertaking that the beneficiary’s drawings will be honored provided that all the terms of the credit are complied with.

 d) Advising bank: Advising bank is the agent bank of the issuing bank in the country of the sellers, and is responsible for verifying the genuineness of the credit by checking of signatures or telex test keys. Note that the rules say the advising bank must take “reasonable care” in such verification, and since reasonable care has yet to be defined that it may be the more than that simple checking of signatures would be required in certain circumstances.

e) The Negotiating Bank: This the bank that honored the documents presented as per letter of credit. The negotiating bank has to be careful in scrutinize that the draft and the documents attached there to are in conformity with the condition laid down in the letter of credit.

f)   Confirming bank: Confirming bank is a bank who gives its own undertaking to the seller’s Bank i.e. beneficiary’s Bank to make payment against the L/C documents on behalf of L/C issuing Bank. When beneficiary of the credit wants such type of undertaking to the L/C issuing Bank, then L/C issuing Bank requests to any reputed third Bank (with whom L/C opening bank has credit line) to provide additional confirmation regarding payment against the documents of the credit.

Procedures for opening L/C

Application for opening L/C

An importer who is desirous to import goods from foreign country will apply issuing bank for opening a L/C. The importer will provide an application mentioning the following aspects:

•    Full particulars of applicants’ bank account.

•    Types of business.

•    Historical background.

•    Amount of required L/C limit.

•    Amount of L/C margin.

•    Terms of payments.

•    Name of imported goods.

•    Repayment schedule and source of fund.

Time Limit for Opening of L/C

Letter of credit shall be opened by all importers within 150 days from the date of registration of LCAF with the Bangladesh Bank unless otherwise notified.

Documents required for opening L/C

An importer or L/C opener has to submit the following documents:

•    Application form (provided by the bank).

•    Import registration certificate.

•    Pro Forma invoice.

•    Four sets of IMP form.

•    Insurance cover note.

•    VAT registration number.

•    Tax registration number.

•    Letter of Credit authorization form.

Examination for opening L/C

Application must be carefully checked by the concerned officer considering the facts mentioning below:

•    The terms and conditions of L/C applications are consistent with exchange control and import trade regulation UCPDC 600.

•    Illegibility of imported goods.

•    The L/C must be opened in favor of importer.

•    That is signed by the importer and agreed with the terms and conditions.

•    Indenting registration number.

•    Goods are not of Israel and vassals to be used are not of Israel.

•    Insurance cover note with date of shipment.

•    Whether IRC is up to date or not.

•    Whether IMP form is dully filled up and signed.

•    The imported goods are marketable.

 Transmitting the L/C

The L/C is transmitted to the advising bank for advising the L/C to the beneficiary. L/C is generally transmitted through SWIFT. Before transmission a final examination of the L/C contents is necessary for the issuing bank. It is customary to advice a credit to the beneficiary through advising bank. Advising bank after receiving L/C documents informs to the beneficiary for receiving L/C.

Add – Confirmation of L/C

Letter of Credit is itself a definite undertaking for payment against documents of the credit from the L/C issuing bank, even than some times, some suppliers want additional undertaking or confirmation for payment against their shipping documents from any other reputed banks (some time they mention the name of the Bank) to make them over secured to get their payment in time and •without facing any trouble, this why it is called additional confirmation, in banking which we commonly termed as “Add-Confirmation”.

To fulfill the suppliers such demand, L/C issuing banks arrange to provide additional confirmation i.e. additional undertaking from its credit liner banks which they incorporate in its L/Cs. Confirming banks get some charges/commissions against its confirmation. Such charges/commission bear some times by the beneficiary or some times by the Applicant of the credit.

Note that this is an act of indemnity rather than guarantee and the beneficiary can claim payment from the confirming bank regardless of whether the issuing bank has made cover available for payment of drawings, or even of whether the issuing bank is still in business. Confirmation of another bank’s credits should not therefore be taken lightly, but due consideration should be given to the bank risks and country risks involved.

As the other Bank’s credit lines control by the Head Offices of all banks, so before incorporating such clause, branches are to take the clearance from its Head Office.

Amendment of L/C

The letter of credit opened by a bank may need amendment. If the supplier finds that the term of the credit can not be complied with in full, he would arrange for necessary amendments by the opener before the goods are shipped. These amendments must be advised by the opening bank to be supplier through advising bank.

Sometimes the opener also may like to amend the credit after it has been advised. These amendments may relate to the decrease or increase in amount of credit, change in foreign currency, and change in the dates of shipment or negotiation, change in merchandise and other terms of the credit. These amendments must also be advised the opening bank to the supplier through the advising or confirming bank before the shipment is made.

For these kinds of amendment, the bank would need a written request from the importer who generally makes this request after obtaining consent of the supplier. Such amendments will, of course, be effective if all the parties to Letter of credit, namely the L/C opening bank, the advising bank and the supplier, agree to it.

Amendment is to be typed, like L/C, in the printed format in manifold. The copies of the amendment must be dispatched to all concerned as done in dispatching the L/C. Amendment can be done by Cable/Telex/Fax or Airmail/SWIFT.

Each and every amendment of L/C must be noted in the L/C file and copies of each amendment be kept in the L/C file chronologically date-wise.

Amendment commission and other charges are to be realized from the party by debiting his account. If the amount of L/C is increased, the liability voucher is to be passed including the amount of increase on the date of amendment reversing the old entry passed at the time of opening the L/C.

 Cancellation of L/C

The liability under the letter of credit is reversed as and when bills are received and paid under it. If, at the end of period of negotiation allowed under the credit, a portion or full value of credit is unutilized, it is automatically cancelled. However, the date is valid for negotiation at the other end. Therefore, the opening bank should wait for a reasonable period after the due date of the credit, say for a month, and then reverse the entries passed on opening the letter of credit. Cancellation of the credit should be intimated to the beneficiary through the advising bank.

Documents against Letter of Credit

Document is the written statement of facts or evidence in regard to a particular transaction, which on placement may bind the parties answerable and liable to the court of law. Import documents usually consist of:

1) Indent or Pro-forma Invoice:

Indent or Pro-forma Invoice is the sale contract between seller and buyer in import- export business.

2) Import Registration Certificate (IRC):

The importer collects from the C.C.I. & E. office by submitting required documents and payment of request fees.

3) Bill of lading/Air consignment receipt/ Post receipt/ Truck receipt:

 a) Bill of lading:

Bill of lading is the cardinal documents against an import L/C. It is a document of title to goods evidencing its dispatch from the exporting to the importing country. The B/L issued by the shipping company facilitates negotiation of documents.

b) Air – Consignment Note or Air-way bill:

This document contains full particulars of goods dispatched by Air. Normally air­way bill is issued in triplicate by the concerned Air-line. The 1st one is for the carrier; the 2nd one is for the consignee and the 3rd for the consignor. But the Air-way bill does not constitute title to the goods and are, therefore, not negotiable instruments. In keeping with the Exchange Control Regulation in Bangladesh the bill is to be issued to the order of a bank in the importer’s country through whom the documents are intended to the negotiated.

4) Bill of Exchange:

a) Drafts or Bill of Exchange in this connection is drawn by the exporter in sets of two or three. It is an order on the buyer to pay the stated amount at sight or after a certain period of usance and bears reference number and date of the L/C along with the name of the opening bank. It may be drawn on the L/C opening bank or its correspondent depending upon the terms of L/C.

b) Its date must not be prior to the date of shipment or subsequent to the date of presentation.

c) Its value must correspond to the value of the invoice and must not exceed the L/C amount.

d) It must be drawn to the order of a bank since the exchange control regulations in Bangladesh require that all foreign exchange transactions must be routed through an authorized dealer.

5) Invoice:

This documents is prepared by the shipper giving therein the description and price of the merchandise, quantity, quality, marks, number of packages, name of the buyer, L/C number, indent/contract number, grades, size, name of the vessel, the date of shipment, number of the bill of lading etc.

There should be an invoice number along with date duly signed by an authorized representative of the shipper. The description of merchandise must correspond exactly to that mentioned in the L/C and indent or contract. There must be required number of invoices as per L/C with two extra copies-one for the central bank & the other for the negotiating bank.

6) Certificate of Origin:

It’s a document certifying the country of origin of the merchandise. This document is generally issued by the approved chamber of commerce of the concerned country or Manufacturer of the commodity as per terms of the L/C.

•    When tariff concession is sought to be obtained for export to the countries who have accepted the Generalized System of preference (GSP), a GSP certificate should be obtained from the Export Promotion Bureau.

7) Packing List:

This document contains full particulars of consignment viz-number of cases, bales, prices or packages (as the case may be), net and gross weight of each unit/packet, Shipping marks, numbers etc. which enable the buyer and shipping company to readily identify Si collect the goods.

8) Weight List:

This document consist of a certificate of the weight in details stating gross and net weight of the consignment prepared and duly signed by the authorized representative of the shipper duly acknowledged by the shipping company too, to be as per with that of B.L.

Procedure of Import observed by L/C Issuing Bank

a)        To make registration of LCAF through Bangladesh Bank (If necessary)

b)       To make fill up all the column of the L/C application by the applicant and affix Govt. Adhesive Stamp.

c)        To make type the L/C copy incorporating all the terms as mentioned in the L/C application by the importer as well as in the Indent.

d)        To make advice the L/C through advising Bank.

e)        Arrange add confirmation through H.O. (if necessary).

f)        Authority to make payment to R/B (Reimbursement Bank).

g)        Documents received and checking.

h)        Lodgment made.

i)         To issue a letter to the importer for retirement the documents.

At the time of retirement bank prepare a cost memo indicating the bill amount, interest and other charges payable by the importer. Normal permissible time for retirement of documents is 21 days.

Registration of LCAF with Bangladesh Bank

If foreign exchange is intended to be bought from the Bangladesh Bank against an LCAF it has to be registered with Bangladesh Bank’s Registration Unit located in the concerned area office of the CCI&E. For such registration the LCAF, duly filled in and signed by the importer and authenticated by the Authorized Dealer, shall be submitted by the Authorized Dealer to the concerned Registration Unit. The Unit will put a registration number on all the copies and emboss a security seal.

The Authorized Dealers should ensure that this registration number of importer is invariably furnished on registration; a suitable mention of this fact should be made on the IMP form.

After registration the original and duplicate copies of the LCAFs will be delivered to the authorized representatives of the Authorized Dealers. The triplicate and quadruplicate copies will be passed on to the concerned area office of the CCI&E and the quintuplicate will be retained by the Registration Unit.

Where no registration of LCAFs is needed, the Authorized Dealer will send the triplicate and quadruplicate copies to the concerned area office of the CCI&E, retaining the other copies with itself. Where an import is against a source of financing (foreign project loans, grants) usable through a specific designated bank, the nominated Authorized Dealer of the importer will forward to the designated bank the authenticated LCAFs and the designated bank will eventually forward the triplicate and quadruplicate copies of LCAF to the area office of the CCI&E.

The Authorized Dealers will not issue blank LCAFs to their clients. The importer should himself/herself sign the LCAF in the presence of an officer of the Authorized Dealer, an authorized official of the Authorized Dealer should put his/her signature with date and seal on the LCAF, evidencing verification of the importer’s signature and import entitlement as per current Import Policy Orders.

The Authorized Dealers will maintain records of the signatures of the authenticating officers of the Bangladesh Bank Registration Unit and verify, before opening L/C, that the signature of the authenticating officer of the Registration Unit is genuine.

In no case the Authorized Dealers will accept authenticated LCAF for opening L/C direct from the parties. Normally the Authorized Dealer issuing and authenticating an LCAF would also open the L/C but if it requires transfer to another Authorized Dealer this should be done directly by the transferring. Authorized Dealer itself. The Authorized Dealer receiving the LCAF must conduct its own verification of the signatures on the LCAF before opening L/C.

Issuance of license

LCA Form is a set in quintuplicate as mentioned above but licenses are issued in duplicate.

 Custom Purpose copy

The custom copy is to be presented to the custom authority together with a copy of the invoice attested by the banker through whom remittance will be made for obtaining clearance of goods imported.

 Exchange Control copy

The Exchange Control copy is to be presented to the bank for opening a letter of credit or for making remittance of foreign exchange against imports made under the license. The bank should deal with the Exchange Control copy of the license only.

On receipt of license, the importer is to make contract with the overseas supplier and arranges to obtain pro-forma invoice from them for the goods to be imported or will collect indent from the local agent of the supplier for the imports. He will then apply to bank to open letter of credit in favor of foreign supplier.

Specific procedural instructions regarding imports under special arrangements or agreements (grants, loans, barters etc.) issued by the Bangladesh Bank from time to time should be followed by the Authorized Dealers.

The Authorized Dealers should take all precautions to quote the correct HS Codes number of the goods to be imported, in the LCAF and the L/C. Failure to do so may lead to imposition of penalties by the Customs Authorities. In all cases of doubt, reference should be made either by the Authorized Dealer or the customer direct to the area office of the CCI&E.

The aggregate amount of foreign exchange sold against an LCAF whether under L/C or otherwise, should not exceed the value mentioned in the LCAF.

Scrutiny, Lodgment and Retirement of Import Bills

Scrutiny of Documents:

1.  Bank must examine the documents with reasonable care, whether they are complied with the L/C terms.

2.  Documents not stipulated in the L/C will not be examined by the Bank.

3.  Any discrepancy found in the document shall be lodged within 7 working days following the day of receipt of the instrument by the issuing Bank.

4.  Banks assumes no liability or responsibility for the genuineness, sufficiency, accuracy, falsification or legal effect of the document submitted by the exporter/supplier.

On receipt of the original shipping documents, the L/C opening bank must scrutinize/check the shipping documents which generally include the following:

a)  Bill of exchange.

b) Bill of Lading/Truck Receipt/Air Ways Bill.

c)  Commercial Invoice.

d) Packing list.

e)  Pre-shipment Inspection Certificate.

f)   Certificate of Origin.

g) Any other documents specially called for in the credit.

While checking the shipping documents the following points should be checked:

–    L/C No., date and amount

–    Name & address of the applicant (opener)

–    Name and address of the beneficiary (supplier)

–    Commercial Invoice.

–    Shipment date “Shipped on Board with date”, “Freight prepared” to be mentioned on B/L.

–   Bill of Exchange, Packing list, Certificate of origin, Bill of Lading, Shipping Marks, Port of shipment.

 Lodgment of Documents:

On receipt of the shipping documents from the negotiating bank, L/C opening bank should carefully examine these to ensure that they confirm to the terms of the credit.

If there be any discrepancy in the documents, the bank should immediately advise the importer to seek his acceptance of the documents despite the discrepancy. If the importer refuses to accept the documents, the bank should advise the negotiating bank by mail or SWIFT for instruction with regard to disposal of the goods and the documents. If no reply is received regarding disposal of dishonored documents, the same should be returned to the concerned bank with the instruction to reverse the entry if the issuing bank is debited with the value of the goods.

If the documents are found in order and these are acceptable to the importer, the bank lodges the bill in PAD (Payment Against Documents) by converting the foreign currency representing the bill amount and foreign correspondents’ charges into Taka and asks the importer to retire the bill by sending a cost memo indicating the amounts payable by him under different heads.

The detailed lodgments formalities which perform by the L/C issuing bank are given below.

After getting the shipping documents in order, lodgment of documents should be made there against complying with the following points and formalities:

–    Bank’s crossing seal to the affixed on B/L and Bill of Exchange to protect loss or fraudulent use of the same.

–    PAD seal to be affixed and number to be given on all shipping documents.

–    To make entry in the PAD Register under the heads – Serial. No., Party’s name, PAD No., Foreign Currency amount, rate of F.C., Eqvt. Taka, Negotiating Bank Charges, Reimbursement Bank Charges, Total amount, Description of goods, B/L No. & Date, Name of Steamer etc.

–    To send intimation letter to the party to retire documents against payment of bank’s dues.

–    To make the L/C file up to date incorporating lodgment date, PAD Number and invoice value over the L/C file.

–    Inside the L/C file to put the lodgment date, PAD No. amount of the documents, PAD amount in Taka.

–    To keep both the original and duplicate documents in safe custody till the party retire the documents.

Retirement of Import Documents:

After retirement of documents by the importer, the bank will put endorsement on the draft stating “Received Payment” under seal and signature of the bank’s authorized officer. The invoice is certified as “certify invoice value” (stating foreign currency equivalent of Tk……………). The B/L is endorsed in favor of the importer.

The draft together with all the other shipping documents are delivered to the importer showing the details of charges debited to the importer’s account along with the Custom Purpose copy of Import License/LCAF retained earlier.

Shipping Guarantee

Shipping Guarantee means when imported merchandise reached in the country before getting the original shipping documents by the bank, then importer can arrange to release the goods from Custom Authority by submitting shipping Guarantee from L/C issuing Bank to take safe delivery or to safe port demurrage as well as bank interest against the concerned imported merchandise. In that case the following procedures are to be followed by the importer;

a) Importer must get the copy documents against which shipping Guarantee is issued.

b) Application for Shipping Guarantee along with copy documents to be submitted to the L/C issuing Bank mentioning the reason for issuance of shipping Guarantee.

c)  Full or more invoice value to be deposited in cash to bank.

In case of shipping Guarantee, Bank may ask to the importer to deposit more amount of money over the invoice value to cover exchange rate fluctuation, to realize Negotiating bank charges if any, or to realize invisible interest from the bill of applicable.

Complying the above formalities, L/C issuing bank issues Shipping Guarantee in favor of custom authority with request to release the concerned goods.

The amount which received by the bank from the importer, to keep deposit under the any suitable SUNDRY DEPOSIT HEAD like DAD SHIPPING GUARANTEE etc. After getting the original shipping documents, bank reverse the amount by making payment the same to Head Office.

In case of shipping guarantee, bank should arrange to collect the concerned shipping Guarantee from Custom Authority by depositing the original shipping documents.

Discrepancies in Shipping Documents

The discrepancies found in the shipping documents presented under L/C vary from document to document and from shipment to shipment.

The discrepancies usually found in shipping documents are listed below but this is not an exhaustive or even complete, as the discrepancies vary from document to document, though apparently discrepancies do look alike. Their impact may not be the same keeping in the relationship and importance of each shipping document with other documents asked for by the L/C opening bank.

The usual discrepancies found are:

1. L/C expired
2. Late shipment
3. Amount drawn in excess of the letter of credit
4. Bill of Exchange not properly drawn
5. Description of goods differs
6. Interest clause is missing in bill of exchange, where stipulated
7. Bill of Lading or Airway Bill state
8. Full set of Bill of Lading not submitted or B/L not properly signed and submitted
9. B/L is not manually signed by the master or an authorized agent of the Shipping company

10. Enough number of B/L not submitted as required by L/C
11. Invoice amount differs from that mentioned in the Bill of Exchange Invoice is not certified as correct / signed by the exporter
12. The marking in invoice differs from that appearing on the B/L
13. Insurance cover not as per terms of L/C
14. Insurance cover obtained after the B/L or Airway bill date
15. Insurance risks covered do not agree with the requirements of the credit
16. Insurance policy is not in negotiable form or not endorsed in bank
17. Insurance does not cover the entire voyage
18. Insurance policy is not properly stamped
19. Packing List and Certificate of analysis not as per the terms of L/C
20. Documents not properly endorsed in favor of the bank
21. Full shipment not effected and part-shipment prohibited
22. Gross weight and net weight shown in different documents differ
23. Some of the documents required by L/C not submitted
24. Documents inadequately stamped
25. Shipment made from and to ports other than those permitted in the relevant L/C
26. No indication of “Freight paid” or “Freight payable at destination”
27. Tenor of draft wrong

 Post import finance

Post import finance may be defined as an advance on customers’ account arising out of contingent liability – letters of credit opened on behalf of the customers for import of merchandise.

The liabilities of the opening bankers under import letters of credit are discharged when payments are made to the exporters by negotiation of the bills by the negotiating bank. These payments in foreign currency convert to advances on importer’s account in equivalent local currency as soon as the bill are received and accounted for through the payment against import bills (PAD). The totals outstanding in the PAD account appears as advances on customers’ account under this head until the importer retire the relative bills or the banker clear the goods. The bills are held by the opening banker as holder for value.

From experience, it is observed that all import documents are not retired by the respective importers in the normal course of business. Sometimes, bankers have to go for post import finance under arrangement or under forced circumstances. In some cases, importers may not be in a position to arrange sufficient fund in time to retire the documents and may approach the bank for accommodating post import finance. This finance is extended by the banker in the form of LIM/LTR.

Payment against Document (PAD)

PAD procedure is started by the issuing bank after getting all necessary documents from the exporter as evidence of exporting goods. Documents required for PAD is mentioned below:

•    Original (Non-negotiable) bill of Lading.

•    Commercial Invoice.

•    Certificate of Insurance.

•    Certificate of Origin.

•     Bill of Exchange.

•    Pre-shipment Inspection Certificate.

•    Packing list.

•    Clean Report of Finding (CRF).

Examination of PAD Documents

Scrutinizing documents is very important for the issuing bank. As after examining all the documents the issuing bank will make payment to the negotiating bank. So any mistake in the examination process may cost issuing bank.

 Examining the Bill of Exchange

•   It is drawn and duly signed by the maker indicating as the beneficiary.

•    It is drawn on the importer indicating him drawee.

•    L/C number quoted on it.

•   Tenors of the draft are strictly in conformity with the terms stipulated in the L/C.

•    Amount is identical.

•   Amount in words and in figures is same.

•    Examining the commercial invoice.

•    It is addressed to the importer.

•    It is dated, signed and submitted in required number.

•    It must bear detailed description of goods that must tally with L/C and Bill of Lading.

•   Price, quality, quantity etc. is correspondent to L/C.

•   It must be prepared in the language of L/C.

•    Invoice must bear L/C authorization and other relevant number.

•   Charge relevant to merchandise is included in the invoice and is permitted by the L/C.

 Examination of Transport Document

•    It is presented in full set of negotiable and non-negotiable copies.

•    Date of shipment on the Bill of Lading.

•    Bill of Lading must be made out in the name of bank notify the importer.

•    Description of goods in the Bill of Lading must agree with invoice and L/C.

•    Port of shipment and destination is as per L/C.

•    Bill of lading is signed by the shipping company or their agent.

Examination of other documents

Weight list, inspection certificate, quality certificate, certificate of origin, packing list etc. should agree with L/C terms and conditions and also be signed by the appropriate authority. These certificates are usually dated before the date of shipment.

 Loan against Trust Receipt (LTR)

There may be situation where storage of collateral in an independently controlled field warehouse is impractical. An improper may require the goods for further processing or for displaying the merchandise in order to make the final sale. In such cases a financing institution that has a great degree of trust in the importer may be willing to release the negotiable Bill of Lading and thereby also the goods to the importer against the signing of trust receipt. After the importer has made his/her final sale and received the proceeds, he/she can pay the financing institution that he/she received as advance.

Release documents against Trust Receipt

At times, the documents of title to goods (not the bills) are delivered by the banker to the importer against TRUST RECEIPTS. This is done in exceptional cases to valued customers. By signing this receipt, the importer undertakes to hold the goods and the proceeds of any sale of them as a trustee for the banker who holds lien over them until the dues are paid by him. If the importer fails to hand over to the banker the proceeds of the goods sold, he is liable for criminal offence as breach of trust. It has been noticed that sometimes the banker delivers the documents against trust receipts on the one hand and makes payment of the duty and sales tax on the other.

 Charge documents against LTR:

Obtaining the following charge documents duly stamped prior to releasing the import documents against Trust Receipt.:

1.   Demand promissory Note

2.  Letter of Arrangement

3.   Letter of Disbursement

4.  Trust Receipt

 Additional documents

1.   Letter of partnership along with Registered Partnership Deed in case of partnership

accounts.

2.   Resolution of the Board of Directors along with Memorandum & Articles of Association in

case of Accounts of Limited Companies.

3.  Personal Guarantee of all the partners in case of Partnership Accounts and of all the

Directors in case of Limited Companies.

4.  An undertaking from the Directors of the Public Limited Company to obtain prior clearance

for the Bank before declaring any interim / final dividend.

 Follow up and Adjustment

As the advance allowed against TRUST RECEIPT must be adjusted within 120 days, branch must vigorously pursue the party so as to adjust the LTR within the stipulated period. In case, the party fails to adjust the LTR within a reasonable period of time, branch should go for legal action with Head Office approval against the defaulting borrower for recovery of bank’s dues.

Loan against Imported Merchandize (LIM)

Loan against Imported Merchandise (LIM) is a facility provided by the bank to the importers who are in shortage of fund to retire the import bills and thus to clear the goods from the port authority. In other words it may be referred as an advance made to the importers for clearance the imported merchandise. In some other banks it is known as Advance against Merchandise.

 LIM Accounts may be created in the following two cases:

a)  LIM account on importer’s request

b) Forced LIM Account

Additional Documents:

1.   Letter of partnership along with Registered Partnership Deed in case of Partnership Accounts.

2.  Resolution of the Board of Directors along with Memorandum and Articles of Association in case of accounts of limited companies.

3.   Personal guarantee of all the partners in case of Partnership Accounts and of all the Directors in case of limited companies.

4.  An undertaking form the Directors of the Public Limited Company to obtain prior clearance from the Bank before declaring any interim/final dividend.

5.   Insurance policy covering the goods against all risks with Bank’s mortgage clause.

6.  A letter of undertaking and indemnity.

Forced LIM A/C

Sometimes, it is observed that the importers do not come forward to retire the documents even after arrival of the cargo ship and vigorous persuasion by the branch. In that circumstances, it is expedient on the part of the branch to arrange clearance of the goods by creating forced LIM to save the consignment from incurring demurrage, auction by the customs, deterioration in qualities etc. to protect interest of the bank and held the goods as cover against the importers liability. Mention may be made here that before arranging forced clearance of any consignment, the landed cost as well as market value of the goods to be ascertained carefully so that further involvement of bank may be helpful in reducing the existing liability in PAD; if not, bank should not go for forced clearance of the goods, Rather, bank should straightway go for legal action for realization of bank’s dues as banker deals in credit and not in goods. It may be noted that clearance of consignment is not legally binding on the bankers. No further L/C facility to be extended to such parties who will fail to take delivery of the goods cleared under forced LIM or against whom bank had to go for legal action for recovery of PAD dues unless on acceptable arrangement is made by the importer.

 Banker’s consideration Loan against Imported Merchandize

The bank should take into consider the following points before allowing LIM or forced LIM (where part)’ does not come forward to clear the goods).

a) The relevant import documents, say, B/L, B/E, commercial invoices, packing list, certificate of origin etc are strictly in accordance with the terms of the credit.

b) It is possible to keep the imported goods under the banks lock & key.

c) The bank should see that the loan will be adjusted within a short period preferably within 30 (thirty) days.

d)   Preference may be given on staple commodities.

e)   The goods should be easily marketable.

f)    The price, quality and quantity of the goods are easily ascertainable.

g) The landed cost of the imported goods to be calculated properly so as to fix rate for delivery order.

The following measures to be taken to conduct the LIM account by the bank:

i) The warehouse where the imported goods are stored after clearance should be in good condition and well constructed. There should be good accommodation and storage arrangement. The warehouse must be in safe place with well communication system.

ii) The borrower’s own warehouse may be used for the purpose but possession of the warehouse to be handed-over to the bank. The warehouse must be locked up by the bank with its own lock.

iii) The name plate of the bank is to be displayed at the warehouse. The salary of the warehouse guard and warehouse keeper is to be recovered from the borrower’s account every month.

iv)  The size and weight of the containers of the goods should be uniform as par as possible.

v)   Proper record of storage should be maintained in-addition to LIM Register.

vi)  The LIM warehouse is to be insured against possible risks i.e. fire, burglary, theft etc. at the cost of the borrowers for full value of the goods with 10% extra.

vii)  The “Delivery order rate” is to be fixed keeping sufficient margin so that the banks’ outstanding is adjusted fully with interest and other charges within stipulated period. The goods should be delivered homogeneously so that the borrower can not take the good quality goods firstly.

viii)  The goods should be inspected by the Manager/Inspectors regularly at irregular intervals.

ix)  Warehouse keepers must record the all arrivals and delivery of the goods properly in the stock register.

x) The goods must not be released by warehouse keepers without delivery order signed by the manager or authorized officer of the bank.

Follow up and Adjustment:

i)        The LIM liability should be adjusted within 120 days from the date of storage.

ii)       The importer may sometimes ask for part delivery of the goods pending full adjustment of the LIM. There may not be any objection to such Deliveries of the goods against proportionate payment with outstanding LIM amount taking into account the interest, warehouse rent and other charges up to eventual date of final Delivery. This should be so arranged that with the last delivery, the entire LIM liabilities are fully adjusted. While doing so, the banker should ensure that importer does not take delivery of the easily marketable items leaving the slow moving items in his custody. In that case, the banker may be saddled with the remaining dues being stuck up. But piece meal delivery over a longer period is not desirable as the goods are held by the bankers as holder of the bills for value not as securities against advances.

iii)      In the event of failure of the importer to lift the goods within the stipulated period of 30 days or within a reasonable period of time final notice shall be issued on the importers giving 15 days time for repayment.

iv)       If case no response is received from the importer, legal notice shall be served on the parties giving another 15 days time for repayment.

v)        In case the concerned party does not liquidate the liability within the stipulated time limit, but come forward with prayer for further time, in such cases, an appropriate arrangement may be made for recovery of the stuck up dues within a maximum period of 30 days, provided the bank is satisfied with the arrangement of the importer that the outstanding dues will be adjusted within the extended period.

vi)       In the event of failure of the party to liquidate the liability within the extended time, the goods should be disposed of in public with due approval from the Head Office. The highest offer may also be rejected by the bank if the price quoted is not adequate enough to liquidate the liability or less than the market price and shall immediately call for fresh tender.

vii)    For disposal of goods under auction, a notice in this regard be published in two national dailies – one Bengali and one English and also in a local daily.

viii)     If there be any shortfall after disposal of the goods, a case should be filed for recovery of the shortfall amount in the court of law immediately, against importer / guarantor concerned.

viii)            Branches shall invariably send monthly statement of LIM on the prescribed form duly filled in to Head Office, International Division.

Imports by DBL in 2009

In the year 2009, due to world economic recession Dhaka Bank Limited failed to extend services to their valued clients related with import business. As of 31^st December 2009 DBL’s import volume was Tk. 46,160 million compared to the volume of 2008 for Tk. 65,737 million marking a decrease of 30% from the last year. The major import items of the year were: Capital Machinery, scrap vessel, hot rolled non alloy steel, HDPE, raw cotton, fabrics & accessories, fertilizers, edible oil / oil seeds, Orange, Apples and Dates.

FINDINGS

In the internship period, I was tried to understand the overall activities, specially the foreign exchange operation of Dhaka Bank Limited, Imamgonj Branch. It was not wrong to say that DBL is right on money. In every aspect they are showing significant progress and a way of how to move on. That actually made them one of the leading banks in financial service arena. Although, from the critics point of view, it can be said DBL is much more a businessmen’s bank than it is for consumers or general public.

The strength of the bank lies on the top management of the company and the financial soundness of the sponsors, as they are all well reputed personalities in the Bangladesh. This impressive lay of DBL helps to have a good image.

With a team of bankers that comprises of experiences as well as vigor of youth, the bank strives for a customer-oriented banking culture with prudent lending and attractive deposit schemes. While keeping on expanding its reach, DBL aims at maintaining the high quality of services it has already achieved, at the same time being in a sound financial health. Credit risk and liquidity risk are well under control because of standard and stringent credit appraisal policy and practices of the bank.

DBL has better Foreign Exchange business portfolio than other banks as because it has greater network in abroad and on line banking.

In case of opening an account, some big parties come to open accounts in reference with the high officials of the bank. They do not submit all papers that required opening an account and in future they do not feel any urge to submit those papers, but already they become accounts holders. I think in this case the authority is violating the rule.

According to some clients opinion introducer is one of the problems to open an account. If a person who is new of the city wants to open account, it is a problem for him/her to arrange an introducer of Savings or Current or Short term deposit accounts holder.

In Dhaka Bank, Every department’s workings are totally computerized. So, every employee should be more knowledgeable and fast user of computer operating for prompt service.

Overall Dhaka Bank Limited is a customer-oriented bank I found. Customers are their first priority and driving force. Superior quality customer service through the integration of the latest state-of-the-art technology is DBL’s motto. So, I can say that Dhaka Bank is the prime bank in all respects in our country.

CONCLUSION

In the very competitive market, Dhaka Bank Limited is facing competitions from other key players like Eastern Bank, AB Bank, Bank Asia, Dutch Bangla Bank, Prime Bank, BRAC Bank & other private and foreign banks in the industry with similar & some better playing service offerings. DBL has earned a good will & good reputation so far. Its image has developed through maintaining a good relation with the customers.

Turning to 2009, despite the worldwide uncertainties Dhaka Bank Limited remains growing in terms of both capital and business size. They are confident that DBL will march towards excellent growth in all spheres in 2010. Every past year leaves them with new experiences and learning that prepare and equip them for future. They are aware that it is easier to achieve rather retain, with increasing expectation of the shareholders and customers for quality, value and corporate respect. They are confident that they will turn these challenges into reality and continue to deliver the best in the coming years. Their appreciation for this growth goes to all their shareholders, customers’ patrons and their team. The Bank is indebted to the Government of the People’s Republic of Bangladesh, Bangladesh bank, Securities and Exchange Commission, Dhaka Stock Exchange Limited, Chittagong Stock Exchange Limited, Registrar of Joint Stock companies & Firms and central Depository Bangladesh Limited for their continued support towards the growth of the Bank.

To conclude, I must say that Dhaka Bank Limited has immense potential in Bangladesh. It can play a vital role in bringing revolutionary changes in both material and moral world and in individual a collective level.

RECOMMENDATION

Banking is a service-oriented marketing. Its business profit depends on its service quality. That’s why the authority always should be aware about their service quality.

To provide quality service to the customer it is necessary to have a trained team of an organization or an institution. For this reason the bank should recruit more fresh, bright and energetic persons such as MBA, BBA, MBM etc.

In the customer survey, it was revealed that customers are very price-conscious. Price plays both an economical & physiological role in the banking sector. DEL Service charge for various activities such as L/C commission, SWIFT, document handling, fund transfer, cash transfer, annual savings account and STD account charges etc. are found comparatively higher than other banks. So, service charges can be reduced to attract and create more customers or business for foreign trade. By reducing such charges the bank can facilitate international trade by making more traders attracted to easy, cheap and effective banking.

Bank should offer more booth facilities everywhere for the customers for using credit card, visa card, ATM machine etc. It reduces the pressure of cash transactions daily at bank’s cash department.

As soon as possible the bank should start more branches in Dhaka city as well as the other cities of the country.

One of the business strategies is promotion. Successful business depends how they can promote their products or services to the customer. In this connection to improve the business status, bank should strengthen its promotional programs immediately.

The recruitment process of the bank is very lengthy and expensive. The bank should cut the cost and select the employee by restructuring the lengthy process.

To make exchange process more prompt, the authority should arrange training program for their employees more frequently for better use of modern communication system such as computer operating, e-mail, fax, win fax, internet etc.

DEL is heavily relying on debt and borrowing than equity financing. It increases risk as well as interest costs. The bank should consider the issue of reducing the reliance on debt which will reduce both the risk and the cost.

In the customer survey, it was revealed that customers are very price-conscious. Price plays both an economical & physiological role in the banking sector. DEL Service charge for various activities such as fund transfer, cash transfer, annual savings account charge, STD account charge etc. are found higher comparative to other banks. So, service charges can be reduced to attract and create more customers.

Help customers make the right choice. The branch should pursue advertising strategy aimed at raising the general level of awareness of the range of service available giving some easy understandable details of the particular item.

Build customer relationship by providing tele-marketing policy effectively.