Foreign Exchange Operation of Southeast Bank Ltd

CHAPTER ONE

INTRODUCTION

Rationale of the study

This report is an internship report prepared as a requirement for the completion of BBA program (Major in Management Information Systems) of Dhaka University. The primary goal of internship is to provide the job exposure to the student and an opportunity to implement theoretical knowledge in real life situation. The program covers a period of 06 weeks of organizational attachment and 2 weeks of report finalization work.

This report focuses on the foreign exchange operations of Southeast Bank Ltd. Through this internship program, I got some practical Knowledge about the export import practices of a commercial bank and also realized that, how much important issue for a country the foreign trade operation is. I was sent to the SOUTHEAST Bank Ltd., Shyamoli Branch, Dhaka to take the practical experience of the activities of banking from 1^st January  to 15^th  February of 2012.

Objective Of The Study

Every task has a particular aim. A study without objective cannot reach the destination. My internship program was also directed to some particular targets. The main objective of the study is to gain practical knowledge and experience on Foreign Trade Operation.

 The specific objectives are written down bellow:

General:

a. To get practical idea about banking activities.

b. To observe the Foreign Exchange operation of Southeast Bank Limited and their services.

Specific:

a. To observe the processes of L/C.

b. To observe the major outline of foreign business.

c. To observe the credit line arrangement.

d. To observe the foreign correspondents of SEBL..

e. To analysis the expansion of Foreign Trade Business of SEBL.

 f. To identify the problems of it’s financing.

 g. To observe the problems of L/C marketing.

 h. To recommend solution of or solving the problems faced by SEBL in

     foreign exchange business.

Research Methodology:

To make the Report more meaningful and presentable, two sources of data and information’s have been used widely.

                    a. Primary Data.

                    b. Secondary Data.

Both primary and secondary data sources were used to generate the report. The relevant information is collected from the primary sources and also uses the secondary sources of information.

Primary data are collected through:

  1. Observation for the total internee period.

  2. Open ended and close ended questions.

  3. Conducted interview both customers and stuffs of the branch.

  4. Face to face contacts with the officers.

Secondary data are collected through:

  1. Manuals of Southeast Bank Limited.

  2. Website browsing.

  3. Bank’s other published information.

Organization Of The Report

This report is being prepared on the Foreign Exchange operation by Southeast Bank Ltd. This report is divided into different parts.

In Chapter One, we discussed about the rationale of the study, Objective Behind Preparing this Report, research methodology, organization of the report & limitation of the Study.

In Chapter Two, we did some Overview of the Organization, Corporate Information at a glance, The Management Process of Southeast Bank Ltd., Corporate Mission, Company Vision, Core Value held by Southeast Bank Ltd., Objectives and Goals of SEBL and Commitment to Client etc.

In Chapter Three, here we discussed about the foreign exchange operations of Southeast Bank Ltd.

In Chapter Four, we discussed about the performance analysis & findings of the foreign exchange department.

In Chapter Five, we focused on some noticeable Findings and gave some Recommendations against those findings.

At the end of this report I attached some references, which I used for the purpose of report.

Limitations of The Study

There are some limitations in an every study, I also faced some limitations or obstacles in the way of completed my internship report.

The limitations of this study are:

•  All the time of preparing my report I tried to gather every details of process but the major limitation is lack of adequate information.
• Lack of opportunity to visit more than one branch.
• Sufficient records, publications were not available as per my requirement.
• Time constraint.
• Although bankers have tried their best to help me, their nature of job is such that gives them little time to discuss.
• 1.5 months are very short time to prepare this.

CHAPTER TWO

DESCRIPTION OF THE ORGANIZATION

OVERVIEW OF THE ORGANIZATION:

Southeast Bank Limited is a scheduled Bank under private sector established under the ambit of bank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act, 1994 on March 12. The Bank started commercial banking operations effective from May 25, 1995 [7]. During this short span of time the Bank had been successful to position itself as a progressive and dynamic financial institution in the country. The Bank had been widely acclaimed by the business community, from small entrepreneur to large traders including the top rated corporate borrowers for forward-looking business outlook and innovative financing solutions. Thus within this very short period of time, it has been able to create an image for itself and has earned significant reputation in the country’s banking sector as a Bank with vision.

Presently it has eighty-six branches in operation [7]. Southeast Bank is one of the few banks permitted by the Bangladesh bank in the early 90s; the other banks permitted earlier were Dutch-Bangla Bank, Al-Arafah Islami Bank, Prime Bank, Dhaka Bank, Eastern Bank Ltd.These banks are known as the second generation banks and fortunate to remain immune from the bad loan culture. However, the performance of these banks is not the same; the Southeast Bank Limited remained as one of the top performers among them [1]. Its performance also has been reflected in its good loan being the 3.5 percent as against the national average of 33 percent in the private banking sector[4].

The emergence of Southeast Bank Limited at the junction of liberation of global economic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of Asian countries and in particular of South Asia, has been the driving force and the strategies behind operational policy option of the Bank. The Company Philosophy – “A Bank with Vision” has been preciously the essence of the legend of bank’s success [4].

It has been growing faster as one of the leaders of the new generation banks in the private sector in respect of business and profitability as it is evident from the financial statements for the last 4 years.

VISION & MISSION:

SEBL’s Vision [1]:

The vision is to be a premier banking institution in Bangladesh and contribute significantly to the national economy.

 SEBL’s mission [1]:

• High quality financial services with state of the art technology.
• Fast & accurate customer service.
• Sustainable growth strategy.
• Follow ethical standards in business.
• Steady return on shareholders’ equity.
• Innovative banking at a competitive price.
• Attract and retain quality human resource.

CORE VALUES & STRENGTHS:

SEBL’s Core Values [1]:

• Integrity
• Respect
• Fairness
• Harmony
• Team spirit
• Courtesy
• Commitment
• Service Excellence
• Insight and Spirit
• Enthusiasm for Work
• Business Ethics

 SEBL’S Core Strengths:

• Transparent and quick decision making;
• Efficient team of performers
• Satisfied customers
• Internal control
• Skilled risk management
• Diversification

SEBL’s Client Commitments:

SEBL’s commitments to the clients are the following [1]:

• Provide service with high degree of professionalism and use of modern technology.
• Create life-long relationship based on mutual trust and respect.
• Response to customer needs with quickness and accuracy.
• Sharing their values and beliefs.
• Grow as our customer’s grow.
• Provide products and services at Competitive pricing.
• Ensure Safety and security of customer’s savings.

SEBL’s corporate culture:

Southeast Bank is one of the most disciplined Banks with a distinctive corporate culture. The people of bank can see and understand events, activities, objects and situation in a distinctive way [4]. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to them [4]. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth [4]. The corporate culture they belong has not been imposed; it has rather been achieved through their corporate culture.

Business Objectives of Southeast Bank:

        Objectives are [4]:

• Make sound investments.
• Meet capital adequacy requirement at all the time.
• Ensure a satisfied work force.
• Ensure 100% recovery of all advances.
• Focus on fee-based income.
• Adopt an appropriate management technology.

Corporate Slogan:

                                        ………….A bank with vision.

                                        Logo of SEBL

Ethics and Social Responsibilities:

Southeast Bank Limited believes in banking ethics and social responsibilities. It is fully devoted to fulfilling the needs for customer satisfaction and involved in various socio-economic development.

The objectives of the bank are, among others:

  It finances the small-scale industries to help them survive.

  Creating employment opportunities within the bank through expanding its network so that it can play some positive role in solving the unemployment problem in the country.

  Cooperating with organizations such as Grameen Bank, which are helping the poor through micro Credit and other facilities.

SEBL views social responsibilities from the angles of:

   Rights of Shareholders: The bank earned a total profit before tax of Tk. 402.23 million in the year 2001 and offered 30% cash dividend [1].

  Responsibilities to the Employees: The bank always tries to ensure performing its responsibilities to its employees in terms of payment of competitive wage, providing the best possible working conditions, proper system of promotion, recognition, appreciation, and encouragement of special skills etc.

  Responsibilities to the Customers: The bank tries to ensure maximum satisfaction of its clients.

  Responsibilities to the Community: SEBL performs its duty to the community by providing some special scheme such as Education Credit Scheme, Marriage Credit Scheme, and Promoting local industry [1].

Future Prospects and Plans of the organization:

The regular operations and transactions of Southeast Bank Limited are fully automated and automation tools such as ATM and SWIFT are doing all the activities of trade and operations [1]. The bank is now downscaling the applications of Telex and converting that to SWIFT for more effective communication. The bank is having more than 20 ATM booths available throughout the country provided by Electronic Transaction Network Limited (ETN) [5]. In order to provide round the clock and current information on the bank to the business community worldwide, this bank has Web Site www.southeastbank-bangladesh.com.bd.

Though a large number of commercial banks are already in the market to acquire business, Southeast bank nevertheless secured its position in the overall financial area with diversified opportunities but with extensive competition [1]. For modern banking and investment decisions the bank is eager to make substantial investments through branch and business expansion with added capacity of resources. The bank has a plan to set up a research and development wing so as to analyze business opportunities to extending its presence in this new market and sources of investments.

Products & Services of Southeast Bank Ltd:

Products [4]:

Deposit Schemes

0 Saving (SB)

0 Current Deposit (CD)

0 Fixed Deposit

Customer Friendly Deposit Schemes [4]:

0 Pension Savings Scheme (P.S.S.)

0 Education Savings Scheme (E.S.S.)

0 Marriage Savings Scheme (M.S.S.)

0 Savers Benefit Deposit Scheme (SBDS)

0 Bearer Certificate of Deposits (3,6,12 months

Services

0 ATM Service

0 Locker Service

Corporate Information’s at a Glance-

            (Information as per Annual Report 2010)

Name of the Company                    : Southeast Bank Limited

Chairman                                         : Alamgir Kabir, FCA

Vice Chairman                                 : Ragib Ali

Managing Director                           : Mahbubul Alam

Company Secretary                        : Muhammad Shahjahan

Legal Status                                     : Public Limited Company

Date of Incorporation                     : March 12, 1995

Registered Office                            : Eunoos Trade Centre, 52-53, Dilkusha                    C/A

                                                              (Level 2, 3 & 16), Dhaka-1000

Line of Business                              : Banking

Authorized Capital                          : Tk.1000000 million

Paid Up Capital                                : Tk.6930.84 million

Number of Branches                       : 80

Year of Initial Public Offer             : 1999

Stock Exchange Listing                  : April 10, 2000 (DSE) & April 24, 2000 (CSE)

Phone                                                           : 9571115, 7160866, 7173793, 9555466 &

                                                        9550081

Fax                                                     :  9550086, 9550093, 9563102

SWIFT                                                : SEBDBDDHXXX

E-mail                                                : info@southeastbank.com.bd

Website                                             : http://www.southeastbank.com.bd/owa

The Management Process of Southeast Bank :

 Different aspects of management practice in Southeast Bank are discussed below:

 Planning-

Southeast bank Ltd. has done its planning within the purview of the corporate plan. The overall planning approach in Southeast Bank is top- down [1]. Each branch can plan according to the goal imposed by the corporate level. It doesn’t plan independently [1]. And southeast bank has a planning division. This department is mainly responsible for the overall planning.

 Organizing-

Southeast Bank Ltd. is organized as per the existing business locations. It has 86 branches, each of which is a separate entity [7]. Each unit is responsible for own performance and followed by Manager Heads each. He/she is directly responsible of their unit, within each branch it is organized functionally.

 Staffing-

The recruitment in southeast bank is done in two ways [7]. One as a “Probationary Officer” for the management program and it has a probation period of two years [4]. Another one is non-management level as “Trainee Officer”.

 Directing-

The management approach in Southeast Bank is top-down or authoritative. Information just seeks through lower management layer. Works are designed in such a way that one cannot leave without clearing the tasks as he is assigned for a day. Sitting arrangement in all office is done in a way that the superior can monitor the subordinate all time.

 Controlling-

Control mechanisms are given bellow-

      i.        Establish standards

    ii.        Monitor result and compare standards.

   iii.        Correct deviation

   iv.        Communication through the control process.

    v.        Revise and adjust control method in light of control results and changing condition.

 OPERATIONAL AREAS OF SEBL:

Southeast Bank Limited is a complete service Bank with a various array of all inclusive range of financial services and customer friendly simple banking products and services.

SEBL’s operations consists of [4]:

• Real Time on line banking.
• Credit Card.
• Debit Card.
• ATM
• International Trade finance.
• Commercial Banking.
• Investment Banking.
• Project Finance.
• Mortgage Loan.
• Hire Purchase.
• Retail Banking.
• Foreign Remittance

Recently SEBL launch virtual card [4].

They also collect:

1. DK wasa bill.
2. Vehicle tax and fees of BRTA.

 FINANCIAL STABILITY:

             Table 2.1: Financial stability (source-Annual Report 2009) [1]

GENERAL INFORMATION:

 Table 2.2: General Information Of SEBL [1]

 CHAPTER THREE

LITERATURE REVIEW

FOREIGN EXCHANGE OPERATIONS OF SOUTHEAST BANK LTD.

Introduction:

Every country has certain natural advantages and disadvantages in producing certain commodities while they have some natural disadvantages as well in other areas. As a result we find that some countries need to import certain commodities while others need to export their surpluses. These transactions are the basis upon which international trade is made.

The term ‘Foreign Exchange’ has three principal meanings.

Firstly it is a term used referring to the currencies of other countries in terms of any single one currency [2]. To a Bangladeshi, Dollar, Pound etc. are foreign currencies and as such foreign exchanges.

Secondly, the term also commonly refer to some instruments used in international trade, such as Bills of Exchange, drafts, travelers Cheque and other means of international remittance [2].

Thirdly the term foreign exchange is also quite often referred to the balance in foreign currencies held by a country [2].

In terms of section 2(d) of the Foreign Exchange Regulations-1947, as adopted in Bangladesh foreign exchange means foreign currency and includes any instrument drawn, accepted, made or issued under clause 13 of article 16 of the Bangladesh Bank Order, 1972, all deposits, credits and balances payable in any foreign currency and draft, travelers Cheque, loiter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign country [9].

In exercise of the powers conferred by sec. 3 of the Foreign Exchange Regulations-1947, Bangladesh Bank issues license to scheduled banks to deal with foreign exchange [9]. These banks are known as Authorized Dealers (AD). Licenses are also issued by Bangladesh Bank to persons or firms to exchange foreign currency instruments such as T.C., Currency notes and coins. They are known as Authorized Money Changers.

 Foreign Exchange:

Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country [2]. 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.

 Functions of Foreign Exchange Department:

Export [2]:

• Pre – Shipment advances.
• Purchase of foreign bills.
• Negotiating of foreign bills.
• Export guarantees.
• Advising/ confirming letters – letter of credit.
• Advance for deferred payment exports.
• Advance against bills for collection.

  Import [2]:

• Opening of letter of credit (L/C)
• Advance bills.
• Bills for collection.
• Import loan and guarantees.

Remittances [2]:

• Issue of DD, MT, TT, etc
• Payment of DD, MT, TT etc.
• Issue and enhancement of traveler’s cheque.
• Sale and enhancement foreign currency note.
• Non-resident accounts.

Dealings:

• Rate computation.
• Maintenance of foreign currency account.
• Forward contracts.
• Exchange position and cover operations.

Statistics:

• Submission of returns.
• Collection of credit information.

Basically the Foreign Exchange department deals with the L/C operation. There are mainly three types of transactions which lead to foreign exchange [2]. These are:

a)  Export

b) Import

c)  Foreign Remittance.

Issuing Bank:

The Bank who is being opens the L/C. It is bank of importer [2].

Advising Bank:

The bank who is being handover the L/C to the exporter [2].

Confirming Bank:

Which bank adds Confirming to the L/C, it is generally advising bank [2].

Negotiating Bank:

The Bank, who is being collects the proceeds of bills of exchange. It is bank of exporter [2].

Reimbursing Bank:

A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation /acceptance /payment lodged with it by the negotiating bank or accepting bank [2]. It is normally the bank with which the issuing bank has account from which payment is to be made. Generally confirmed irrevocable letter of credit without recourse is considered as the best type of documentary letter of credit.

VALID IMPORT EXPORT CUSTOMER OF SOUTHEAST    BANK:

     Name of the Importer:

• Tung Hai Knitting & Dyeing Ltd
• Tung Hai Sweaters Ltd
• Knit Luster Ltd
• April Fashions Ltd
• Tasmia Apparels Ltd
• New Wave Style Ltd
• New Wave Bottoms Ltd
• Nova Electronics Ltd
• Rabeya Automatic Rice Mill
• Masud Corporation
• Popular Diagnostic Centre
• GETCO Ltd
• GETCO Agora Vision Ltd

 Name of the Exporter:

• Tung Hai Knitting & Dyeing Ltd
• Tung Hai Sweaters Ltd
• Knit Luster Ltd
• April Fashions Ltd
• Tasmia Apparels Ltd
• New Wave Style Ltd
• New Wave Bottoms Ltd

      Imported Item:

• Sewing threats
• Buttons
• Label
• Bar Coat
• Beach Board
• Neck Board
• Polly Bag
• Zipper
• Raw Materials For Garments-
  • Yarn
  • Fabrics

      Exported Item:

• Shirt
• Pant
• T-Shirt
• Ladies Blouse Like Shirt
• Sports Wear

Foreign Exchange Accounts:

Nostro Account:

Nostro account means “our account with you”. A Nostro account is a foreign currency account of a bank maintained by its foreign correspondents abroad [2].

 For example, US Dollar Account of Southeast Bank Limited is maintained with Citibank, N.A, New York, USA is a Nostro account of Southeast Bank Limited i.e. from the point of view of Southeast Bank Limited, it is their Nostro Account.

Vostro Account:

Vostro account means “your account with us”. The account maintained with foreign correspondent in a bank of a particular country is known as Vostro account [2].

 For example, State Bank of India’s Taka account maintained with Southeast Bank Limited Dhaka is the vostro a/c i.e. from the point of view of Southeast Bank Limited it is a vostro account held for state bank of India.

What is the Nostro account for a bank in a particular country is a Vostro account for the bank abroad maintaining the account thus the account of Southeast Bank Limited with Standard Charted Bank, London regarded as it’s Nostro account held with Standard Charted Bank, while Standard Charted Bank, London regards it as it’s Vostro account held for Southeast Bank Limited.

 Loro Account:

Loro account means “their account with you” [2]. Account maintained by third party is known as Loro account; suppose Southeast Bank Limited is maintaining an account with Citi Bank N.A New York and at the same time Janata Bank is also maintaining a nostro account with Citi Bank N.A New York. From the point of view of Southeast Bank Limited Janata Bank’s account maintained with Citi bank N.A New York is the Loro account.

Foreign Exchange Buying Rates:

The rates at which the banks are willing to purchase foreign currencies are said to be buying rates, i.e. at these rates foreign currencies are converted into home currency. The various types of buying rates are:

(a)   T. T. (Clean)

(b)   T. T. (Documentary)

(c)   O. D. sight (Export)

(d)   O. D. Transfer

T. T. (Clean): The T. T. clean buying rate is the basic rate of exchange from which other types of buying rates are computed, since in case of T. T.s fund are paid over at the other end on the same day involving no loss of interest, but may attract only small charges for Telex [2]. The variations in other types of buying rates quoted from the basic T. T. buying rate are primarily dependant upon the nature of instruments to be purchased which indicate the extent of possible loss of interest, extra costs of collection or increased risk of capital loss.

T.T. (Documentary): This rate is applicable in which the handling of document is involved. Bank recovers handling charges on the transaction.

OD (Sight): This rate is applied for transaction resulting in the purchase or negotiating of export bills [2]. OD sight (export) buying rates vary from T.T. buying rates to the extent of loss of interest for the period the bank remains out of funds i.e. from the time the bank pays out cash at home

Foreign remittance:

Foreign remittance section of SEBL, Shyamoli branch is an integral part of foreign exchange department [3]. And this section of foreign exchange department deals with:

• Inward foreign remittance
• Outward foreign remittance
• Opening Foreign Currency Accounts.
• Governing Wage Earner’s Bond.
• Opening Student File etc.

Inward Foreign Remittance:

Normally, Inward Foreign Remittance comprises all incoming foreign currencies. Remittances issued by the correspondent banks situated in the foreign countries and thereby drawn on SEBL, Shyamoli branch are considered to be its Inward foreign remittances. Followings are the Inward Foreign Remittances of SEBL, Shyamoli branch.

• FDD Payable
• FTT Payable
• TC Payable
• Encashment of foreign currencies endorsed in the passport.
• Purchase of foreign currencies.

Outward foreign Remittances:

Remittances issued by Southeast Bank, Shyamoli Branch to their foreign correspondents to fulfill their customers’ needs are considered to be the Outward Foreign Remittances. It comprises the followings:

• FDD Issued.
• FTT Issued.
• TC Issued.
• Endorsement of foreign currencies in the passport.
• Sale of foreign currencies.

Foreign Demand Draft (FDD) Issued:

People used to send money abroad for various purposes. SEBL issues most of the FDD for the purpose of payment of the application fees to the foreign universities.   For the issuance of FDD; T/M Form has to be filled up duly. This form is filled up under the Foreign Exchange Regulation Act, 1947 [9]. This form contains

• The purpose of travel,
• Name of the country where the applicant will go,
• Name of the air or shipping company,
• Passport number,
• Signature, name & address of the applicant

This form has to be duly signed by the applicant. In case of application fee, the applicant has to mention the name of the university in whose favor the FDD is issued.

Accounting Treatment:

SEBL gives the following entries while issuing FDD:

            Client’s Account/ Cash                   Dr.

                           Commission                       Cr.

                             IDT                         Cr.

Traveler’s Cheque (TC) Issued:

SEBL issues only American Express Traveler’s Cheque (TC).  For TC, customer has to fill up T/M form. He has to fill up the purchase form also. For TC, SEBL charges 1% as commission [4].

Steps involved in issuing of TC:

1)   After verifying all these documents the customer is asked to fill up prescribed application form.

2)    In the application the customer states the amount he is willing to endorse and it is to be verified that his required amount is within the stipulated [5].

3)    Then the customer pays cash or by debiting his account the Traveler’s Cheque is issued.

4)   Endorsement is given on the passport and on the ticket. Customer fills up the T/M Form [5].

5)   Purchased application form has to be filled up by the purchaser.

6)   Entry has to be given in the Foreign Currency Register and in the Traveler’s Cheque Register.

Following Documents must be retained from the clients [9]:

• Photocopy of passport
• T/M form (Travel & Miscellaneous)
• Others

Copy of government order (in case of government employee)

Copy of invitation letter if issuance is against conference/training quota

Endorsement of Cash:

Cash foreign currency can also be remitted through the cash endorsement in the passport. In case of endorsing cash in the passport, the requirements are similar to those of Traveler’s Cheque. But according to the foreign exchange Regulation Act, 1947 an individual cannot take more than $1500.00 in cash in a year. That’s why, the concerned officer checks the last voyage of the purchaser [9]. If he/she made any voyage and if he/she purchased dollar at that time, then the officer will deduct the amount and will give the rest to the purchaser.

SEBL cannot endorse more than $1500.00 as cash at a time. For more than $1500.00, the customer has to purchase TC. For cash endorsement SEBL maintains a separate register. For giving cash foreign currency, SEBL charges Tk. 200.00 as service charge per passport [3].

Foreign TT Payable:

Foreign remittance section also pays the claim of the foreign TT. After receiving TT payable, SEBL performs the following functions [4]:

1) Customer has to fill up a “C Form” if the amount exceeds $2000.00. “C Form” describes the purpose of sending the TT.

2) The dollar amount comes to the Head office of SEBL through American Express, New York.

3) SEBL, Shyamoli branch sells the dollar to Head Office and collects the money in local currency.

Student File Opening:

Student can endorse $200.00 at a time in his own name. But if the amount exceeds $200.00, then the student has to open a student file.  For opening a student file, the following documents are required [4]:

i)          Preliminary application and information for admission.

ii)         Letter of approval by the university of the student.

iii)        A filled-in application form for foreign currency in abroad.

i)             “Transcript of Records” given for the last degree by the university.

ii)            Certificate given by the Board for S.S.C. / H.S.C. or equivalent examination.

iii)           A photocopy of I-20 form.

In case of tuition fees, applicant must send the currency in favor of the institute. He cannot take the fees of the institute with him personally. Usually a student has to endorse at least one third of the fees of a year.

The foreign remittance department gives the following vouchers [3]:

1.One debit voucher for cash USD sold.

2.One debit voucher for TC sold.

3.One debit voucher for IDT (For total amount)

4.One credit voucher for foreign currency USD (cash sold)

5.One credit voucher for account payable TC sold.

6.One credit voucher for commission on TC.

           7.One credit voucher for other fees & commission.

8.One credit voucher for photocopy.

9.One debit voucher for account payable TC sold.

10.One debit voucher for HO General Account (For TC sold).

11.One debit voucher for FDD.

12.One debit voucher for HO General Account (For FDD).

IMPORT:

Import means purchase of goods or services form abroad. Normally consumers, firms and Government organizations import foreign goods or services to meet their various necessities [2]. So, in brief, we can say that import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad.

Regulation of Import:

Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the Import and Export (Control) Act, 1950 with Import Policy Order issued periodically and public notices issued from time to time by the office of the Chief Controller of Import and Export (CCI&E) [9]. At present, it is regulated by the Import Policy (1997-2002), which has come into effect on June14, 1998. And Import Policy directs certain Import Procedure, which administers the whole activity.

 Import Procedure Followed by SEBL:

As an Authorized Dealer, Southeast Bank, shyamoli Branch is always committed to facilitate import of different goods into Bangladesh from the foreign countries. Import Section, which is under Foreign Exchange Department 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.

1. At first, the importer must obtain Import Registration Certificate (IRC) from the CCI&E submitting the following papers [9]:

• Up to date Trade License.
• Nationality and Asset Certificate.
• Income Tax Certificate.
• In case of company, Memorandum & Articles of Association and Certificate of Incorporation.
• Bank Solvency Certificate etc.
• Required amount of registration fee

2. Then the importer has to contact with the seller outside the country to obtain the Proforma Invoice. Usually an indenter, local agent of the seller or foreign agent of the buyer makes this communication.

 Other sources are [9]:

• Trade fair.
• Chamber of Commerce.
• Foreign Missions in Bangladesh.
• Journals etc

3. When the importer accepts the Proforma Invoice, he/she makes a purchase contract with the exporter detailing the terms and conditions of the import [2].

4. After making the purchase contract, importer settles the means of payment with the seller. An import procedure differs with different means of payment. The possible means are cash in advance, open account, collection method and documentary letter of credit. In most cases, the documentary letter of credit in our country makes import payment. Purchase Contract contains which payment procedure has to be applied [2].

 Different Means of Payment:

a) Cash in advance: Importer pays full, partial or progressive payment by a foreign DD, MT or TT. After receiving payment, exporter will send the goods and the transport receipt to the importer [2]. Importer will take delivery of the goods from the transport company.

b) Open Account: Exporter ships the goods and sends transport receipt to the importer [2]. Importer will take delivery of the goods and makes payment by foreign DD, MT, or TT at some specified date.

c)  Collection Method: Collection methods are either clean collection or documentary collection [2]. Again, Documentary Collection may be Document against Payment (D/P) or Document against Acceptance (D/A). The collection procedure is that the exporter ships the goods and draws a draft/ bill on the buyer [2]. The exporter submits the draft/bill (only or with documents) to the remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the draft/bill (with or without documents) and a collection instruction letter to the collecting bank [9]. Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of the draft [2]. The title of goods is released to the importer upon full payment or acceptance of the draft/bill.

d) Letter of credit: Letter of credit is the well-accepted and most commonly used means of payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon submission of some stipulated documents and fulfilling the terms and conditions mentioned in the letter of credit.

5. Requesting the concerned bank (importer’s bank /issuing bank) to open a L/C (irrevocable) on behalf of importer favoring the exporter/seller.

Letter of credit (L/C):

The method by which a Commercial Bank undertakes to make payment on behalf of the importer (buyer) to the seller (exporter) is known as Letter of Credit (L/C) [2]. On the other hand it is a credit contract where by, the buyers (importer) bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s (exporter) disposal under some agreed conditions [2]. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit.  

An importer in a country requests his/her bank to open a credit in foreign currency in favor of the exporter at a bank in the letters country [2]. The letter of credit is issued against payment of the amount by the importer or satisfactory security. The letter of credit authorized the exporter to draw a draft under its terms and sell to a specific bank in his/her country [9]. The exporter has to hand over the bill of exchange, shipping documents and such other papers as may be agreed upon between the exporter and importer [9]. The buyer wants to be assured of goods and the seller to be assured of payments. Commercial Banks, therefore, assure these things to happen simultaneously by opening Letter of Credit guaranteeing payment to seller and goods to buyer.

Forms of Letter of Credit:

Letter of Credit is basically classified in two forms:

1)    Revocable Letter of Credit

2)    Irrevocable Letter of Credit

1) Revocable Letter of Credit: If any Letter of Credit can be amendment or changed of any clause or canceled by consent of the exporter and importer, it is known as Revocable Letter of Credit [2].

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made [2]. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available [2]. In the modern banking the use of revocable credit is not widespread.

2) Irrevocable Letter of Credit: If any Letter of Credit cannot be amendment or changed of any clause without the consent of all concern parties – importer (applicant), exporter (beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed L/C), is known as Irrevocable Letter of Credit [2].

An Irrevocable Letter of Credit constitutes a firm undertaking by the issuing bank to make payment [2]. It, therefore, gives the beneficiary a high degree of assurance that he/she will pay to his/her goods or services provided he/she complies with terms of the credit.

Types of Letter of credit:

Letter of credit is classified into various types according to the method of settlement employed.

i)             Sight payment credit

ii)            Deferred payment credit

iii)           Acceptance credit

iv)           Negotiation credit

v)            Transferable credit

i) Sight Payment Credit: The most commonly used credits are sight payment credits. These provide for payment to be made to the beneficiary arrogantly after presentation of the stipulated documents on the condition that the terms of the credit have been complied properly [2]. The banks are allowed reasonable time to examine the document.

ii) Differed Payment Credit: Under a deferred payment credit the beneficiary does not receive when he/she presents the documents but at a later date specified in the credit term [2]. On presenting the required documents, he/she receives the authorized banks written undertaking to make payment of maturity.

iii) Acceptance Credit: With an acceptance credit, payment is made in the form of a term bill of exchange drawn on the buyer by the issuing bank [2]. Once the importer fulfilled the credit requirement, the beneficiary can demand that the bill of exchange be accepted [2]. Thus the accepted bill takes the place of cash payment.

The beneficiary can present the accented bill to his own bank for payment at maturity or for discounting, depending on whether or not he/she wants cash immediately [2]. For simplicities sake the beneficiary usually gives an instruction that the accepted bill should be kept in the safekeeping of one of the banks involved until it matures. Bill of exchange drawn under acceptance credit usually has term of 60 – 180 days [9].

The purpose of an acceptance is to give the importer time to make payment. If the importer sells the goods before payments fall due, he/she can use the proceed to meet the bill of exchange in this way; he/she does not have to borrow money to finance the transaction [9].

iv) Negotiation Credit:  Negotiation means the purchase and sale of bill of exchange or other marketable instruments. A negotiation credit is commercial letter of credit opened by the issuing bank in the currency of its own country and addressed directly to the beneficiary [2]. The letter is usually delivered to the address by a correspondent bank.

The letter of credit empowers the beneficiary to draw a bill of exchange on the issuing bank, on any other named drawer or on the applicant for the credit [2]. The beneficiary can then present this bill to a bank for negotiation, together with the original latter of credit and the documents stipulated therein.

The issuing bank guarantees payment of the bill of exchange on the condition that the documents presented by the beneficiary are in order [2]. The most common form of negotiation credit permits negotiation by any bank. In rare cases the choice is limited to specified banks.

v) Transferable Credit: Transferable credit is one under which the exporter has the write to make the credit available to one or more subsequent beneficiaries [2]. When the credit is transferable, it is expressed sated as such by the issuing bank on the face of L/C [2]. The credit is to be transferred only under the terms and conditions specified in the original L/C.

Parties Involved in Operation of 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 [2]. 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 [2].

• The Buyer (Importer) & The Beneficiary (Exporter)
• The Opening Bank
• The Advising Bank
• The Negotiating Bank
• The Reimbursing Bank.

The Buyer (Importer) & The Beneficiary (Exporter): The importer at whose request a letter of credit is issued, known as the buyer. The exporter in whose favor the credit is opened and too whom the letter of credit is addressed is known as the beneficiary [2]. As the seller of goods the exporter is entitled to the receive payment which he/she does by drawing bills under the letter of credit. As soon as the exporter shipped the goods and collected the required documents, the exporter draws a set of papers and presents it with the documents to the opening bank or other bank to mention in the L/C.

The Issuing Bank (Opening Bank): The opening bank is one that issues the letter of credit at the request of the buyer [2]. By issuing a letter of credit it takes upon itself the liability to pay the bills drawn under the credit.

The Advising Bank: The letter of credit is transmitted to the beneficiary through a bank in the letters country. The bank may be a branch or a correspondent of the opening bank. The credit is some times advised to this bank by cable and then transmitted by it to the beneficiary on own its specified form. On the other occasion, the letter is sent to the bank by mail or telex and forwarded by it to the beneficiary. The bank providing this service is known as the Advising Bank [2]. The advising bank undertakes the responsibility of prompt advice of credit to the beneficiary and has to be careful in communicating all its details.

The Negotiating Bank: This the bank that honored the documents presented as per letter of credit [2]. 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. Any discrepancy may result in refused on the part of the opening bank to honor the instruments is such an eventually the negotiating bank has to look back to the beneficiary for refund of the amount paid to the beneficiary.

The Reimbursing Bank: It is the bank in which the Issuing Bank maintains a Nostro account and this bank will make the payment to the beneficiary [2].

 Documents Used in operation of L/C:

Indent or Proforma Invoice:

Indent or Proforma Invoice is the sale contract between seller and buyer in import- export business [2]. There is slight difference between indent and Proforma invoice. The sales contract, which is direct correspondence between importer and exporter, is called Proforma invoice. There is no intermediary between them. On the other hand, there may be an agent of exporter in importer’s country.  In this regard, if the sale contract is occurred between the agent of exporter and importer then it is called indent.

Import Registration Certificate (IRC):

The importer collects from the C.C.I.& E office by submitting required documents and payment of requests fees [2].

Bill of exchange: The bill of exchange is a negotiable instrument through which payment is effected in the trade deals. It is an unconditional order or writing, addressed by the buyer to seller by which the seller can obtain payment from the buyer for the invoiced value of the goods.

Bill of lading: It is the list of goods being shipped which the captain gives to the person sending the goods to show that the goods have been loaded [2].

Airway Bill/Railway receipt: Sometimes goods are transported through small bulk or those are perishable in nature then the mode of transport other that shipping may be resorted to far carriage of the goods, Airway bill/Railway receipt take place of loading depending on the nature of the carrier.

Commercial Invoice: It is the seller’s bill for the merchandise. It contains a description of goods, the price per unit, total value of the goods, packing specification etc [2]. The seller under his own form and signature in the name of the buyer issues the invoice.

Insurance Policy: In the international trade insurance policy is a must to cover the risk of loss on consignments [2]. The policy is must.

Certificate of origin: This is the certificate issued by a recognized authority In the exporting country certifying the country of origin of the goods [2]. It is usually by the Chamber of Commerce.

Packing List: The exporter prepares an accurate packing list showing item by item. The content of the consignment to enable the receiver of the shipment to check the contents of the goods and marks of the packages, quantity, weight etc of the goods exported [2].

Bill of Entry: It is a document, which contains the particulars of the imported goods as well as the amount of customer duty payable [9].

 Procedure of opening the L/C

Clean Report of Findings: This certificate is provided by the Pre Shipment Inspection (PSI) Concerns. The entire world has been brought under the three supervision of the three pre-shipment inspection concerns based on different territory [2]. These are as follows

• Intertek Testing Service
• Instrospect Griffith Ltd.
• Bureau Veritas

Procedure of opening the Letter of Credit (L/C):

The importer after receiving the proforma invoices from the exporter, by applying for the issue of documentary credit, the importer requests his/her bank to make a promise of payment to the supplier [2]. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the shorts of commodity that can be traded on an organized market, such an agreement would involve the bank in excessive risk outside its specialized field. The applicant must therefore have adequate fund in the bank account or a credit line sufficient to cover the required amount [2].

Banks deal in documents and not in goods [2]. Once the bank has issued the credit its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The applicant cannot prevent a bank from honoring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted [2].

The importer submit the following documents with the application for opening the L/C

1. Tax Identification Number (TIN)
2. Valid trade license
3. Import registration certificate (IRC)

The bank will supply the following documents before opening the L/C

1. LCA form
2. IMP form
3. Necessary charger documents for documentation

The above documents/papers must be completed duly signed and filled by the parties according to the instruction of the concern banker.

After scrutinizing above-mentioned documents carefully, the authorized officer delivers the following forms to be filled up by importer and banker then check it carefully [9]:

• Whether the goods to be imported is permissible or not.
• Whether the goods to be imported is demanding or not.

L/C Application Form (L/CAF):

L/C Application Form is a sort of an agreement between customer and bank on the basis of which letter of credit is opened [2]. SEBL, Shyamoli branch provides a printed form for opening of L/C to the importer. A special adhesive stamp of value Tk.150 is affixed on the form in accordance with Stamp Act currently in force. While opening, the stamps are cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage. Usually the importer gives the following information [9] –

• Full name and address of the importer
• Full name and address of the beneficiary
• Draft amount
• Availability of the credit by sight payment/acceptance/negotiation/deferred payment
• Time bar within which the documents should be presented
• Sales type (CIF/FOB/C&F)
• Brief specification of commodities, price, quantity, indent no. etc.
• Country of origin
• Bangladesh Bank registration no.
• Import License/LCAF no.
• IRC no.
• Account no.
• Documents no.
• Insurance Cover Note/Policy no., date, amount
• Name and address of Insurance Company
• Whether the partial shipment is allowed or not
• Whether the transshipment is allowed or not
• Last date of shipment
• Last date of negotiation
• Other terms and conditions (if any)
• Whether the confirmation of the credit is requested by the beneficiary or not.
• The L/C application must be completed/filled in properly and signed by the authorized person of the importer before it is submitted to the issuing bank.

 L/C Authorization Form (L/CAF):

The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against import and used in lieu of import license [9]. The authorized dealers are empowered to issue LCA Forms to the importers as per basis of licensing of the Import Policy Order in force to allow import into Bangladesh [9]. 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 [9]. The LCA Forms available with authorized dealers are issued in set of five (05) copies each. First Copy is exchange control copy, which is used for opening of LC and effecting remittance. Second Copy is the custom purpose copy, which is used for clearance of imported goods from custom authority [9]. Triplicate and Quadruplicate Copy of LCAF are to be sent to concerned area of CCI&E office by authorized dealer/Registration Unit of Bangladesh Bank [9]. Quintuplicate Copy is kept as office copy by authorized dealer/Registration Unit [9]. The Letter of Credit Authorization Form (LCAF) contains the followings –

• Name and address of the importer
• IRC no. and year of renewal
• Amount of L/C applied for (both in figure and in word)
• Description of item(s) to be imported
• HS Code No.
• Signature of the importer with seal

• List of goods to be imported

Forwarding Documentary Credit by Advising or Confirming Bank:

There are usually two banks involved in a documentary credit operation [2]. The issuing bank and the 2^nd bank, the advising bank, is usually a bank in the seller’s country [2]. The issuing bank asks another bank to advise or confirm the credit.

If the 2^nd bank is simply “advising the credit”, it will mention that when it forwards the credit to seller, such a bank is under no commitment or obligation to pay the seller [9].

 If the advising bank is also “confirming the credit”, this mention that the confirming bank, regardless of any other consideration, must pay accept or negotiate without recourse to seller. Then the bank is called confirming bank also [9].

Submission of Necessary Documents by Exporter to the Negotiating Bank:

As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in a position to load the goods and dispatch them [9]. The seller then sends the documents evidencing the shipment to the bank.

Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C [9]. Generally the documents observed by me in the foreign exchange department are [9]:

• Bill of exchange
• Commercial invoice
• Bill of lading / Air way bill / Truck receipt
• Certificate of origin
• Packing list
• Clean report of finding (CRF)
• Insurance cover note

The Documents Sent To The Issuing Bank Through The Negotiating Bank [2]:

The negotiating bank carefully checks the documents provided by the exporter against the credit, and if the documents meet all the requirement of the credit, the bank will pay, accept, or negotiate in accordance with the terms and conditions of the credit. Then the bank sends the documents to the L/C opening bank.

Making the Payment of Foreign Bill through the Reimbursing Bank:

The L/C issuing bank getting the documents checks immediately and if they are in order and meet the credit requirements; it will arrange to make payment against L/C through reimbursement bank and will send the importer the document arrival notice [2].

Lodgment & Retirement of shipping documents:

After scrutinizing the import negotiating document, if no discrepancy is found then it is treated to be accepted after the end of seven banking day following the day of receipt of the document under “Article 1(b) of UCPDC –500”. If any discrepancy is found then the banker inform it to the importer that whether he accept the bills with discrepancies or not. If the importer does not accept, the banker (SEBL) informs it to the negotiating bank within seven banking days from the date of receipt of the documents, otherwise it is treated to be accepted and the opening bank (SEBL) must bound to pay against the bill and no complain against the bill will be accepted more than 4 banking days following the date of receipt of the documents [8].

The shipping documents then stamped with PAD (Payment Against Document) number and entered in the PAD register. As soon as the above formalities are completed, the importer is served with PAD bill intimations for retirement of concerned import documents [2].

On intimation the importer calls on the bank’s counter requesting retirement of the shipping documents against payment to the debit of their account by the bill amount and other charges payable [2].

After the vouchers are passed, endorsement is made on the back of the bill of exchange as ‘Received Payment’ & bill of leading is endorsed to the effect that ‘Please deliver to the order of M/S’ under two authorized signatures of the bank officials of SBL. Then the documents are delivered to the L/C applicant (importer).

But if there is any discrepancy in the documents, the L/C issuing bank send message to the negotiating bank to rectify it under its risks and responsibilities [9].

 Export:

Export is the process of selling goods and services to the other countries [2]. Creation of wealth in any country depends on the expansion of production and increasing participation in international trade. By increasing production in the export sector we can improve the employment level of such a highly populated country like Bangladesh. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through SEBL are readymade garments exporters [4]. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers [4].

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.

Export Policy:

Export policies formulated by the Ministry of Commerce, GOB provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target [9].

It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime [9].

The export-oriented private sector, through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government.

Export  Procedures:

The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950 [9].

Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year [9]. The ERC number is to incorporate on EXP forms and other papers connected with exports.

Registration of Exporters:

For obtaining Export registration Certificate (ERC), intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents [9]:

• Nationality and Assets Certificate;
• Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company;
• Bank Certificate;
• Income Tax Certificate;
• Trade License etc.

Securing the Order:

After getting ERC Certificate the exporter may proceed to secure the export order [9]. He can do this by contacting the buyers directly or through agent.

In this purpose the exporter may get help from [9]:

• License Officer;
• Buyer’s Local Agent;
• Export Promoting Organization;
• Bangladesh Mission Abroad;
• Chamber of Commerce (local & foreign)

Signing the Contract:

After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc [2].

Receiving Letter of Credit:

After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment.

The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit [9]:

(1)  The terms of the L/C are in conformity with those of the contract;

(2)  The L/C is an irrevocable one, preferably confirmed by the advising bank;

(3)  The L/C allows sufficient time for shipment and negotiation.

Terms and conditions should be stated in the contract clearly in case of other mode of payment [9]:

• Cash in advance;
• Open account;
• Collection basis (Documentary/ Clean)

Procuring the materials:

After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise [2].

Shipment of goods:

Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C and incoterms, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time [2].

Documents for shipment [9]:

• EXP form.
• ERC (valid).
• L/C copy.
• Customer Duty Certificate.
• Shipping Instruction.
• Transport Documents.
• Insurance Documents.
• Invoice.
• Bills of Exchange (if required).
• Certificate of Origin.
• Inspection Certificate.
• Quality Control Certificate.
• G.S.P. Certificate.

Final Step:

Submission of the documents to the Bank for negotiation.

 Export Financing:

Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation [2]. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract.

• Pre-shipment credit
• Post-shipment credit

Pre-shipment credit:

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country [2]. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes [2]:

• Cash for local procurement and meeting related expenses.
• Procuring and processing of goods for export.
• Packing and transporting of goods for export.
• Payment of insurance premium.
• Inspection fees.
• Freight charges etc.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings [2]:

• Export cash credit (Hypothecation)
• Export cash credit (Pledge)
• Export cash credit against trust receipt.
• Packing credit.
• Back to back letter of credit.
• Credit against Red-clause letter of credit.

Post Shipment Credit:

This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents [2]. Necessity for such credit arises, as the exporter cannot afford to wait for a long time for without paying manufacturers/suppliers [8]. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through [2]:

1. Negotiation of documents under L/C;
2. Foreign Documentary Bill Purchase (FDBP):
3. Advances against Export Bills surrendered for collection;

Negotiation of documents under L/C:

The exporter presents the relative documents to the negotiating bank after the shipment of the goods [2].  A slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank [2]. So the negotiating bank must be careful, prompt, systematic and indifferent while scrutinizing the documents relating to the export.

Foreign Documentary Bill Purchase (FDBP):

Here the exporters are also made on the basis of contract between the buyer and the seller without the cover of a letter of credit. In such case, documents are delivered to the buyer through the intermediary of the foreign correspondent of the authorized dealer against payment/acceptance [9].

Foreign exchange risk is defined as the potential change in earnings arising in market prices [8]. The market directly affects each country’s bond, equities, private property, manufacturing, and all assets that are available to foreign investors [8]. Foreign exchange rate also play a vital role in determining who finances government deficits, which buys equities in companies and literally affects and influences the economic scenario.

CHAPTER 4

DATA ANALYSIS AND FINDINGS

Performance of Foreign Exchange Business:

In spite of the tough competitiveness prevailing in the market, the Foreign Exchange Business of this bank has expanded substantially compared to that of the previous year.

The yearly Letter of Credit (L/C) business of Southeast Bank Limited, Shyamoli Branch is showed in the following table:

Table 4.1: Yearly L/C Business (approximate) [1]

The year 2001 encountered a couple of severe political and economic distortions that created the adverse trend. From the table we can understand that the business rose very high in the year 2000. In the year 1999 the branch started to provide the Letter of Credit facility to its customers and that was also around middle of the year.

The commission earned from this business is stated in the following table.

 Table 4.2: Yearly L/C Business Commission earned (approximate) [1]

The Letter of Credit (L/C) commission earned from these years is consistent with the Letter of Credit business of that particular year, although they are not totally proportional to the L/C business. This is because the commission is variable depending on the bank- client relationship on a one-to-one basis.

Performance and Achievement of SEBL:

Capital:  

The Authorized Capital of the bank is Tk. 500 million and Paid-up Capital is Tk. 363 million as on 31 December 2001 [1]. The bank maintains a secured capital adequacy ratio which is 8.77% of the Risk Weighted Assets as of December 31, 2001 as against the requirement of 8% set by the Bangladesh Bank.

Reserve:

The bank raised its reserve from Tk. 235.28 million to Tk. 394.20 million during the year 2002 (Till June 30, 2002), which is quite significant compared to the position of the previous year [1].

Deposits: 

The accumulated total deposit of the Bank was Tk. 12,770.00 million as on June 30, 2002 registering an increase growth rate of 6% than of the previous year [1].

Loans & Advances: 

The Bank continued to extend credit facilities throughout the period to various sectors. Total Loans and Advances of the bank stood at Tk. 9,816.00 million as on June 30,2002 against Tk. 9,318.80 million in the previous year showing an increase of 5% [1]. The bank has extended credit facilities for ‘Post Import Finance’, ‘Export Finance’, ‘Consumer Loan’, ‘Term Loan’, ‘Working Capital Finance and Overdrafts [1].

Import & Export Business:

The foreign exchange business of the Bank marked an increase from that of the corresponding period. The import and export business during the year 2001 reached Tk. 12,187.37 million and Tk. 2,675.05 million respectively against 11,239.14 and Tk. 1,319.51 million of the previous year [1]. The growth in import business was 8.44% while that for export was 102.73%.

Investments:

The performance of the Investment Wing of the bank during the year 2002 (June 30) was Tk. 1,902.00 million posting a growth of 18% over the same period of previous year [1]. The investment portfolio comprises of Treasury Bill, Biman Bond, Grameen Bank Bond, Prize Bonds and Shares of local companies.

Profit:

The operating profit of the Bank increased to Tk. 492.13 million in 2001 compared to Tk. 337.33 million in the year 2000 indicating growth of 45.89% [1].

SWOT Analysis for SEBL:

SWOT is a short form that is used to describe the particular strengths, weakness, opportunities and threats that are strategies factors for a specific company. For the Southeast bank ltd. I found it as follows:

Strengths:

• Efficient management.
• Leading Retail loan providers.
• Better employee relations.
• Better location of the branch.
• Better financial standing.
• Interesting consumer schemes.
• Quick delivery of foreign exchange.
• On line Banking
• ATM facility
• Simultaneously Islamic Banking.

Opportunities:

• Market leadership.
• Growth of the banking sector.
• Different consumer service scheme of the SEBL.
• Make the goodwill.
• Perform more quickly services.
• Go beyond the national boundaries.
• SMS banking.

Weakness:

• Inadequate work force.
• Conservative loan facility.
• Profit rate is less than others.
• Lack of sufficient own ATM booths.

Threats:

• Political instability.
• Intense competition.
• Government rules and regulation.
• Economical variation.
• Policy of competitive banks.

 FINDINGS:

The analysis shows that L/C Processing in Southeast Bank Ltd. is not in a structured form. The presentation of data can be summarized as of the following findings:

• Developing an effective L/C marketing strategy is now being considered important by Southeast bank.
• Usually no pretest is used to market financial product.
• Any new product and existing or modified offerings are communicated largely by newspapers, TV commercial is used in a limited form, and outdoor advertising through billboard are widely used. But especially personal selling used for L/C marketing.
• Internet banking has been used in a limited form. Southeast Bank provide little some online banking service. Balance of an account or loan or deposit can be checked and inquires are possible through online and Bank transfer their customers L/C order to abroad bank by online banking.
• Customer database are maintained by Southeast Bank. 100% of sample maintains the database and they use it for marketing and Customer Relationship Management (CRM).
• SEBL has Relationship Manager. The job description of RMs is not well structured as they should. The job of RM is generally performed by the branch officer.
• SEBL banks have their own websites which acts as an information center and promotional tool for the banks.
  • Financing in the international trade is very crucial for the economy as well as it is risky. Sometimes the government imposes restriction to import and export some products. As a result the rate of opening L/C become reduces.

• The Foreign Exchange Department is very much Strong. Clauses they use in dealing with the foreign Bank in term of L/C opening and amendment of L/C, are very much eligible to the foreign Bank. It is giving a competitive advantage to the SEBL. For this, businessmen like to deal their business with the SEBL.

CHAPTER 5

SUMMARY, CONCLUSIONS & RECOMMNDATIONS

 SUMMARY & CONCLUSION:

In today’s world of business without bank’s co-operation, it is almost impossible to run any business or production unit of business. Exports and import need finance in various stages of their activities. Southeast Bank Limited is playing a vital role in financing import and exports of the country and helping the businesses by providing funds to run.

There are lots of local and foreign banks competing in banking industry in Bangladesh and the Southeast Bank Limited is keeping its promises for about fourteen years among them very successfully. In this competitive market Southeast Bank has to compete not only the others commercial banks but also the public banks and other financial institution also. In near future I think bank and mobile companies will come together to foster the banking service and make it available to people’s hand.

 To survive in this dynamic market and lead it from the front the bank must take every initiative very wisely and so far they have successfully utilized their human resource efficiently compare to other private and public banks.

Before internship I had idea about banking but that was only bookish. Now after completing my internship period and preparing term paper on it I got practical aspect of banking. It will definitely help me to see the things from banking perspective also.

Recommendation:

Southeast Bank is one of the most flourishing Banks of Bangladesh with wide growth opportunities of the industry. Through this study I myself gained some practical knowledge about Import & Export business in Bangladesh and other related matter. I want to put some suggestion here which I think if followed would definitely help Southeast Bank Ltd. to promote its import and export business and there-by its contribution in the whole economy.

Suggestions are-

1. To attract more clients SEBL should sought new marketing strategy, which will increase the total export and import business
2. Introduction of various incentives to increase remittance.
3. Effective and efficient initiative is necessary to recover the default loans.
4. Attractive incentive package for the exporter will help to increase the export and accordingly it will diminish the balance of payment gap of Southeast Bank Ltd.
5. Effective training is very much essential for the foreign exchange officials.
6. Foreign exchange operation of other Bank is more dynamic and less time consuming. SEBL should be armed with modern facility to face the challenge.
7. In our country, financial problem is a great constraint to foreign trade and  SEBL is very mush conservative to post shipment finance. If the Bank took a bit liberal position the exporter could easily come out from financial constraint.
8. Bank can provide foreign market reports, which will enable the exporter to evaluate the demand for their product in foreign countries.
9. Foreign trade department will not create any additional credit in any account beyond the extent conveyed to them by the credit department.

           10   SEBL may start online banking system for efficient Transactions.

11  SEBL can pursue a diversification strategy in expanding its current line of business.

12  By expanding business portfolio, SEBL can reduce its business risk.

 REFERENCES

[1]  Annual report, Southeast Bank Ltd., 1999-2010.

[2]  HOWARD R. GOLDSMITH, (2011), “A Guide to growth profits, and market share”, New Jersy, Englewood Cliffs; Prentice Hall.

[3]  Article 1, 2 & 4, published from Southeast Bank Ltd., (2006).

[4]  https:// www.southeastbank.com.bd.

[5]  http://bankinfobd.com/banks/41/southeast-bank.

[6]  http:// www.southeastbank.com.bd.event/php.

[7]  http:// www.southeastbank.com./.bd/profile.php.

[8]  Article on UCPDC, published from Janata bank Ltd.

[9]  Foeign exchange regulation, published from Bangladesh Bank.

[10] Bangladesh Bank, schedule bank statistics, various issues.