Overview of Foreign Exchange Business of Shahajalal Islami Bank Ltd

Letter of Credit Operation of SJIBL:

Today SJIBL is one of the leading and most successful Banking enterprises in the country. It plays great role in the economy of the country. By export-import business the bank play a great role to the economy of Bangladesh. SJIBL is one of the greatest banks in export-import business.

Foreign trade plays a vital role in the economy advancement process of a nation. So the trend of country’s foreign trade; i.e. import and export of a great concern to the government of a country. Fluctuation is the parameters of foreign trade immediately bring about some impact on the total economy. As such the nature, trend and volume of foreign trade are required to keep peace with the national economic needs and objective. There may be some areas where emphasis is to be given where there may be others which deserve restrictions and discouragement. Moreover the items of import and export value and volume of the same, the corresponding time period, sources of fund for payment and receipt, all these factors are to be considered very carefully for making necessary adjustment to match with the national economic policies as well as achieve balanced economic growth through the inter policy co-ordination.

Amendment of L/C:

After opening of L/C some time’s alteration to the original terms and conditions become necessary. These amendments involve changes in,

a. Unit price

b. Extension of validity o the L/C

c. Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

For any amendment the importer must request the issuing bank in writing duly supported by revised indent/Proforma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.

 Loan against Trust Receipts (LTR)

Advance against a Trust Receipt obtained from the Customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained,

The customer holds the goods or their sale-proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.

The Trust Receipt is a document that creates the Banker’s lien on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

 Loan against Imported Merchandise (LIM)

Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank, Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.

  Payment Procedure of Import Documents

This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This task constitutes the following:

Date of Payment

Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing Sale Memo

A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

Requisition for the Foreign Currency

For arranging necessary fund for payment, a requisition is sent to the International Department.

Transmission of Message

Message is transmitted to the correspondent bank ensuring that payment is being made.

 Export:

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year, The ERC number is to be incorporated on EXP forms and other documents connected with exports. The formalities and procedure are enumerated as follows;

 Obtaining exports L/C: To get export L/C form exporter issued by the importer.

Submission of export documents; Exporter has to submit all necessary    documents to the collecting bank after shipping of goods Checking of export documents; after getting the documents banker used to check the documents as per L/C terms Negotiation of export documents; if the bank accepts the document and pays the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. IF the bank does buy the L/C then the bank normally acts as collecting bank. Realization of proceeds: This is the period when the issuing bank has realized the payment.

Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment.

Issue to proceeds realization certificate (PRC): Bank has to issue precede realization certificate of export LC to the supplier/ exporter for getting cash assistant.

 Export operation:

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 exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its 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 Shahjalal Islami Bank Ltd are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

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,

As an advising bank

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

As Negotiating Bank

It negotiates the bills and other shipping documents in Favor of the exporter. That is, it collects the proceeds of the export-bill from the drawer and credits the exporter’s account for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawer to en-cash it.

In our country, Export and Import operation of bank is very much related with one another because of use of Back to Back and maturity of payment for Back-to-Back L/C is set in such that it can be paid out of export proceeds.

) Back-To-Back L/C:

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/C. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.

  Features of Back to Back L/C

       An Import L/C to procure goods /raw materials for further processing.

       It is opened based on Export L/C.

       It is a kind of Export Finance.

       Export L/C is at Sight but back to Back L/C is at Usance.

       No margin is required to open Back to back L/C

       Application is registered with CCI&E

       Applicant has bonded warehouse license.

       L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.

       Use period will be up to 180 days.

       The import L/C is opened for 75% of the value of Export L/C.

       Here L/C issued against the lien of export L/C.

       Arrangements are such that export L/C matures first then out of this export profit, import L/C is paid out.

 Documents Required for Opening a Back-to-back L/C

In Shahjalal Islami Bank Ltd Principal Branch, following papers/ documents are required for opening a back-to-back L/C-

1. Master L/C

2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

3. L/C Application and LCAF duly filled in and signed

     4. Proforma Invoice or Indent

5. Insurance Cover Note with money receipt

6. IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C –

1. Textile Permission

2. Valid Bonded Warehouse License

3. Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

 Checklist of Export L/C

Following defective points are usually found in the Master L/C. So, the bank officials so much carefully check these points. These are:

1. Name of the Advising Bank.
2. Name of Transferring Bank
3. Form of Doc. credit:

• § Name of Issuing Bank
• § Documentary Credit No. and issuing date
• § Date of shipment
• § Expiry date and place

1. Applicant/ for order of/ On Account.
2. Beneficiary/ Favoring
3. Amount
4. Availability of Credit
5. Partial shipment/ Transshipment
6. Payment condition /Draft Sight
7.  Category.
8.  Description of goods:

• Item
• Total Qty
• Unit price

1.  B/L Clause
2.  Reimbursement clause.
3.  UCPDC Clause
4.  Net FOB value.

   Payment of back to back L\C

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

 L/C under EDF:

Exporter development Fund is created by Bangladesh Bank to give encourages to the exporter in Bangladesh.

Generally Back-to-Back L/C is Usance L/C that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance/negotiation. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank gives me fund to the bank to pay the price of imported goods in favor of the local purchaser of raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.

Negotiation of exports documents:

The most common method of financing exporters is negotiation of documents under L/C. It is a post-shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation.  The documents are to submit within the period mentioned in the L/C. after approval of negotiation of the bill the full particulars of the documents are entered into the Foreign bill Purchased (F.B.P) register. The documents are sent to the L/C opening branch with a forwarding letter. The branch claim reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to credit the proceeds of the bill to the Shahjalal Islami Bank Ltd. head office NOSTRO A/C maintained with the named correspondent bank abroad under telex intimation to the Principal branch and Head Office (International Division).

Negotiation stands for payment of value to the exporter against the documents stipulated in the L\C. If documents are in order, Shahjalal Islami Bank Ltd. purchases (negotiates) the same on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

If the bank is not satisfied with the documents submitted to Shahjalal Islami Bank Ltd. gives the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening bank for collection. This is known as Foreign Documentary Bill for Collection (FDBC)

 Presentation of export documents for negotiation/Purchase:

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

       Bill of exchange 

       Bill of Lading

       Invoice

       Insurance Policy/Certificate

       Certificate of Origin

       Inspection Certificate

       Consular Invoice

       Packing List

       Quality Control Certificate

       G.S.P. certificate.

Payment Procedure for FDBP

(i)           After purchasing the documents, Shahjalal Islami Bank Ltd. gives the following entries:

FDBP A/C —————————————————- Dr. (at OD sight rate)

Customer A/C ———————————————– Cr.

(Before realization of proceeds)

Bank would realize only postage charges from the exporter.

Subsequently, Bank will send the documents to the L/C opening Bank for payment with a forwarding letter detailing the enclosures. Upon realization of proceeds the Negotiating Bank would pass the following vouchers:

Head Office A/C ——————————————– Dr. (at T.T Clean rate)

FDBP A/C —————————————————- Cr.

Income A/C Profit on Exchange Trading ————- Cr.

              (Adjustment after realization of proceeds)

A FDBP Register is maintained for recording all the particulars

Foreign documentary bills for collection (FDBC):

Shahjalal Islami Bank Ltd. forwards the documents for collection due to the following reasons,

       If the documents have discrepancies.

       If the exporter is a new client.

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment. Shahjalal Islami Bank Ltd. make regular follow-up with the L/C opening Bank in case of any delay in getting payment.

Settlement of Local Bills:

The settlement of local bills is done in the following ways,

1. The customer submits the L/C to Shahjalal Islami Bank Ltd. along with the documents to negotiate
2. Shahjalal Islami Bank Ltd. official scrutinizes the documents to ensure the conformity with the terms and conditions.
3. The documents are then forwarded to the L/C opening bank.
4. The L/C issuing bank gives the acceptance and forwards an acceptance letter.
5. Payment is given to the customer on either by collection basis or by purchasing the document.

Mode of Payment of Export Bill Under L/C:

As per UCPDC 500, 1993 revision there are four types of credit. These are as follows:

1. Sight Payment Credit:

In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

2. Deferred payment Credit:

In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. Payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T clean rate. The difference between the two rates us the exchange trading for the branch.

3. Acceptance credit:

In acceptance credit, the exporter presents a bill of exchange payable to himself and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

4. Negotiation Credit:

In Negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

 Shahjalal Islami Bank Ltd. L/C Nature of Code:

       Cash LC (sight) Foreign                                                     –  01

       Cash LC (usance) Foreign                                                  – 02

       Inland back to back LC (sight)                                           – 03

       Inland back to back  LC (usance)                                      – 04

       Foreign back to back LC (sight)                                         – 05

       Foreign back to back LC (usance)                                     – 06

       LC under AID/Loan  ED                                                    – 07

       LC under STA                                                                   – 08

       Import from EPZ (cash LC) (sight)                                    – 09

       Import from EPZ (cash LC) (usance)                                 – 10

       Import form EPZ (B/B LC) (sight)                                     – 11

       Import from EPZ (B/B LC) (usance)                                  – 12

       Others (LC) cash LC Local sight or usance                         – 99

 Shahjalal Islami Bank Ltd. Back to Back L/C Commission:

       Back to Back (Foreign):

1^st quarter- 0.50%

(LC issue date to asperity date with in 90 days than 90 days (0.50%+0.30% = 80%)

 Back to Back (foreign) other charge:

Data max charge    – 1000

Swift                                – 3000

Stamp                              – 150

Back to Back  (Local):

  1^st quarter- 0.50%

(LC issue date to expiry date with in 90 days than 90 days (0.50%+0.30% = 80%).

 Back to Back (Sight Local) :

1^st quarter- 0.50%

(LC issue date to expiry date with in 90 days than 90 days (0.50%+0.30% = 80%).

Export Development fund:

1^st quarter- 0.50%

(LC issue date to expiry date with in 90 days than 90 days (0.50%+0.30% = 80%).

Export processing Zone:

 1^st quarter- 0.50%

(LC issue date to expiry date with in 90 days than 90 days (0.50%+0.30% = 80%).

Export processing Zone other charge:

Data max charge    – 1000

Courier charge       – 200

 – 0.50%

(LC issue date to asperity date with in 90 days than 90 days (0.50%+0.30% = 80%)

Back to Back (foreign) other charge:

Data max charge    – 1000

 Swift                               – 3000

Stamp                             – 150

Foreign Remittance:

 Shahjalal Islami Bank Ltd bank is authorized dealer to deal in foreign exchange business. And the Keraniganj Branch is authorized dealer; normal procedure of the AD branch is stated.

 As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services.

The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes places at an agreed rate of exchange, which the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like any other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.

Remittance Procedures of Foreign Currency:

There are two types of remittance:

1. Inward remittance
2. Outward remittance.

 Inward Foreign Remittance

Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D, and bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills retired.

Working of this Department:

1. Issuance of TC, Cash Dollar /Pound
2. Issuance of FDD, FTT & purchasing, Payment of the same.
   1. Passport endorsement.
   2. Encashment certificate.
   3. F/C Account opening & filing.
   4. Opening of Export FC retention Quota A/C& maintain.
   5. Maintenance of ledger of Cash Dollar, FC Deposit A/C & TC.
   6. Maintain FBC register &follow up FBC.
   7. Opening of Student file &Maintain.
   8. Preparation of all related statement, Voucher & posting.
   9. Preparation of Weekly, Monthly, Yearly Statement for Bangladesh Bank returns timely.
   10. Attending all related correspondence to other Bank or Institutions.

Remittance Process Modes:

The remittance process involves the following four modes

 In these processes of remittance, bank must have to make profit as a business institution. Profit is made in two ways:

 1.      Commission charged

2.      Difference in the buying and selling rate.

Conclusion:

From the practical implementation of customer dealing producers during the whole period of my practical orientation in Shahjalal Islami Bank Limited, I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient considered as soon as possible. Besides, every bank has to survive amidst of a large number of banks including local and foreign.