Report on Foreign Exchange practice of ICB Islamic Bank

Main purpose of this report is to analysis Foreign Exchange practice of ICB Islamic Bank Limited, here focus on inherent risk of Export L/C. Other objectives are to observe the foreign correspondents and to observe the post import financing operations. Report also analysis the expansion of Foreign Trade business of the ICB IBL. Finally identify the problems of it’s financing and recommend solutions of or solving the problems faced by ICB IBL in Foreign exchange Business.

Objective of the Report:

Objective of the study acts as a bridge between the starting point and the goals of the study. To illustrate the objectives properly, presented into two parts:

General:

• To get practical idea about Islamic banking activity.
• To observe the Foreign Exchange operation of ICB Islamic Bank Limited and their services.

Specific:

• To observe the major outline of foreign business.
• To observe credit line arrangement.
• To observe the foreign correspondents of ICBIBL.
• To observe the post import financing operations.
• To analysis the expansion of Foreign Trade business of the ICBIBL.
• To identify the problems of it’s financing.
• To recommend solutions of or solving the problems faced by ICBIBL in Foreign exchange Business.
• To adjust with business environment that will be helpful for my career.

Methodology

Type of study:

There are mainly three different types of researches. I should define my type from these three types of researches. The researches are:

Exploratory Research: The objective of exploratory research is to gather preliminary information that will help define the problem and suggest hypotheses.

Descriptive Research: In this type of research certain problem, operation and issue are analyzed in a descriptive manner and also focus on the finding and recommendations.

Causal Research: The objective of such type of research is to test hypotheses about cause and effect relationships.

After doing all the research work & analyze all those I can see that, I have done a descriptive type of research.

Methodology for Data Collection:

The Primary sources of Data:

• Face to face conversation with the respective officer of the branch.
• Face to face conversation with the clients.
• Practical desk work.
• Relevant file study as provided by the officers concerned.

The Secondary sources of Data:

• Annual Reports of the ICBIBL.
• Periodicals published by the Bangladesh Bank.
• Different books, articles etc. regarding Foreign Exchange operations.
• Various brochures.
• Daily summary sheet.
• Various type of statement.
• Various resister books.
• Various printed form.
• Web page: icbislamic-bd.com.

Introduction

Bangladesh is a developing country, whose economy is agro based. The Agricultural system is primitive and frequently affected by natural disaster. Poverty is the main problem of this country. About 47.6% of its population is living below the poverty line and another 18% of the population is living below the hard-core poverty line (with consumption less then 1800 calories per head per day).

After the devastating flood of 1998-1999, economic activities of the country resumed by taking various rehabilitation program and bumper production in the agriculture sector. Bangladesh economy has faced severe set back again after the terrorist attack at world trade center of USA on September 11, 2001. That event changed the world economic scenarios and caused global economic recession. This global recession severely affected different sectors of Bangladesh economy like ready made garments industry, Frozen food, tourism etc. and due to the global recession foreign assistance was also severely affected.

To overcome this situation government has taken various reform plan .Govt. also prepares the current fiscal year’s budget to decrease the foreign aid dependency. Although global recession has caused the ever lowest foreign currency reserve of US$1057n million in October, 2001, which is increased to US$1478 million in April, 2002 & US$20100 in June, 2004 by various positive steps taken by the Government money laundering law, emphasis on remittance through proper banking channel.

According to Bangladesh economic analysis (2002) of ministry of finance, income is increased by 1.73% and population is increased 1.71%. Per capita GDP, GNI and NNI are shown in the following table:

The country’s economy is based on agriculture. Rice, jute, tea, sugarcane, tobacco, and wheat are the major crops. Bangladesh is the world’s largest producer of jute. Fishing is also an important economic activity, and beef, dairy products, and poultry are also produced. Except for natural gas (found along its eastern border), limited quantities of oil (in the Bay of Bengal), coal, and Bangladesh possesses few minerals.

Dhaka and Chittagong (the country’s main sea port) are the principal industrial centers for clothing and cotton textiles, jute products, processed food, pharmaceuticals products, steel, and chemical fertilizers. Remittance, from several million Bangladeshis working abroad is the second largest source of foreign income. It has been a normal practice that Bangladesh Government has been sending our Defense Troops to all over the world for United Nation Peace Keeping operation mission. At present Bangladesh is the largest troops contributing country for United Nation Peace keeping/enforcement operation in all over the world. Our Bangladeshi Troops members are now become very renowned and highly appreciated at all levels for their honesty, sincerity and professionalism.

Since the country is unable to feed itself, the most important importing goods of Bangladesh is food. Capital goods, petroleum, are other major importing goods. Western Europe, the United States, India, and China are the main trading partners of Bangladesh.

The History of ICB

From the initial issuance of a license to operate a bank in Hungary in 1994 (which was disposed in May 2007), the ICB Banking Group has established or acquired commercial banks in Eastern Europe, Africa and Asia within the last fourteen years. By now ICB Banking Group is operating banks in thirteen countries and with the advantage of banking experience of more than a decade in a global environment.

In 1996, the group began its first African operations in Ghana and today has a presence in 9 African countries.

The Group subsequently made its foray in Asia in 2003 by acquiring an indirect stake of 11.3% of Bank International Indonesia, one of the largest banks in Indonesia (which was disposed in January 2008). It also acquired a controlling concern in the mid-size bank Bumiputera in Indonesia in 2004, thereby expanding its frontiers in the banking industry. In 2004, the individual ownerships of the ICB Banking Group were corporative under the umbrella of ICB Financial Group Holdings AG, a Swiss based holding company. On 17th May 2007, ICB Financial Group Holdings AG was listed on AIM market of the London Stock Exchange.

BACKGROUND OF THE ICB ISLAMIC BANK LIMITED IN BANGLADESH

Government states the rule and regulation that should be followed by a private bank. The initiative of government has paved the way to create new and dynamic financial institutions. One such institution in our banking sector is “ICB Islamic Bank Limited”. The bank has been incorporated in April, 1987 as a public limited company under the Companies Act, 1913 to undertake & carryout all kinds of banking, financial & business activities, transactions & operations in strict compliance with the principles of Islamic law (Shariah) relating to business activities in particular avoiding usury in credit & sales transactions & any practice which amounts to usury. Certificate for commencement of business has been issued to the bank on April, 30, 1987.

The Bank has been authorized by the Bangladesh Bank to carry on the banking business in Bangladesh with effect from May 4, 1987. However; actual banking operations commenced on May 20, 1987 & emerged as 2^nd Islamic Bank in the country under the name “Al Baraka Bank Bangladesh Limited”.

Initially bank has started its operation in the name of Al Baraka Bank Bangladesh Limited but on 31^st December, 2002 it was renamed as “The Oriental Bank Limited” by the Register of joint Stock Companies.

The Oriental Bank Limited had been going through financial crisis for years and the bank gradually reached the verge of collapse at beginning of 2006. It became a serious issue by following a report of Daily Prothom Alo which brought the issue to all concern. Following the report of Prothom Alo and few other dailies, there were serious pressure of withdrawal on the bank which was about to take a ruinous form. Moreover, unfavorable news regarding the Oriental Bank Limited started influencing clients of other private banks to withdraw their money. Observing this situation, for salvaging oriental and other private banks as well, Bangladesh Bank was considering number of options and finally opted to takeover the responsibility of the Bank. As such, Bangladesh Bank on 19.06.2006 removed the Managing Director, dissolved the Board of Directors and appoints an Administrator. Bangladesh Bank undertook the control of the bank on June 19, 2006 as bank was in extreme liquidity crisis due to many setbacks and irregularities in preceding years. Bangladesh Bank also confiscated shares of the owners later on. The Bank was listed at Dhaka Stock Exchange limited and Chittagong Stock Exchange Limited.

On 4th March 2008, The Oriental Bank was took over by ICB Banking group.. ICB Islamic Bank Ltd. operates in Bangladesh with a total of 32 branches across the country based on Islamic Shariah. Its authorized Capital is Tk.10.00 billion (USD 0.14 billion approx.) and Paid-up Capital is Tk.7.00 billion (USD 0.1 billion approx.). The present Chairman of our Bank Dr. Hadenan A Jalil was the former Auditor General of Malaysia. The Chief Executive (Managing Director) Mr. Abdul Latif Bin Yahaya was the former High Official of the Central Bank of Malaysia. The ICB Banking Group is a member of London Stock Exchange. Commensurate with the global policy of ICB Banking Group, ICB Islamic Bank is committed to provide banking services of international standard to its clients in all areas of banking to cater customer need. ICB dedicated substantial investments to ensure that best people are employed; the operating systems are technologically superior; proven systems and methods are implemented consistently with best practices; strong internal controls are entrenched; and proactive risk management is implemented and respected.

The principal place of business is the registered office at T.K. Bhaban ( 4^th,14^th, 15th, 16th Floor), 13, Kawran Bazar, Dhaka-1215, Bangladesh. ICB Islamic Bank Ltd. Currently the bank has 32(thirty two) branches; 12 in Dhaka, 4 in Chittagong, 4 in Sylhet, 3 in Jessore, 1 each in the district of Khulna, Hobigonj, Barisal, Rajshahi, Feni, Narsingdi, Naogaon, and Narayangonj.

The bank provides all kinds of commercial banking services to customers observing the provisions of the Bank Companies Act.1991, Bangladesh Bank’s directives & the principles of Islamic Shariah.

Working Sector of ICB Islamic Bank Limited: 

To perform these functions simultaneously the bank divides its operations in four parts that is General Banking, Loan and Advances, Foreign Exchange and Account section.

Foreign Exchange:

Foreign exchange means exchange of foreign currency between two countries. Foreign exchange deals with foreign financial transactions. There are three types of foreign exchange transactions:

• Export and
• Foreign Remittance.

Introduction of Foreign Exchange Practice:

Foreign trade can be easily defined as a business activity, which transcends national boundaries. These may be between parties or government ones. Trade among nations is a common occurrence and normally benefits both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes.

Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economically profitable for a country to specialize in the production of that commodity in which the country has greater comparative advantage and allow other country to produce those commodities in which it has lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc.

This trade among various countries causes close relation between the parties dealing the trade. The bank, which provides such transactions, is referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and payment from buyer to seller. And this flow of goods and payment are done through letter of credit (L/C).

What Is Foreign Exchange?

As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which are known as foreign exchange. The term “Foreign Exchange” has three principal meanings. Firstly, it is a term used to refer the currencies of the other countries in terms of any single currency. To a Bangladeshi, dollar, pound sterling etc. are foreign currencies. Secondly, the term also refer to some interments used in international trade, such as bill of exchange, Drafts, Travel cheque and other means of international remittance. Thirdly, the terms foreign exchange is also used to refer to the balance in foreign currencies held by a country.

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 or issued under clause (13) of article 16 of the Bangladesh Bank order, 1972, all the deposits, credits and balances payable in any foreign currency and draft cheque, letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but payable in any foreign country.

In exercise of the power conferred by section 3 of the foreign exchange regulation, 1947, Bangladesh Bank issues license to schedule bank to deal with exchange. These banks are known as Authorized Dealers. License to firms and persons are also issued by Bangladesh Bank to exchange foreign currency instruments such as T.C, currency notes and coins. They are known as Authorized moneychangers.

Functions of Foreign Exchange Department:

Exports:

• Pre-shipment advances.
• Purchase of foreign bills.
• Negotiating foreign bills.
• Export guarantees.
• Advising/Confirming letters – letter of credit.
• Advance for deferred payments exports.
• Advance against bills for collection.

Imports:

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

Remittances:

• Issue of DD, MT, TT etc.
• Payment of DD, MT, TT etc.
• Issue and enhancement of traveler’s cheque.
• Sale and enhancement of foreign currency notes.
• 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.

Valued Import Export Customer of ICBIBL:

• United Apparels Industry Ltd.
• Texport Ltd.
• Afco Abedin Germents Ltd.
• Parede International Ltd.

The most commonly used documents in Foreign Exchange:

• Documentary Letter of Credit.
• Bill of exchange.
• Bill of Lading.
• Commercial Invoice.
• Certificate of origin of goods.
• Inspection certificate.
• Packing List.
• Insurance certificate.
• Proforma Invoice / Indent.
• Master receipt.
• GSP Certificate.

Import Practice of ICBIBL:

An importer must have import registration certificate (IRC) given by chief controller of import and exports (CCI & E) to import any thing from other country. To obtain import registration certificate (IRC) the following certificates are required:

• Trade License.
• Income Tax clearance certificate.
• Nationality certificate.
• Banks solvency certificate.
• Asset certificate.
• Registration partnership deed (if any).
• Certificate of incorporation (if any)
• Rent receipt of the business premises.
• Memorandum and Article of association.

Import Procedure:

To import through ICB Islamic Bank Limited (ICBIBL), a customer/client requires

• Bank Account.
• Import registration certificate.
• Tax paying identification number.
• Proforma Invoice/Indent.
• Membership Certificate.
• L/C application form duly attested.
• One set of IMP Form.
• Insurance Cover Note with money receipt.

Import Mechanism:

To import, a person should be competent to be an importer. According to import and Export control Act, 1950, the office of chief controller of Import and Export provides the registration certificate (IRC) to the importer. After obtaining this the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank and then a person becomes a qualified importer.

The person who requests or instructs the opening bank to open an L/C is also called opener, applicant, or the credit.

Definition of L/C:

A letter of credit is a conditional bank undertaking of payment. In other words, L/C is a letter from the importer banks to the exporter that the bills if drawn as per terms and conditions will be honored on presentation.

Classification of L/C:

• Revocable L/C;
• Irrevocable L/C;
• Confirmed L/C;
• Transferable L/C;
• Divisible L/C;
• Revolving L/C;
• Restricted L/C;
• Red clause L/C;
• Green clause L/C;
• Back to back L/C;
• With recourse;
• Without recourse.

Parties to a Letter of credit (L/C):

• Importer / Buyer.
• Opening Bank/Issuing Bank.
• Exporter/Seller/Beneficiary.
• Advising Bank/Notifying Bank.
• Negotiating Bank.
• Confirming Bank.
• Paying / Reimbursing Bank.

Importer’s application for L/C limit / margin:

To have an import L/C limit, an importer submits an application to the department of (ICBIBL) furnishing the following importation:

• Full particulars of bank account.
• Nature of business.
• Required amount of limit.
• Payment terms and conditions.
• Goods to be imported.
• Offered security.
• Repayment schedule.

A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the head office credit committee (HOCC). The committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

Registration of a LC

The Letter of Credit (L/C) Registration function shall allow the user to register a new L/C upon receipt of an application for issuance / opening of L/C.

It shall provide the followings: ‑

• Able to automatically generate and assign a unique reference number for each new L/C according to the bank pre-defined format. The system‑assigned number will be the L/C reference number and shall be used for all future transactions on the L/C.
• Able to support and indicate the following types of L/Cs:
• Normal LC
• Revolving LC
• Transferable LC
• Restricted LC
• Back-to-Back LC
• Red Clause LC
• Capture brief information on L/C, such as type of L/C, customer, application date, date of receipt of application, currency and amount of L/C.
• Book / Earmark on the customer’s L/C credit line, using L/C amount in local equivalent / currency of facility, computed using prevailing counter mid-rate exchange rate.
• To log the name of user who performs the registration and the date of registration in the registration record.
• Allow user to ‘cancel/delete’ the registration record (i.e. marked unused) with reason, should the bank decide not to proceed with the issuance transaction. Reference numbers that are ‘deleted’ cannot be re‑used.

 Before opening a L/C, the issuing bank must check the following:

• L/C application properly stamped, verified signature, approved margin and properly retained.
• Indent / Proforma Invoice signed by the importer and Indenter / supplier.
• Ensure that the relevant particulars of L/C application correspond with those stipulated in Indenter / Proforma Invoice.
• Validity of LCA entitlement of goods, amount etc. conforms to the L/C application.
• Conversion and rate of exchange correctly applied.
• Charges like commission, FCC, Postage, Telex charge, SWIFT charge, if any recovered.
• Insurance Cover Note – in the name of issuing bank – A/c importer covering required risks and voyage route.
• Incorporation of instruction for Negotiating Bank as per banks existing arrangement.
• Reimbursement instructions for reimbursing bank.
• If foreign bank confirmation is required, necessary permission should be obtained and accordingly advising bank is advised as per banks existing arrangement.
• If add confirmation is required on account of the applicant charges should be recovered from the applicant.

L/C Opening Process

In foreign exchange banking Letter of credit (L/C) opening is an important part. L/C opening is a set of procedure which every importer needs to follow to import their products. At first importer need to contact with Exporter and with their mutual understanding exporter prepare Pro forma Invoice and sent it to the importer.

After receiving the Pro forma invoice importer presents it to their bank that is known as issuing bank that prepare L/C on behalf of importer. After preparing L/C proposal, it needs to be sent to Head office of issuing bank for approval. After getting approval from the head office, issuing bank open L/C on behalf of Importer, signed by proper authority of bank, and send it to authorized export county bank for authentication. The process is done through SWIFT/Telex. The bank that provides authentication then is known as Advising Bank. After giving the authentication seal, advising bank send it to the exporter bank as per requirement of invoice.

Charges of L/C Opening:

To open local L/C-

• Commission – 0.50% (minimum Tk 300 /-)
• Postage – Tk 100
• Stamp – Tk 150
• Service charge – Tk 200

To open foreign L/C

• Stamp – Tk 150
• Service charge – Tk 500 + Miscellaneous charge – Tk 200
• SWIFT charge – Tk 3500

Documentation check list for L/C

To open L/C the following documents are required-

• Application of the client
• Acceptance of the terms and conditions of sanctioned advice on duplicate copy.
• Copy of municipal trade license.
• IRC TIN of importer and valid Registration Certificate of Indenter.
• Copy of registered Partnership deed duly certified as true copy (in case of partnership firm)
• Copy of resolution of the partners for taking financial facilities and authorizing partner(s) for execution of documents and operation of the account (in case of a partnership firm).
• Copy of Memorandum and Article of Association of the company including Certificate of Incorporation duly certified by RJSC and attested by the managing director accompanied by an up-to-date list of director (in case of limited company), in case of public limited company Certificate of Commitment of business is to be obtained.
• Copy of board resolution of the company for taking financial facilities and authorizing directors for execution of documents and operation of the account (in case of limited company).
• An undertaking not to change the management of the company and the Memorandum and the Articles of Association of the company without prior written permission of the bank (in case of the limited company).
• Copy of the audited Balance Sheet for last three years (in case of limited company).
• L/C application (stamped),
• P Note Single / joint stamped.
• Letter of arrangement.
• Letter of continuity (stamped).
• Letter of disbursement.
• Letter of authority.
• Agreement of pledge.
• Murabaha Agreement (stamped).
• Undertaking from the client that import documents will be retired by them on the first presentation (in case no post import facility is extended).
• Marine insurance policy.
• Declaration from the importer to bear the exchange rate fluctuation.
• Letter of guarantee (stamped) of all the partners in their individual capacity (in case of a partner ship firm).
• Letter of guarantee (stamped) of all the directors in their individual capacity (in case of a limited company)
• Corporative Guarantee from legal entity on Tk150/- non-judicial stamp, if required in Head office Sanction Advice.
• Supplier’s satisfactory credit report in all cases where the amount of Letter of Credit exceeds Tk 2, 00,000 against the Proforma Invoice Issued directly by foreign supplier and Tk 5, 00,000 against indent issued by local agent of the suppliers.
• Partnership inspection Certificate if required in H.O Sanction Advice.
• Lien and physical possession of valid irrevocable Export L/C of the foreign buyers in favor of the client advice through our bank or any other scheduled Bank of the country. If the L/C is partly / wholly transferred, the transferred is to be confirmed by L/C transferring Bank and also to be signed by local agent is whose name L/C was opened (in case of back to back L/C)
• In case of failure to export the goods as per terms of export L/C they will make payment of relative import bills at maturity date from WES fund from their own sources (in case of back to back L/C).
• Insurance Policy covering all risks with bank’s mortgage clause for goods stored in the Bonded Warehouse and/or Go-down and fabrics and accessories in the production process and in finished condition (in case of Back to Back L/C)

Amendment of a L/C:

Amendment of irrevocable L/C is not permitted without the joint consent of all the parties involved in document credit operation.

Each and every clause of the L/C can be amended provided the parties involved in the L/C give consent to it. Each and every amendment of L/C must be noted in the L/C file and copies of each amendment be kept in the L/C file chronologically (date wise).

The amendment may relate to-

• The amount;
• The date of shipment/ negotiation;
• Any other requirement of the credit.

Charge against Amendment of L/C

• Any change except value – Tk 1000
• Value as well as other changes – Tk 1000 + commission (not specified)
• Only change in value – commission (not specified)

The following types of discrepancies may be noted while negotiating bank examines the documents:

1. L/C expired.
2. Late shipment.
3. Amount drawn in excess of the L/C.
4. Bill of exchange not properly drawn.
5. Descriptions of goods differ.
6. Bill of Lading or Airway Bill state.
7. Bill of Lading classified.
8. Insurance Cover Note as per terms L/C.
9. Insurance Cover obtained after the Bill of Lading or Airway Bill date.
10. Enough number of copies not submitted as required by L/C.
11. Negotiation under L/C restricted.
12. Packing List and certificate of analysis not as per the L/C.
13. Documents not properly endorsed in favor of the bank.
14. Full shipment not effective and part shipment prohibited.
15. Gross Weight and Net Weight shown in different documents differ.
16. Same of the documents required by L/C not submitted and
17. Documents inadequately stamped.

Documents with major discrepancies, which could not be negotiated, should be sent on collection basis with the permission of the exporter.

Advising of Letter of Credit:

Advising means forwarding of a Documentary Letter of Credit received from the issuing bank to the beneficiary (Exporter).

Before advising a L/C the advising Bank must see the following:

• Signature of Issuing Bank officials on the L/C and verify with the specimen signatures book of the said bank after receiving L/C.
• If the export L/C is intended to be an operative cable L/C, Test Code on the L/C invariably must be agreed and authenticated by two authorized officers.
• L/C should be scrutinized thoroughly complying with the basics of concerned UCPDC provisions.
• Entry should be made in the L/C Advising Register.
• L/C advised to the Beneficiary (Exporter) promptly and advising charges recovered.

Settlement of Letter of Credit:

Settlement means implementation of issuing bank in regard to affecting payment subject to satisfy the credit terms. Settlement may be done under three separate arrangements as stipulated in the credit

Settlement by Payment:

Here the seller presents the documents to the nominated bank and the bank scrutinizes the documents. If satisfied, the nominated bank makes payment to the beneficiary.

Settlement by Acceptance:

Under this arrangement, the seller submits the documents of the shipment to the accepting bank (nominated by the issuing bank for acceptance) accompanied by draft drawn on the bank at the specified tenor. After being satisfied with the documents, the bank accepts the documents, draft and at maturity the repayment will be obtained in the pre-agreed manner.

Settlement by Negotiation:

This settlement procedure starts with the submission of documents by the seller to the negotiating bank. After scrutinizing the documents the negotiating bank sends the documents to the issuing bank as usual; reimbursement will be obtained in the pre-agreed manner.

Cancellation of a L/C

The Letter of Credit (L/C) Cancellation function shall allow the user to cancel or close a Letter of Credit/Documentary Credit (Islamic).

It shall provide the following:‑

• Able to allow cancellation of L/C on-line for below conditions:
• Cancel L/C based upon instructions from applicant and agreement from beneficiary. Bank charges are collected.
• Cancel L/C with remaining small outstanding balance from L/C negotiation(s).
• Cancel before L/C expiry date.
• Cancel L/C due to error correction. The error correction cancellation can only be performed if the L/C is a recently issued L/C (L/C on the same day), and has no negotiations/ drawings yet.
  • Able to refund cash margin deposit and credit customer’s current account at time of on-line cancellation. System shall prompt a message to inform the users, if there is any outstanding L/C margin deposit pending refund to the customer.
  • To update credit line utilization and reinstate unutilized credit balance after approval of L/C cancellation.
  • To automatically default / calculate charges as stated in the ‘Charges’ section, at selling exchange rate (if applicable).
  • To debit customer’s current account for the charges (if any).
• To automatically generate GL entries for reversals of liabilities, charges, refund margin deposit and payments, as stated in the ‘GL Entries’ section.

Charges against cancellation of L/C:

ICB Islamic bank Limited charges Tk 500 /- for cancellation of L/C.

Auto-Cancellation of a L/C

The system will automatically close / cancel L/C that has expired. Auto-cancel is allowed in the system after lapse of the bank specified grace period (30 days after expiry date) and only if the ‘Auto-Cancel’ indicator is turned on for L/C.

It shall provide the following:‑

• Set the outstanding balance of L/C to zero and status of L/C as ‘closed’ in L/C master record.
• To update credit line utilization and reinstate unutilized credit balance upon L/C cancellation.
• To automatically generate GL entries for reversals of liabilities as stated in ‘GL Entries’ section.
• Create a history or record for each L/C cancellation performed by system.
• Report the auto-canceled L/C in the Daily Transaction/Activity List.

Export Practice of ICBIBL:

Practically by the term Export we mean carrying out of anything from one country to another. As banker, we define export as sending of visible things outside the country for sale. Export Trade plays a vital role in the development process of an economy. With the earnings from export we meet up out import bills.

Although export trade is always encouraged, any body cannot export anything to any place. Like importer the exporters are also required to get them registered before entering into export trade. Export Registration Certificate (ERC) given by CCI & E is required for this purpose. The required documents to obtain ERC are also same as IRC.

When a bank (Authorized dealer) receives a L/C (cable or original) it ascertains the correctness of the test number and the authorized signature. Then the bank sends the original copy of the L/C to the beneficiary.

The exporter presents the relative documents to the negotiating bank after the shipment of the goods. The L/C issuing bank undertakes to honor obligation only if the beneficiary fulfills the conditions stipulated in the L/C, May namely, the submission of stipulated documents within the stipulated time. Even a slide deviation of the documents from specified in the L/C may give an excuse to the negotiating bank. So the negotiating bank must be careful, promote, systematic and bias-free while scrutinizing the tender documents. After careful and through examination of the documents, the banker has to list out the discrepancies which may be classified as major or minor, irremovable or removable. The removable discrepancies can be corrected by future losses, which may arise due to non-repatriation of proceeds.

Export Formalities:

• Procedure for registration of Exporter;
• Book and register ledger required for export;
• Export L/C checking and advising;
• Formalities of back to back L/C opening;
• Accounting of back to back L/C;
• B Bill checking/ Lodgment;
• Mechanism of acceptance;
• Pre-shipment financing;
• Export document checking and negotiation under reserve / collection basis;
• Calculation of offering sheet for fund disbursement system;
• Proceeds realization correspondents;
• Formalities of back to back payment system;
• Payment from Bai-Muajjal Inv. bill A/C (if export fails);
• Substitute benefit realization / collection system;
• EXP form reporting to Bangladesh bank;
• Disposal of EXP form;
• Export incentives;
• Disputes and settlement of export claim.

Preparation of export documents:

For obtaining export registration certificate (ERC) from the CCI & E, the following documents are required:

• Application form;
• Nationality certificate;
• Partnership deed (registered);
• Memorandum & Articles of Association and incorporation certificate;
• Bank certificate;
• Income tax certificate;
• Valid trade license;
• Copy of rent receipt of the business firm;
• Fees paid treasury challans.

Checking and advising of Export L/C:

On receipt of Export L/C it has to be recorded in the banks inward register and then the signature on the L/C or test number for telex L/C is to be verified by an authorized officer of a bank and finally it is to be forwarded to the beneficiary under forwarding schedule.

Back-to-Back Letter of Credit:

Back – to – back L/C is a secondary L/C, opened by the advising Bank in favor of a domestic / foreign supplier on the basis of an export L/C. Back – to – back L/C is opened for procuring raw materials / finished goods for execution of shipment order. The beneficiary of back –to – back L/C is generally paid on negotiation of the final documents submitted by the exporter.

Although BBLC is normally opened at nil margin but Brach may ask for margin and collateral security or new clients or special cases.

The following points will be considered for allowing BBLC-

• Only recognized units of readymade garments, specialized Textiles under bonded warehouse system will be extended BBLC facility. Therefore, Branch must satisfy that the client has a valid bonded warehouse license.
• The genuineness of the export L/C must be valid with the advising bank.
• The validity of the export L/C will be for a reasonable time so that after receiving of goods under BBLC, it may be processed / manufactured comfortably keeping in view the validity of shipment period of muster L/C and production capacity of the factory.
• The value addition by the exporter will be at least 80% of the net FOB value of the export L/C (in some cases 75% are also allowed, subject to Bangladesh bank restrictions). FOB value is calculated by deducting freight charges, insurance, commission involved in shipment of the merchandise under the export L/C.
• The import L/C will be opened on issuance basis covering issuance of not more than 180 days or as prescribe by Bangladesh bank from time to time.
• Interest on issuance period shall not exceed LIBOR or the prevailing rate of interest of supplier’s country or as may be prescribed by Bangladesh bank from time to time.
• All amendments of the export L/C should be noted down carefully to rule out the change of excess L/C obligation under import L/C.
• Opening of import L/C against export L/C under Barter should not be allowed without prior permission of head office.
• In cases, where pre – shipment inspection certificate is required, internationally recognized agencies should be nominated by name to carry out the pre – shipment inspection and the same should be stipulated in the L/C, as on the clause of the L/C.

Negotiating of local back-to-back Letter of Credit:

ICBIBL negotiates local BTB L/C and make payment to the party after realization. After dispatching of goods to the buyer, seller comes to the bank with proper evidence of dispatching. If documents are in order then ICBIBL, Kill, put LDBC (Local Bill for Collection) and number from LDBC register and Lit at the same time by giving entry on the LDBC register. Then, these documents are sent to the opening bank of BTB L/C for making payment in favor of ICBIBL. After issuance period, the opening bank is supposed to make payment. If they delay payment, negotiating bank sends a reminder letter to them for realizing payment of BTB L/C.

If party needs immediate payment, then ICBIBL purchases these documents and gives LDBP seal and number from LDBP register and gives entry on the resister. At that time, full amount of the Local BTB L/C is not paid to the party. It is taken some amount for margin. So, margin is BTB L/C amount-amount paid to entitle party. Margin is kept for adjusting interest on LDBP. Here, bank earns commission. After realizing the BTB L/C bills, interest is calculated on basis of amount paid. Interest is calculated from the date of amount paid to entitle party before realizing date. Interest is deducted from the margin amount and the rest of the margin amount is credit to the party account.

Advising of local back-to-back Letter of Credit:

ICBIBL advises document of local BTB L/C and charge is Tk 500/-

FDBC (Foreign Document Bill for Collection):

It is one kind of BTB L/C. here the government organization such as electrics board, T&T etc. get L/C from foreign country as aid for buying their accessories. In this case, after supplying title goods to the title government organization, party comes to ICBIBL, with evidence of dispatching goods and request for realizing payment of this L/C. Then, bank gives LFDBC seal and number from the register on the documents and makes entry on title resister. These documents are sent to the foreign bank that is authorized for payment. After realizing payment, party is supposed to take their payment.

Bank can purchase these documents as LDBP. But, here it will be LFDBP (Local Foreign Document Bills Purchase).

Foreign Exchange Remittance:

With the word remittance we understand sending/ transferring fund through a bank from one place to another place, which may be within the country or between two countries, one within two different countries is called Foreign Remittance.

“Foreign Remittance” means purchase and sale easily convertible foreign currencies as acceptable under “Foreign Exchange Regulations Act-1947” and “Guidelines for Foreign Exchange Transaction – VOL. 1&2 of the country. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes out ward foreign remittance.

So, we see that there are two types of Foreign Remittance:

1. Foreign inward remittance.
2. Foreign outward remittance.

Inward Remittance:

The remittances that are received from abroad are called inward remittance.

Purpose of inward remittance:

• Family maintenance.
• Indenting commission.
• Foreign investment.
• Export proceeds.

Mode of inward remittance:

• Telegraphic Transfer (TT)
• Mail transfer (MT)
• Foreign Demand Draft (FDD)
• Payment order (PO)
• Travelers cheque (TC)
• Foreign Currency Notes.

Telegraphic Transfer (TT)

A Telegraphic Transfer is an instruction for transferring money by telegram, cable or telex from a bank in one centre to another bank in different centre. This is an instruction from the importer’s bank to the exporter’s bank or some other banks in exporter’s country for transferring money to a particular person. The remitting bank sends a telegraphic message to the other bank located in a foreign center to pay the amount of money. Islamic bank realized TT charge from the party as per bank circular.

Mail Transfer (MT)

A mail transfer is the order to pay cash to a third party or for a credit to be passed to the account of the payee. This order has to be made in writing and should be sent by mail. Charges must be realized as per circular.

Drafts and Cheques:

A draft is a pay order issued by one bank on another bank or on its branch. The purchaser of a draft makes payment to the seller in local currency and the draft / cheque send to the abroad for collection. After collection of the draft, correspondent bank will credit the same to the collecting bank overseas A/C. After confirmation, bank passes the necessary voucher for first and final settlement.

Outward Remittance:

Remittances that are made from our country to abroad are called outward remittance.

(General)

1. Most outward remittances are approved by the ADs on behalf of the Bangladesh Bank following declaration of Taka as convertible for current accounts payment from March 1994. Only a few remittances of special nature require Bangladesh Bank’s prior approval.
2. All remittances from Bangladesh to a foreign country or local currency credited to non-resident Taka accounts of foreign banks or convertible Taka account constitute outward remittance of foreign exchange. ADs must exercise utmost caution to ensure that foreign currencies remitted or released by them are used only for the mentioned purpose; they should also maintained proper records for submission of returns to Bangladesh bank as also for the letters inspection from time to time.

(Application on prescribed forms)

3. In all cases of purchasing foreign currency an application must be made to an AD and, where ever necessary to Bangladesh bank. For payment against imports into Bangladesh, the prescribed application form IMP (appendix 5/13) and for other types of remittances form TM (appendix 5/1). TM form must be used for reporting by the ADs even when remittance is approved by Bangladesh bank in any other manner, for instance by issuing a special permit. On receipt of the application in the prescribed form, the ADs may affect the sale of foreign exchange if they are empowered to approve the application. If the transaction requires prior approval of the Bangladesh bank, the form should be forwarded by the AD to the Bangladesh bank for consideration.

(Applications for approval of Bangladesh bank to be submitted only through an AD)

4. Application for Bangladesh bank’s prior approval for outward remittances, wherever required should be submitted to Bangladesh bank only through the ADs and not by their customer directly, all such applications should be forwarded by the ADs to Bangladesh bank by their own messengers or post.

(Dealing with approved applications)

5. In respect of the forms or permits etc approved by the Bangladesh bank, the ADs should see that these have been approved by duly authorized officer and that they bear the Bangladesh bank’s embossing seal. In case the authorization is signed by officials of Bangladesh bank whose specimen signature may not be available with them. In this case authorization should be presented to the nearest office of the Foreign Exchange Policy department and the signature should be authenticated. Once form have been approved, ADs carry out the transactions only on behalf of the original applications for whom the forms were approved.

(Permits for requiring remittances)

6. Permits issued (where applicable) by the Bangladesh bank must be utilized within the period of its validity indicated in permits. The amount released must not exceed the authorized limit. Also, the instructions, if any, given in the permits with regard to the amount to be released periodically e.g. monthly or quarterly must be strictly adhered to.

(Effecting remittance against permits)

7. Remittances that are made against permits or approval letter of Bangladesh bank should be reported on TM form. The AD must stated on the TM form the number of the permit against which the remittance has been made by him and must certified that the remittance has been endorsed by him on the permit. The remittance must be endorsed on the Bach of the permit giving the date of the remittance under the stamp and signature of the AD. When the permit is exhausted or no longer required, it should be returned to the Bangladesh bank by the AD along with the TM form on which the last remittance is reported.

(Period of validity of approval of Bangladesh bank)

8. All authorizations excepting TM forms approved by the Bangladesh bank or by the ADs on behalf of the Bangladesh bank remain valid for a period not exceeding 30 days from the date of the approval unless they are expressly stated as valid for a specified longer period or unless they have been revalidated for a further period. TM form approved by the Bangladesh bank, will, however remain valid for a period of 3 (three) calendar months from the date of approval by the Bangladesh bank. Permits issued by the Bangladesh bank are also valid for special period as stated on the permits. The AD should not affect any remittance against approved forms or permits which have lapsed unless they have been duly revalidated.

(Disposal of Application form)

9. Original copy of all IMP forms, TM forms covering remittances affected by the ADs must be submitted to the Bangladesh bank along with the appropriate returns for the disposal of the remaining copies of the IMP forms.

(Cancellation of remittance)

10. In the event of any remittance which has already been reported to the Bangladesh bank on the prescribed return being subsequently cancelled in full or in part, the ADs must report the cancellation of the outward remittance as an inward remittance.

Mode of outward remittance:

• Foreign Telegraphic Transfer (FTT)
• Foreign Mail Transfer (FMT)
• Foreign Demand Draft (FDD)
• Travelers Cheque (TC)
• Endorsement of cash
• Foreign Currency Notes.

Foreign Demand Draft (FDD)

A foreign demand draft is an order for payment of money, drawn by bank on another bank or a branch of the same bank at foreign center, on demand by the beneficiary by presenting the draft itself.

Issue of F.D.D

First of all relevant papers which establish that the issuing bank requires issuing the FDD is very important. The procedure concerning issuing FDD is same as issue of traveler’s cheque except that the customer is not required to submit his passport.

Payment of F.D.D

After receiving the FDD for payment there are few steps, which are to be followed-

• At first the FDD is to be crossed;
• Serial number is given;
• Forwarding letter to the bank with which the bank has agreement;
• Party is given the cash or his account is credited.

Travelers Cheque (TC)

Traveler’s cheques are used for the facility of meeting expenses of the travelers visiting abroad, minimizing the risk of carrying cash (currency notes). These are drawn on easily convertible currencies such as U.S Dollar / Pound / Sterling for fixed denominations, which can be converted into local currency at running rate of exchange. The purchaser puts his signature at the place provided for the purpose while purchasing the same and again signs at title prescribed place in the presence of the paying banker while converting into cash. If both the signature agrees, he gets payment in local currency.

Issue of Traveler’s cheque:

Requirements

There are some requirements, which are to be fulfilled by the purchaser of traveler’s cheque.

• Passport holder himself has to be present at the time of issuing traveler’s cheque.
• The passport must be valid one.
• Air ticket has to be confirmed.

Steps involved in issuing traveler’s cheque:

• After verifying all these documents the customer is asked to fill up prescribed application form.
• In the application the customer states willing the amount to endorse and it is verified that his required amount is within the stipulated amount.
• Then by paying cash or by crediting his account the traveler’s cheque is issued.
• Endorsement is given on the passport and on the ticket. Customers fill up the Traveler and Miscellaneous form.
• Purchase Application form is handed over to the purchaser along with the traveler’s cheque.
• Entry given in three registers, foreign currency issue resister, and traveler’s cheque on hand register and foreign currency in hand resister.

Payment of traveler’s cheque:

When a customer wants to encase his traveler’s cheque he / she has to show his / her passport and it has to be verified from the passport that he / she has traveled outside the country.

• Then the traveler’s cheque will have to be scrutinized very strictly.
• If every thing in the traveler’s cheque is in order then the customer will be asked to give his signature on the place of customer signature.
• If the signature agrees with the one in the place of “The signature of the holder” then the payments will be made through giving cash to the customer or crediting his account.
• Traveler’s cheque will be crossed and received with endorsement given on the back of the traveler’s cheque.

Endorsement of cash

Cash or foreign currency can also be remitted through endorsement in the passport. In case of endorsing cash on passport the requirements are same as in case of Traveler’s cheque.

Deposit Position

The deposit base of the Bank continues to register steady growth and stood at Tk. 24,048 million as on December 31, 2004 against Tk. 20,231 million of preceding year. The increase is 18.87 percent. Deposits mix i.e. time deposits and demand deposits of the Bank have also improved. The time deposits stood at 92.46 percent and demand deposits stood at 7.54 percent during the year 2004. The cost of fund also came-down from 9.11 percent in 2003 to 8.36 percent in 2004.

 The Bank has, in the meantime, introduced the following deposit schemes to encourage and mobilize the deposits as well as for the welfare of the people. These deposit schemes have been appreciated by the general people and have received huge response.

• Monthly profit on MTD Scheme
• Marriage Savings Scheme
• Higher Education Savings Scheme
• Savings Scheme of Children
• Future Deposit Savings Scheme(5 years)
• Future Deposit Savings Scheme (10 years)
• Hajj Deposit Savings Scheme
• Housing Savings Scheme
• Privileged Citizen Scheme
• 07(seven) years double growth Scheme for the citizens of Bangladesh.

 Investment

Total investment of the Bank reached at Tk. 17.247.00 million in 2004, in comparison to the total investment of Tk. 15,797.00 million of preceding year, a growth of 9.17 percent which signifies the confidence of the clients on the Bank.

Total classified investment as on 31.12.2004 stands at Tk. 4,209.31 million [24.40% of total investment], which was 24.01% in the preceding year. The management is expecting to reduce the classified investment to a satisfactory level gradually by giving special attention and vigorous efforts in this regard being taken by the Head Office Recovery and Monitoring Task Force and branch management. The recovery activities of the Bank have been accelerated by the Management to reduce the size of classified investment.

Foreign Remittance Business:

To earn foreign currencies for the country from remittance of the Bangladesh Expatriates living abroad, we have agency arrangement with number of Exchange houses and Banks covering the globe. The inward remittance in 2004 was BDT 2.269 Billion and BDT 1.860 Billion in 2003. This growth has been possible due to concerted efforts of the authorities to facilitate inward remittance and expeditious local delivery of the remittance to the beneficiaries.

Besides new drawing arrangements between Banks in Bangladesh with exchange houses/Banks abroad also encourage to increase foreign remittance through banking channels. 

FINANCIAL HIGHLIGHTS OF ICB ISLAMIC BANK LTD.

(formally known as The Oriental Bank Ltd.)

Source: Annual Report 2007

Comparison of Total Income and Expenditure

In 2003 the income was 84 million and the expenditure was 309 million, where as in 2004 the income was 64 million and the expenditure was 318 million. In 2005 the income was in negative figure 140 million and the expenditure was 432. In 2006 the rate of income of the company fell drastically, however, the rate of expenses kept a similar track with the previous annual expenses, which resulted in a drastic situation where crucial steps were needed to be initiated as a bail out plan. Bangladesh bank came to rescue and evidently took full authority and ownership of the bank to ensure stability. In 2007 income was raised in negative figure 79 million and expenditure was 266 million.

Comparison of Total Deposit and Investment

In 2003 the deposit was 20,231 million where as investment was 15,796 million. In 2004 deposit was 24,048 million and investment was 17,247 million. In 2006 deposit was 20,610 against 20,237 million in previous year and investment was 17,113 million against 18,032 million. In 2007 the deposit stands at 20,600 million and investment was 15,321 million. Though the deposit of 2005 falls compared to 2004 but in each of these years the investment and the deposit kept quite a close pace between itself.

Major Drawbacks of ICB Islamic Bank Limited in General banking and Foreign Exchange Business:

In this era of globalization competition among banks is increasing intensively. So to compete with other banks, ICBIBL should gain more efficiency in banking sector. As the world is changing every second they need to upgrade their service otherwise it is not so far that the bank will lost its valuable client. Today’s customer is more concerned and more knowledgeable and they will switch where they get better service.

The bank provides a wide spectrum of financial products and services to small, medium, and large businesses. And in keeping pace with ongoing technological innovations, the bank constantly looks for ways to improve its products and services.

As I have an opportunity to work with this bank in the light of my practical experience, I would like to discuss its major lacking:

1. As ICBIBL is one of the first generation banks, its operation and management system is quite backdated. There is absence of using modern banking services like Electronic banking system, Phone banking system.
2. Employees should be trained up, so, that they can easily work with to-days modern competitive technology.
3. Traditional banking operation is seen because there is still coin & scroll system, which is time consuming for customer, where their competitor like Prime Bank, City Bank have come newly but they are able to provide better services.
4. Customers have to wait long time to get banking service, as they don’t have fully computerized service. As the whole process is so lengthy it increases bank cost, and time.
5. I think bank management authority has to be more efficient that they can cope with modern change.

In recent years, the foreign exchange business of ICB Islamic Bank Ltd. is increasing at a faster rate. Now a day ICB Islamic Bank Ltd is rendering a stable support to the national Foreign Exchange Business. Although the foreign exchange business is getting bigger day by day there are also some obstacles around it they are as per observations:

• Insufficient presence of modern communication equipments.
• Application of modern technology such as computerization is not enough.
• I think most profitable sector of bank is its foreign exchange department and advance department. But their office space is congested and they fail to give customer good entertainment.
• Poor conditions of balance of payments of ICB Islamic Bank Ltd.
• Lack of enthusiastic scheme for exporter & importer.
• Less attractive remuneration package and motivation for the employees.
• Lack of fair entrepreneur class.
• Knowledge of entrepreneur about foreign trade policy is so poor.

The sample size of my report was small and it was 20(twenty). The major respondent group was the exporters of RMG sector who are dealing with “ICB Islamic Bank Limited”. Another respondent group was the Bankers who are working in the foreign exchange department of “ICB Islamic Bank Limited Ltd”. I had to collect information from twenty Exporters and bankers from different branches of “ICB Islamic Bank Limited Ltd”. I have analyzed the collected information below by using SPSS software.

Frequency analysis (Questionnaire)

Types of products

The Exporters of RMG sector in my survey produce different types of goods like woven garments, knit garments and sweater garments. Woven garments include pant, trouser and knit garments include shirt, T-shirt etc. About 60% exporters of my survey produce knit garments and 40% exporters produce woven garments for selling to the foreign countries. The major buyers of our RMG sector are Canada, Netherlands, America, Germany and United Kingdom. The highest remittance is coming from Canada and Netherlands in Bangladesh.

 Securities

The exporters of RMG sector have to keep securities in the advising bank to get export facilities. Before dealing with any advising bank, the exporters of RMG sector have to get permission from Bangladesh bank and Bangladesh export promotion bureau. The Bangladesh Bank gives a total credit limit for one year. About 100% respondents said that they keep securities for the export facilities.

The exporters keep securities for export facilities. Those are land, factory and machinery, flat and FDR. Most of the exporters keep illiquid securities like land and factory and machinery.

Buying accessories and fabrics in cash

About 100% respondents said that they don’t purchase fabrics and accessories in cash.  They open back to back L/C for buying fabrics and accessories in cash.

Purchasing accessories and fabrics

When an export L/C comes through buying house or directly to the exporters advising bank, they have to open back to back L/C to buy accessories and fabrics from local market or foreign market. About 50% respondents said they buy accessories and fabrics from foreign market. So the currencies we get by exporting, we have to spend it to buy accessories and fabrics from foreign country. It can be said that our backward market is not good. About 35% respondents said they open back to back L/C in the local market to buy accessories and fabrics. About 15% respondents said they buy accessories and fabrics from both local market and foreign market.

The exporters of RMG sector buy accessories and fabrics mostly from China, Hong Kong, Turkey, Pakistan and India. The backward markets of those countries are very good.

The percentage of Back to Back L/C

I have found from my survey that 95% exporters need 75% back to back L/C facilities against an export order. About 5% exporters need 76.50% back to back L/C facilities. Sometimes exporters can not meet demand with 75% because of big order.

The exporters also need pre shipment credit. This is also called packing credit. The banks give 10 % packing credit facilities. The exporter needs packing credit to execute export in time. They utilize this credit to give the wage, electricity bill, office rent, overtime etc.

Five years study on Export L/C

The export L/C can be cancelled for different factors. It can’t be described in a word that how much a cancelled export L/C impact in our economy. Our economy growth partly depends on our foreign remittance, so if one export L/C is cancelled then our country looses foreign currency. If we analyze previous five years, then we will see that maximum export L/C (12) was cancelled in 2006. The lowest number export of L/C was arranged in 2005.  The highest number export L/C was arranged in 2008.  Most of the reasons were late shipment, quality goods and changing buyer behavior. The year of 2005 and 2006 was the worst time for our economy. Because that time political condition was not good. The two prime political teams made such a poor environment in Bangladesh at that time, it was quite impossible to deliver the goods on time.

The buyer refused to accept the goods and that time no buyer wish to buy from our country.  That time our RMG exporters did not get any Export L/C from buyer. Sometimes the quality of goods was not good. So the importer refused the contract.  Another important reason is changing buyer behavior. Sometimes buyers get the offer from another foreign country at a less price comparing to our country, then the importers break the contract.

The export L/C is cancelled frequently in pre shipment and after shipment. Sometimes goods are ready that time Export L/C is cancelled. Then goods should be stored in the storehouse. Besides goods in the way of destination or in the destination, buyers can refuse to accept the goods. Export L/C can be cancelled during making the goods.

When the export L/C is cancelled, the exporter makes different types of decision with the stock of goods. Exporter can sell the goods partially at a less price in the local market by the permission of the advising bank and having a new export L/C at a less price. Exporters can also sell through TT- advance payment. Here the buyer will pay first then the goods would be sent.

Bear the cost to bring back the goods from destination

About 95% respondents said that exporters bear the cost to bring back the goods from destination and 5% respondents said importers bear the cost to bring back the goods from destination.

When the exporters open back to back L/C, this is written on the L/C that after getting the proceeds of Export L/C  the payment of back to back L/C should be paid .So when an export L/C is cancelled , the advising bank faces a critical problem. The problem is how they will pay the back to back payment. Because bank has already paid the 75% back to back services but bank will not get proceeds from Export L/C. Then bank creates a loan account against the exporter. This is called Force loan account. From that account bank pay the back to back L/C payment. But the exporters have to repay it. The exporter can pay the amount by monthly installment, Exporter can pay from another export proceeds. Bank can cut loan amount from the exporters another export L/C proceeds. Exporter can do full settlement by one payment

 Adjusting the Force loan account

In my survey 60% exporter said that they have adjusted their force loan account fully and 40% exporters have not adjusted their force loan account fully.

Many exporters lose securities when they failed to pay the force loan. Exporters lost mostly FDR, Land, Flat and Factory and machinery. Banks liquidate that securities and adjust the exporters force loan account.

If the Export L/C is cancelled for the exporters fault, then this cancelled L/C affect their business very much. First problem is that the exporter will not get export order from that importer, secondly the local or foreign seller of accessories and fabrics will not accept the L/C of that exporter’s advising bank. Thirdly exporter’s garments will lose valuable reputation.

The factory becomes stopped due to the Cancelled export L/C.

About 80% exporter said that their factory or production was stopped for some days due to the cancelled export L/C. About 20% exporter said that their factory or production was not stopped for some days due to the cancelled export L/C.

There are many reasons of late shipment.  Load shedding is the main problem of late shipment. Exporter can not produce the goods for load shedding.  Due to political disturbances the shipment can be late.  Labor of garments can protest against the owner, and then the work can be stopped for labor disputation. So due to labor disputation shipment can be late.

Here my respondents are the bankers who are working in the foreign trade department in the bank. The analysis of collected information is written in the below.

Exporter should keep securities more than Export volume of one year.                                    

When exporters want to deal with a commercial bank concerning the Foreign export L/C, they have to keep securities against the Back to back L/C, packing credit and foreign documents bill purchase. About 100% respondents (bankers) think that exporters should keep securities more than the total export volume of one year. The total export volume of one year would be declared by the Bangladesh bank.

As much as the exporters will keep security, the uncertainty of bank will be reduced, besides keeping more securities in the bank increases the confidence in export business.

 Opening back to back L/C more than 75%

I have found from my survey that 100% respondents (bankers) don’t open more than 75% back to back L/C so far. Because they think that it increases the risk and if it is more than 75%, the exposure should be more than security.

Responsible for cancellation of Export L/C.

I have found from the survey that 95% respondents think that the exporter is responsible and 5% respondents think that importer is responsible for cancellation of export L/C.

Bank creates Force loan account frequently to settle the L/C procedure.  If banks don’t pay the back to back payment, the L/C procedure remains incomplete. Banks have to complete these procedures whether the export L/C is cancelled or not. If the banks don’t pay the Back to back payment on time, the export business will be hampered.  To smooth run of export business, bank creates force loan account. To maintain the reputations, banks create force loan account. Because if the bank fail to pay the payment of back to back payment, the seller of accessories and fabrics will not accept that bank’s L/C.

Types of security

About 50% respondents said that the exporters keep illiquid asset in the bank and about 50% employees said that the exporters keep illiquid asset in the bank.

A cancelled export L/C effects very much in the bank’s profit. It reduces the banks earnings. It reduces the deposit of the bank. When the bank pays the Back to back payment from the force loan account, usually this money is the depositor’s money. So the bank could invest this money in a very good project. Thus bank is losing earnings and the total export volume is reducing.

Most of the respondents said that they would like to minimize the risk by increasing the liquid securities. Most of the exporters keep illiquid securities in the banks, so when banks go to liquidate the security they face many problems. The banks should supervise the factory frequently to see that the exporters are really working or not. The banks should properly scrutinize the export L/C to see whether the importers broke any contract before.

When banks go to liquidate the securities they face many problems. The first problem is legal complexity. It takes many times to solve the problem legally. Second problem is political influence. The exporters use his political power to save their asset from liquidation. They threat the banks not to liquidate the securities.And the third problem is communication gap. The exporters never try to communicate with the bank. The bank tries to communicate with them but they don’t respond.

Descriptive Analysis (opinions)

The respondents (banker) highly agreed that an exporter should keep securities for Export facilities. The mean of the opinion is 1.00 & the standard deviation is .00. It can be realized from the result that all the bankers answered in the same way. The deviation is very low. It can be said that this is the best result of the opinion. At the beginning, exporters have to keep securities like FDR, building, flat, share against the export facilities as an export L/C is very risky. Bank asked some securities to minimize that risk. Average bankers agreed in the opinion that to open a Back to Back L/C, more than 75% is very much risky but it accelerates the export business. The mean of that opinion is 2.55 and the standard deviation is 1.19. Standard deviation is high so it can be realized that all the bankers answered in different ways. So this is not a good result.  Banks give 75% Back to Back facilities against an export order. The exporter buys fabrics and accessories by the 75% back to back L/C. Sometimes exporters can not meet the demand with 75% facilities. So the exporter demands more than 75% back to back L/C.  If the Bank gives more than 75% back to back L/C Facilities to the exporter, the bank will have to bear more risk.  L/C is a documentary credit if the bank gives more credit to the exporter, the uncertainty will be increased. Here future earnings from the exported goods work as a collateral for the exporter. Besides if the bank is failed to fulfill the need of exporter then the export business will not be accelerated in Bangladesh.  The bankers also agreed that an export L/C is very muck risk for the bank. The mean of that opinion is 2.15 and standard deviation is .74. Here all the officers answered in the same way. The deviation is low.

Exporters disagreed in point that 75% back to back L/C facilities are reasonable for them. The mean of that opinion is 1.90 and standard deviation is 1.51. The respondent didn’t answer in the same way. The deviation is high. So, this is not a good result. Though exporters sometimes demand more than 75% Back to Back facilities when the quantity of order is big, besides exporters disagreed in point that bank creates force loan account when an export L/C is cancelled. The mean of that factor is 1.65 and the standard deviation is .93. Generally when an export L/C is being cancelled, banks face many problems. Banks have to pay the payment of Back to Back L/C (fabrics and accessories) whether the export L/C is cancelled or not. The banks can not liquidate the security very quickly. Then the banks pay the back to back L/C payment from the bank’s own deposit by creating a loan account. That is called force loan account. It is a burden for the exporters. The exporters don’t think that an export L/C is risky. They disagreed about that opinion. The mean of that opinion is 3.80 and standard deviation is 1.19. Here, the standard deviation is high. So it can be said that the respondent answered differently. When an L/C is being cancelled both the bank and the exporter bear the loss. But the loss of the bank is temporary. The exporters agreed that they bear high risk than the advising bank against the export L/C. The mean is 4.05 and standard deviation is 1.19. So this is not a good result. Because exporters answered in different way and the deviation is high. Exporters pay the force Loan account with a 16% loan rate. They don’t think that the rate is reasonable for them. They strongly disagreed. The mean is 1.00 and the standard deviation is .00. So this is a good result.

Descriptive Analysis (Factors)

There are many factors that effects cancellation of export L/C. Exporters think that the impact of quality of goods is average in cancellation of export L/C. The mean of that factor is 2.90 and standard deviation is 1.68. The deviation is high. So the result is not a good result. Sometimes importers refuse the goods if the qualities of goods don’t match with the proforma invoice. The impact of quantity of goods is low in cancellation of export L/C. The mean is 2.05 and standard deviation is 1.23. The deviation is high. So this is not a good result. The impact of mode of shipment in cancellation of export L/C is low. The mean is 2.35 and standard deviation is 1.18. The deviation is high. So, this is not a real result. Sometimes exporters send the goods on their own instead of what shipment mode is written on the L/C terms and conditions. So the goods can be damaged. Electricity plays a vital role in the production. In Bangladesh the impact of electricity in cancellation of export L/C is high. The mean of that factor is 4.20 and standard deviation is .89. If electricity does not work well during production, it will be quite impossible to deliver goods on time. So the exporters have to use generator to deliver the goods on time. But per unit cost will be increased for using generator. So the exporters can face a huge loss. The deviation is low. The impact of knitting and dying in cancellation of export L/C is average. The mean is 3.20 and standard deviation is 1.50. The exporters who produce woven, for them Knitting and dying is not a big problem. But the exporters who produce knit, for them knitting & dying is big problem. The deviation is high. So this is not an actual result. The impact of political problems in cancellation of export L/C is high. The mean is 3.65 and the standard deviation is 1.38. Political unfriendliness is very common in Bangladesh. Political groups use the garment sector for their own interest. Opposition party always calls for strike and destroys the factory, fires the goods. As a result exporters can not deliver the goods on time. The impact of labor disputation in cancellation of export L/C is very high. The mean of that factor is 4.20 and standard deviation is .89. Sometimes exporters can not give the wage on time to the labor. So they stop their work, come to the street and protest against the owner. The customs rules of Bangladesh don’t have a great impact on cancellation of export L/C. The mean of that factor is 1.25 and the standard deviation is .71. The deviation is low. So this is a good result. Changing buyer behavior can impact much in cancellation of export L/C. The mean of that factor is 4.60 and standard deviation is 1.23.The importers can get an offer from another country at a less price. Then they refuse to accept the goods. The deviation is high. So this is not a good result.

Findings

• The CAMEL rating marks indicate that ICB Islamic Bank Limited is a ‘problem bank’ for its lack of corporate governance, insider lending, increased amount of default & fictitious loans & provision deficit, among other things.
• ICB Islamic Bank Limited has failed to generate new ideas for technological improvement, without using modern technology bank can not even think of remaining in business in near future.
• Marketing policies of this Bank are very poor.
• Such a big share of classified loan indicates weakness in the lending policy of the bank.
• Bank cannot provide new facility to the existing employees as bonus or other benefits. So, in the competitive banking environment skilled employees are leaving this bank as they get more suitable opportunities from other banks.
• No new appointment can be undertaken.
• The processing systems of some services are lengthy & more time consuming.
• Lack of sufficient & skilled manpower.
• Sometimes ICB Islamic Bank Limited cannot invest their deposit in proper portfolio.
• Investment is the heart of the bank & it’s the main source of income for a bank. But lack of sufficient investment scope is creating a large amount idle money. As a result, profit is not increasing.

• The Highest (about 60%) respondents (Exporters) of my survey were knit producers (shirt, T-shirt etc).
• The major buyers of our RMG sector are Canada, America & Netherlands. So the highest foreign currencies of RMG sector are coming from these countries.
• Most of the Exporters keep illiquid asset as security like land, flat, factory & machinery.
• Most of the exporters buy accessories & fabrics from foreign markets. So the amount of foreign currencies we get by exporting, these remittances go to another country.
• The key distributors of accessories and fabrics of our RMG sector are China and Hong Kong.
• A large sum of the exporters needs 75% Back to Back L/C against an export order.
• I found from previous five years study that the maximum number (12) of export L/C was cancelled in 2006; a very low number of exports L/C (66) were deal in 2005 and the maximum number of export L/C (235) were deal in 2008.
• The majority number of Export L/C is cancelled in pre-shipment and after-shipment.
• The exporters get a new export L/C for the stock lot of goods or sell the goods through the TT- advance payment at a less price comparing to the mother L/C.
• About 40% exporters have not adjusted their force loan fully. It shows that the deposit of the bank is invested in a very loss project. The bank is losing earning for that kind of investment.
• A large amount of the exporters adjust the force loan by another export proceeds.
• Most of the exporters lost FDR and land for the Force loan account.
• For the result of the cancelled export L/C, the exporters don’t get export L/C from buyer and the seller of Accessories and fabrics don’t accept the L/C.
• The production or factories become stopped for the cancelled export L/C.
• Electricity and the political problems are the main reasons of late shipment.
• 75% back to back L/C facilities are reasonable for the exporters.
• Exporters are bearing higher risk than the advising bank against an Export L/C.
• 16% loan rate is not sound for the exporters.
• Quality of goods, electricity, changing buyer behavior, political problems and mode of shipment impact very much in cancellation of export L/C.
• The banks don’t open back to back L/C more than 75%.
• Exporter is mostly responsible for the cancellation of export L/C.
• Banks create Force loan account to settle the L/C procedure.
• A cancelled export L/C decreases the deposit of the bank and bank’s export volume.
• Banks face legal complexity and political influence problem when go to liquidate the securities.
• The bank can forecast before an export L/C is cancelled by the business trend and business attitude of exporter.
• For the cancelled export L/C, Bangladesh is losing reputation about the export business.

Recommendations:

On the basis of overall analysis, I would like to briefly say a few words on the overall policy and performance of the Bank. If following steps can be taken, it will help to develop the Bank’s performance.

Strengthen growth:

The bank continues to maintain its leading role to strengthen growth initiative in the private sector. This being the age of competition, the bank has to bring in gradually the use of more modern technology in their operations as well as to introduce innovative practices. Improving operational skill into management of the Bank’s affairs is also a major step to strengthen the growth of the bank. This is very much necessary to meet the requirements of expanding client and to ensure them full range of banking services.

Strength Relationship:

Despite of many constrains, the Bank continues to move ahead with steady growth of business. It gives top priority to strengthen relationship with the members of trade, commerce and industry so as to expand the arena of business as well as to earn greater confidence of the customers. To this end, greater public relationship activities are being channeled from both Head Office and branch level to further enhance the image of the bank to the general people.

Customer satisfaction:

Customer satisfaction will continue to remain the first priority in our professional perception. In all of their business activities, they should recognize their operation to establish an even greater benefit for their customers by providing quality banking services.

Innovative Services:

The financial service market around the world is being reshaped due to change of policy measures of the bigger economies of developed countries and globalization. In consideration of all these factors they have to develop new policies and action plans to further strengthen the working methodology that go well with the need of new era and to adjust with prevailing situation.

Personal Banking:

• To attract more clients towards ICB Islamic Bank Limited. The bank has to create a new marketing strategy, which will increase the total, export- import business.
• To survive in this competitive market, bank needs to provide modern customer services to its valued customer like:

  Global Access Card

• A safe and convenient way to have access to your money.
• Enjoy local and international access to your money 24 hours a day, 7 days a week. Take your bank wherever you go.

 Electronic banking System

• ATM service
• Point of Sales Outlets
• Internet Banking

Have access to information relating to your accounts at anytime, anywhere in the world 24 hours a day.

• Phone Banking

24 hours help line to assist you with all your banking enquires.

Foreign Exchange Banking:

• Effective and efficient initiative is necessary to recover the default loans.
• Attractive incentive package for the exporter will help to increase the export and accordingly it will diminish the balance of payment gap of ICB Islamic Bank Limited.
• Introduction of attractive WES, which will increase the remittance.
• For the foreign exchange officials long terms training very much essential.
• Foreign exchange operation of other renowned commercial banks is more dynamic and less time consuming. ICB Islamic Bank Limited should take some initiative to compete with those banks.
• Bank can provide foreign market reports, which will enable the exporter to evaluate the demand for their products in foreign countries.

SWOT Analysis:

Strength:

• Network of 32 branches;
• Supportive role of the central bank;
• Global marketing reaction;
• Improve information sharing;
• Technology and knowledge transfer;
• Earning foreign exchange for economic wealth of the country;
• Well relationship between customer and staff;
• Qualitative management.

Weakness:

• Poor asset quality;
• Negative network and negative profitability;
• Shortfall required loans loss provision and capital adequacy.
• Scope of working sector is manually and so, overall banking system is slow.

Opportunity:

• Scope of exploring the market with the supportive role of Bangladesh bank;
• Regulatory environment favoring private sector development;
• Opportunities for development in travel and tourism;
• Opportunity in employment.

 Threats:

• Overall banking system of other banks are faster;
• Other banks are having effective banking system;
• Other banks are generating new ideas for modern technological improvement;
• Skilled manpower of other banks is more efficient.

Policy Implementation

Lack of Corporate Governance, insider lending, increasing amount of defaulters and fictitious loans, provision deficit and some other similar factors are contributing in making ICB Islamic Bank immensely incompetent in the commercial banking sectors.

According to my personal observation; ICB should improve its Marketing policies, cancel giving out big share of classified loans, improve facilities for the existing employees so as not to loose out qualified bankers and suffer critical loss through the process of having a great deficiency in skilled man power. ICB should focus on investing their deposit in proper portfolio and also in different sectors to increase annual profit scale.

I strongly believe that ICB should provide a more intensive technical support to its customers and in this tech era providing some necessary features like ATM services, Internet banking etc is very important for a developing bank. Bank should also develop various new schemes which will definitely raise interest among customers and bring strengthen ties between the Bank and the customers, strengthening relationship should now be a number one priority. Relationship cannot be reinforced until customer satisfaction is reached its prime, providing quality banking services not only benefit the customers but actually it benefits the bank by bringing large amount of customers who stay loyal to the bank and form a close affiliation with it. To increase the total export-import business ICB should implement new marketing strategy which is necessary to compete with other Banks who are already providing such efficacies and targeting the contemporary customers of this age bracket. Nowadays customers living abroad require 24hr services from their banks, on top of that Foreign Exchange Banking with attractive WES, to increase remittance, newer strategically shaped incentive packages will help in providing necessary means for the bank to hold on their foreign customers and add new names to the directory. ICB can provide foreign market reports, which enables them to export and evaluate their products in foreign countries.

ICB has a genuine network of more than 32 branches across the country providing a supportive role for the central bank of Bangladesh; it is earning a chunk amount of foreign exchange which in turn is helping to strengthen economic wealth of the nation. Technical equipment those being installed are new and much more efficient then the existing setup in our country. And now only if regularity in preserving a proper relationship is maintained then hopefully we will observe a favorable environment for private sector development, opportunities for newer employment will provide fresh thinking tactic into the system and will eventually help to raise the standards of service.

Conclusion:

ICB Islamic Bank Limited being a leading member of private sector in Islamic banks in the country endeavored to adjust itself to this new situation by adopting pragmatic policies and strategies. The Bank faces the challenges as new banks are arising and many foreign banks start their journey.  Continued efforts have been made to enhance the growth and development through the realistic policy pursued by the Board of Directors and Management. In addition to that determined and dedicated professional efforts of the Executives, Officers and Employees helped the Bank to merge ahead to fulfill the commitment.

Proper financial system of a country can contribute towards the development of that country’s economy. In our country, banks have a leading power to contribute in financial system. For this reason, the banks should have a potential role to make our financial system stronger. In this arena, private commercial banks are playing a vital role in the development of our economy. But Govt. and Bangladesh Bank play a crucial role to the private commercial banks through imposition of deposit restriction, lending role and other banking operations. In recent years of banking business, ICB Islamic Bank Limited has shown better performance comparing with other first generation banks.

We expect that ICB Islamic Bank Limited may hold its prospect in future and can play a vital role in the socio-economic prospective.