Académique Documents
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1. Introduction
The word “Bank” refers to the financial institution deals with money. Commercial banks are
the primary contributor to the economy of the country. They are borrowing money from the
locals and lending the same to the business as loans and advances. So the people and the
government are very much dependent on these banks as the financial intermediary.
Moreover, banks are profit -earning concern, as they collect deposits at the lowest possible
cost and provide loans and advances at higher cost. The differences between two are the
profit for the bank.
Involvement of the banking sector in different financial events is increasing day by day. At
the same time the banking process is becoming faster, easier and the banking arena is
becoming wider. As the demand for better service increases, the banking organizations are
coming with innovative ideas. In order to survive in the competitive field of the banking
sector, all banking organizations are looking for better services and opportunities providing
to their clients. As a result, it has become essential for every person to have some ideas on
the bank and banking procedure. Besides these various kind rules and regulations are
formulated to check unexpected threats such as money laundering and to cope with rapid
change and challenge of competitive free market economy.
As core concentration of this study was foreign division, so this study is concerned with
specific area of managing import and export procedures to promote logistic support in
business.
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The main objective of the study is to analyze the foreign exchange business of AB Bank
Limited. There are some specific objectives on the way of achieving the main objective.
These are as follows:
To discuss about the import & export policy of the sample branch.
To analyze the export and import functions and financing of the branch
To focus on growth and development of foreign Exchange business in ABBL, CDA
branch.
To identify the problems and prospects of foreign exchange.
To know the risk involved in the foreign exchange business.
To promote the ways, techniques & policies to improve the performance of Foreign
Exchange business.
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Chapter Two
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During the last 28 years, AB Bank Limited has opened 78 branches in different business
centers of the country, one foreign branch in Mumbai, India and also established a wholly
owned subsidiary Finance Company in Hong Kong in the name of AB International Finance
Limited. To facilitate cross border trade and payment related services, the bank has
correspondent relationship with over 220 international banks of repute across 58 countries
of the world.In spite of adverse market conditions, AB Bank Limited which turned 28 this
year, concluded the 2008 financial year with good results. The bank’s consolidated profit
after taxes amounted to taka 230 cr which is 21% higher than that of 2007. The asset base of
AB grew by 32% from 2007 to stand at over TK 8400 cr as at the end of 2008.
The bank showed strong growth in loans and deposits. Deposit of the bank rose by TK 1518
cr i.e. 28.45% while the diversified loan portfolio grew over 30% during the year and
recorded a TK 1579 cr increase. On account of Foreign Trade, the Bank made a significant
headway in respect if import, export and inflow of foreign exchange remittances from
abroad. Foreign Trade Business handled was TK 9898 cr indicating a growth of over 40% in
2008.The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an AA3
rating in the long term and ST-1 rating in the Short term. Modernization is the theme of the
bank. The bank took a conscious decision to rejuvenate its past identity-an identity that the
bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this
decision the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put
its affirmative stamp on November 14, 2007. The bank changes its traditional color and logo
to bring about a fresh approach in the financial world; an approach which like its new logo
is based on bonding and trust.
The bank has focused to bring services at the doorstep of its customers and to bring millions
into banking channels those who are outside the mainstream banking arena. Innovative
products and services were introduced in the field of Small and Medium Enterprise (SME)
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credit, women’s entrepreneur, Consumer loans, Debit and Credit Cards (local and
international), Internet and SMS Banking, Remittance Services, strengthening and
expanding its Islamic and Banking activities, Investment banking, specialized products and
services for NRBs, Priority banking and Customer Care. AB is recognized as the people’s
choice, catering to the satisfaction of its client. Their satisfaction is AB’s success.
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Vision statement
Mission statement
To exceed customer expectations through innovative financial products & services and
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Education loan
Gold Grace-jewellery loan
Staff loan
Secured personal loan
Unsecured personal loan
Personal overdraft
• Deposit products
Current deposit accounts
Saving deposit accounts
Fixed/Time deposits
STD accounts
Double deposit scheme (DDS)
Monthly income deposit scheme (MSDS)
Foreign currency deposit account
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Chhoto Puji
Uddog
Awparajita
• Investment baking
Merchant banking services
Custodial services
Brokerage services
Future products
• Foreign trade
Import finance
Export finance
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Manager
Sub
Manager
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SWOT analysis specifying the objective of the business venture or project and identifying
the internal and external factors that are favorable and unfavorable to achieve that objective.
From the SWOT analysis we can figure out the ongoing scenario of ABBL. By doing the
SWOT analysis it is possible to find out the strength, weakness, opportunities and treats of
ABBL. So to a better view of the present business practices what is prevailing at ABBL I
have done the SWOT analysis.
SWOT
Analysis
External
Internal
Factors
Factors
Strengths:
• Employees are always ready to provide expected level of services both internal and
external customers so that customers are highly delighted
• Well reputation in the market
• Sound import & export operation
• The relationship between employer and employee is very much appreciable which
increased the productivity of employees.
• Executives are highly qualified and experienced
• Officer and staffs are prompt in their activities
• Branch network cover highly geographic area
• Very good profit margin, interest, and fees income achieved by the last few years
and subsequently bank expanding its business.
Weakness:
• Providing information in due time is being late want of proper technological support
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• Though the bank launched online banking system but 100% online banking is not
possible yet
• There is not any customer complain desk where customers can give their feedback
• Customer service is not up to standard and sufficient for want of trained people
• Unavailability of high-tech electronic facilities
Opportunities:
• Client reliability on ABBL is increasing day by day with the bank
• Increasing rate of branches day by day even remote area attracting large number of
people and people are getting facilities for doing business
• ABBL offers many popular schemes for trade services.
• Foreign remittance are increasing day by day
• Import and export are increasing gradually so bank can properly exploit this
opportunity
• Online and SMS banking services now available in the bank
• Credit facilities & ATM Booth facility also increasing to meet clients need
Threats:
• Highly competitive market
• Entries of new commercial bank, leasing companies, investment and merchant
banking in the market etc they all are competitors
• Competitors are offering innovative new products and services based on highly
technological support
• Government put pressure to reduce interest rate
• Government imposes tax and Vat on profit
• Central Bank’s policies sometimes are not in favor of the private bank’s policies
• Political crisis and lack of trust of the foreign investors
• Frequent fluctuation of domestic currency with US dollar
• Economic recession
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Chapter Three
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The term Foreign Exchange has different connotations in different contexts. Foreign
Exchange is a process which is converted one national currency into another and transferred
money from one country to other countries.
According to Mr. H. E. Evitt. Foreign Exchange is that section of economic science which
deals with the means and method by which right to wealth in one country's currency are
converted into rights to wealth in terms of another country's currency. It involved the
investigation of the method by which the currency of one country is exchanged for that of
another, the causes which rented such exchange necessary the forms which exchange may
take and the ratio or equivalent values at which such exchanges are effected.
In terms of section 2(d) of the foreign Exchange Regulation (FER) Act 1947, as adopted in
Bangladesh, foreign exchange means foreign currency and includes any instrument drawn,
accepted, made or issued under clause 13 of article 16 of the Bangladesh Bank Order, 1972,
all deposits, credits and balances payable in any foreign currency and draft, travelers
cheques, letter of credit and bill of exchange expressed or drawn in Bangladesh currency
and payable in any foreign currencies.
The business of foreign exchange is getting increasingly complex and intensely competitive.
However, in the backdrop of phenomenal growth of Bangladesh’s external sector, foreign
exchange business provides a challenge as well as an excellent opportunity to accelerate
growth of bank’s own business. This is the Institution that facilitates international trade
payment as banking channel is the way of settlements. Besides, banks meet the other need of
foreign exchange transactions of the people of the country as they are authorized to deal in
foreign exchange upon receipt of permission from Central Bank under Foreign Exchange
Regulation Act. All exports and imports are executed through the intervention of banks.
Side by side, they provide funded and non funded credit facility in execution of International
Trade.
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3.2.1 Authorized Dealer Branches
Bangladesh bank has issued licenses to certain branches of our bank to deal in foreign
exchange. These branches are known as authorized dealer branches. Licenses to deal in
foreign exchange are normally granted only to scheduled banks which have offices in
Bangladesh after satisfying that they have adequate number of staff/officers properly trained
in handling foreign exchange transactions and will be able to comply fully with
requirements of the administration to exchange control. No other person except the
authorized dealer can deal in foreign exchange.
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3.2.4 Functions of Foreign Exchange Department
Foreign Exchange Department performs many functions to facilitate the foreign exchange
transactions. These are:
• Facilitating Import Trade
• Facilitating Export Trade
• Providing Funded and Non-funded Credit Facility.
• Provide Non Commercial Remittance
• Maintaining Foreign Currency Accounts
• Selling of Foreign Currency Bond
• Rate of Exchange
• Preparation and Submission of Statements
When two countries adopt a direct import and export relationship then bilateral trade occurs
and when countries deal worldwide there is multilateral trade. In international trade the
values in terms of money are never equal. The balance of trade payments refers the
difference between the monetary value of exports and imports of output in an economy over
a certain period of time. It is the relationship between a nation’s imports and exports. A
favorable balance of trade is known as a trade surplus and consists of exporting more than
is imported; an unfavorable balance of trade is known as a trade deficit or informally, a
trade gap.
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3.3.1 Role of Foreign Trade in Economic Development
• Foreign Trade is an important stimulator of economic growth. It enlarges countries
consumption capacities, increase world output and provide access to scarce resources
and worldwide markets for products without which poor countries would be unable
to grow.
• International trade tends to promote greater international and domestic equality by
equalizing factor prices, raising real income of the trading countries and making
efficient use of each nation’s and the world’s resource endowments.
• In a world of free trade, international prices and costs of production determine how
much a country should trade in order to maximize its national welfare.
• Finally to promote growth and development, an outward-looking international policy
is required. In all cases, self-reliance based on partial or complete isolation is
asserted to be economically inferior to participation in a world of unlimited free
trade.
A sale contract incorporates a number of terms and conditions relating to the various aspects
of the deal, the most important among them being the terms relating to the place & mode of
delivery, the terms of payments of freight & insurance charges, the mode of payment for the
goods, prices, quality, quantity and the period of supply of the goods to be bought & sold.
The payment term shows where & how payment will be effected. It has five principal:
1. Cash in advance
2. Letter of credit
3. Drafts
4. Consignment
5. Open account
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Cash in advance
The buyer places the funds at the disposal of the seller prior to shipment of the goods or
provision of services. It involves maximum risk to exporter used where there are political
unrest goods made to order new unfamiliar customer.
Letter of credit
The documentary credit or letter of credit is an undertaking issued by a bank on account of
buyer (the applicant) or for its own behalf to pay the beneficiary the value of the draft and/or
documents provided that the terms and conditions of the documentary credit are compiled
with.
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Drafts are unconditional order in writing showing exporter’s order for importer to pay at
once (sight draft) or in future (time draft) including three functions are clear evidence of
financial instrument (i.e. may be converted to a banker’s acceptance)
Open account
An arrangement between the buyer and the seller whereby the goods are manufactured and
delivered before payments is required. The benefits of open accounts are greater flexibility
in making a trade and lower transactions costs. On the other hand, the major disadvantage is
highly vulnerable to government currency controls.
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In the Import Policy Order 2003-2006 Letter of Credit denoted as – ‘“Letter of Credit”
means a letter of credit opened for the purpose of import under this Order’
The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements,
however named or described, whereby a bank (“the issuing bank”) acting at the request and
on the instruction of a customer (the “Applicant”) or on its own behalf,
On the other hand Letter of credit can be defined as a “Credit Contract” whereby the buyer’s
bank is committed (on behalf of the buyers) to place an agreed amount of money at the
seller’s disposal under some agreed conditions. Since the agreed conditions include amongst
other things, the presentation of some specified documents, the letter of credit is called
Documentary letter of credit. The uniform customs and practices for documentary Credit
(UCPDC) published by international Chamber of Commerce (1993) revision, publication no
500 define Documentary Credit:
• Any arrangement however named or described whereby a bank (the issuing bank) acting
at the request and on the instructions of a customs (the Applicant) or on its own behalf,
• Authorize another bank to effect such payment or to accept and pay such bills of
exchange (Drafts)
• Authorize another bank to negotiate against stipulated documents provide that terms and
conditions are complied with.
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3.5.1 Parties involves in L/C
Buyer/Applicant Who applies for L/C
Issuing Bank It is the bank which open/issues a L/C on behalf of the importer
Advising/Notifying It is the bank through which the L/C is advised to the exporters. This
Bank bank is actually situated in exporter’s country. It may also assume
the role of confirming and/or negotiating bank depending upon the
condition of the credit.
Seller/Beneficiary The party, normally supplier of the goods, in whose favor the L/C is
opened
Confirming Bank It is the bank which adds its confirmation to the credit and it is done
at the request of issuing bank. Confirming bank may or may not be
advising bank.
Negotiating Bank It is the bank, which negotiates the bill and pays the amount of the
beneficiary. The advising bank and the negotiating bank may or may
not be the same. Sometimes it can also be confirming bank.
Accepting Bank It is the bank on which the bill will be drawn (as per condition of the
credit). Usually it is the issuing bank.
Paying/Reimbursing It is the bank, which would reimburse the negotiating bank after
Bank getting payment-instructions from issuing bank.
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issuing bank at which the issuing bank has made the credit available. In the modern banking the
use of revocable credit is not widespread.
In this case the issuing banks must perform the following two roles:
• Reimburse another bank with which a revocable Credit has been made available for sight
payment, acceptance or negotiation – for any payment, acceptance or negotiation made by such
bank – prior to receipt by it of notice of amendment or cancellation, against documents which
appear on their face to be in compliance with the terms and conditions of the Credit;
• Reimburse another bank with which a revocable Credit has been made available for deferred
payment, if such a bank has, prior to receipt by it of notice of amendment or cancellation, take
up documents which appear on their face to be in compliance with the terms and conditions of
the Credit.
• Irrevocable Letter of Credit
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banks payment undertaking can be used as collateral for an advance, though such as advance
will normally only be available form the issuing or confirming bank. A discountable bill
offers wider scope.
• Back to back L/C
Back-to-Back L/C is a type of import L/C either in inland or in abroad, which open
against lien on valid export L/C. In our country in export of garments, this method of
finance is widely used and is very well known to the manufactures of garments. Suppose
Bangladeshi exporter received an irrevocable L/C for supply of readymade shirts, from an
American Bank. For manufacture of the ordered shirts the exporter does not have the
required raw materials. To execute the order he is to import raw materials from Korea. Then
the Bangladeshi exporter will have to open an import L/C favoring Korean supplier for
import of fabrics and accessories. The L/C is opened by the Bangladeshi bank lien against
the American Banks L/C. under bonded warehouse system.
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There are some steps involves in L/C process. These are describing here below.
The importer and exporter have made a contract before opening a L/C.
The importer applies for a L/C from his banker known as the issuing bank. He may
have to use his credit lines.
The issuing bank opens the L/C that is channeled through its overseas correspondent
bank, known as advising bank.
The advising bank informs the exporter of the arrival of the L/C.
Exporter ships the goods to the importer or other designated place as stipulated in the
L/C.
Meanwhile the exporter also prepares his own documents and collects transport
documents or other documents from relevant parties. All these documents will be
sent to the banker, which is acting as the negotiating bank.
Negotiation of export bills happens when the banker agrees to provide him with
finance. In such case he obtains payment immediately upon presentation of
documents. If not the documents will be sent to the issuing bank for payment or on
an approval basis as in the next step.
Documents are sent to the issuing bank for reimbursement or payment.
Issuing bank honor it’s undertaking to pay the negotiating bank on condition that the
documents comply with the L/C terms and conditions.
Issuing bank releases documents to the importer when the letter makes payment to
the former or against the letter of trust receipt.
The importer takes delivery of goods upon presentation of the transport documents.
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• Last date of shipment
• Letter of credit authorization (LCA) number, IRC (Import Registration Certificate)
number and Harmonized System (H.S.) Code
• Mode of carrying –Air/Ship/Truck
• Name and address of beneficiary
• Name and address of advising bank
• Name and address of the applicant
• Name of issuing bank and branch
• Number of letter of credit and date of opening
• Payment term-sight/Deferred
• Period of negotiation
• Period of presentation
• Port of loading and port of discharge
• Reimbursing bank and payment mode
• Terms and conditions regarding transshipment and partial shipment
• Insurance clause
• B.L clause
• Other clauses as required as per Import Policy Order and as per contract executed in
between buyer and seller
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Bills of Lading
Bills of Lading are showing ‘shipped on board’ and it has to be properly endorsed to the
bank. A bill of lading specified states that goods are loading for ultimate destination
specifically mentioned in the credit. It also constitutes a document that is, or may be, needed
to support an insurance claim.
Commercial Invoices
It has to be verified that the commercial invoice has been properly drawn and signed by the
beneficiary according to the terms and conditions of L/C.
• The beneficiary should properly invoice the merchandise
• Date
• Name and address of the buyer and the seller
• The importer license or IRC number of the importer indents registration number and
number letter of credit Authorization number are incorporated in the invoice
Bills of Exchange
The most important instrument in international trade by which seller can obtain the payment
from the buyers for the invoice value of goods is bill of exchange.
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Inspection Certificate
This is usually issued by an independent inspection company located in the exporting
country certifying or describing the quality, specification or other aspects of the goods, as
called for in the contract and/or the L/C. the buyer who also indicates the type of inspection
he wishes the company to undertake usually nominates the inspection company
Packing List
This is unique documents and not combined with other documents. This is a listing of the
contents of each package, cartoon etc. and other relevant information.
Insurance Document:
Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the
agreed manner and extent against fortuitous losses. Insurance document generally contains
the following information:
• The name of the insurer or his agent
• The name of the ship/carrier
• The name of assured
• The subject matter of insurance
• The time and/or voyage insured
• Te peril (s) insured against
• The valuation
• The stamps etc.
Proforma Invoice
Proforma Invoice (PI)/indent is the sale contract between seller and buyer in export-import
business. There is slight difference between indent and PI. The sales contract, which direct
correspondence between importer and exporter, is called Proforma Invoice (PI). On the
other hand, there may be an agent of exporter in importer’s country. In this regard, if the
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sale contract is occurred between the agent of at importer and exporter then it is called
indent.
Proforma Invoice/indent is a form of quotation to a potential buyer, inviting him to buy the
goods on stated terms. It should be clearly stated that it is Proforma and if it is accepted the
details are normally transferred to a commercial invoice.
Certificate of Origin
A certificate of origin is a signed statement providing evidence of the origin of the goods.
The chamber of commerce of the importing country usually issues this certificate.
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• Pre-shipment inspection
Unless otherwise specified, pre-shipment inspection of imported goods shall not be obligatory in
case of import by private sector importers.
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INDENTOR
IMPORTER EXPORTER/
BENEFICIARY
Application for opening L/C
Makes payments against
Submit document
Makes payment
document
Issue L/C
ADVISING BANK/
Pays or Reimburse
NEGOTIATING
ISSUING BANK BANK
Forward
Instruction to pay or
reimburse
Markets
Or
REIMBURSING
BANK
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Chapter Four
Import Business
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4.1 Import
Import is the purchase of foreign goods and services from abroad by Consumer, Firms,
Companies Government, and Semi-Government organization in Bangladesh. It is an
international Trade. It is also called Cross-Border Transaction.
On the other hand the customs authorities at the import points physically supervise the
imports of goods and ensure that the items of goods imported are permissible under I.T.C.
regulations before release of the same for consumption in the country on payment of import
duty, sales taxes etc. where applicable.
Imports of goods from South Africa and Israel or goods originated from these two countries
&& on Flag Vessels of Taiwan, South Africa and Israel is prohibited.
A. Items eligible for imports during the shipping period including list of banned items.
B. Sources of finance and items permissible for import against:
1. Cash foreign exchange;
2. Foreign aids/credits/grants/barter and under
3. Wage Earner's Scheme/Secondary Exchange Market Scheme.
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C. The Procedure for imports by Industrial consumers, commercial importers and actual
users, including formation of groups by smaller importers.
D. Basis of licensing for the category holders of various permissible items including repeat
licensing procedure.
E. The dates of opening of L/C and shipment and procedure for submission of Letter of
Credit authorization (LCA) forms covering various items of imports.
F. Conditions for entry of new comers into Import Trade.
G. Conditions for Import by established Importers and Industrial consumers.
H. Procedure for imports under O.G.L., if any.
I. Import by TCB and other Govt. Agencies.
J. Validity of licenses with regard to L/C opening and shipment thereof.
K. Rules relating to revalidation of license (LCA FORM) and extension of L/C.
L. Change of items by the commercial Importers.
Before going to discuss the task of import section of the AB Bank Limited, here I have
given the types of importer and import procedure at first.
4.4 Importer
The person who deals in import business obtaining Import Registration Certificate (IRC) in
terms of Importers, Exporters and Indentors (Registration) Order-1981 from the CCI & E is
treated as Importer.
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The first thing one need to carry out a business of import is called Import Registration
Certificate (IRC). But registration is not required for import goods, which do not involved
remittance of foreign exchange like medicine; the users within monetary limit can import
reading materials etc. without registration.
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• Bank Solvency Certificate
• VAT Registration Certificate
• Trade Association Certificate
• Memorandum & Articles of Association
• Certificate of Incorporation ( Incase of Limited Company)
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4. Quadruplicate copy for submission to the bank in case of import documents is
required.
The importer has to fill up an IMP form provided by the AB Bank. This form contains the
followings
Name and address of the authorized dealers.
Amount of remittance to be permitted.
LCA form no. date and value in taka.
Description of goods.
Invoice value in foreign currency.
Country of origin.
Port of shipment.
Name of carrier.
Port of destination.
Full name and address of the applicant.
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On the next step the importer applies to the bank for opening L/C then the next procedure
for import starts. The documents needed for and the procedure of opening L/C is stated
above. Then the next step is:
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- Business/company established/incorporated
- Nature of business activity
- Other allied activity
- Name and address of associate concern
- Experience as to their dealings
- It limited Co. then authorized and paid-up-capital etc
One thing must be mentioned here that this credit report can be sought from the buyer or
from the seller’s bank or from any other authority also known to the seller.
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• Certificate of Origin;
• Commercial Invoice;
• Draft or bill of exchange;
• Shipment certificate
• Shipping advice
• Inspection of Survey Certificate;
• Packing List;
• Insurance cover note with insurance paid slip
• Quality Control Certificate
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4.7.9 Retirement of the documents
On receipt of cost memo/lodgment voucher the importer pays the necessary amount. This
stage of the documentary credit operation is known as ‘Retirement of Import Bills’. The
branch will prepare the retirement voucher to reflect the amount of cost and other charges to
be collected from the importer, adjustments of margin and PAD Account. Thereafter the
documents may be handed over to the importer against proper acknowledgement after
certification and endorsement.
On receipt of intimation, the importer is given necessary instructions with regard to
retirement of the bill, disposal of the shipping documents and clearance of the goods from
the customs authorities. The importer may ask the bank to retire the bill by debiting his
account or may request for the providing LIM or LTR facility, if arranged earlier.
On intimation the importer approaches with a letter for retirement of the document against
full payment with up to date interest and charges payable. Bank prepares cost memo in
printed form on account of the concerned party giving details head of charges payable.
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• Collateral Security
Collateral security valuing double of the amount of LTR is to be obtained. Any exception to
this rule requires approval by Head Office.
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Chapter Five
Export Business
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5.1 Export
Export means goods and services that are produced domestically and sold to buyers in
another country. Export brings foreign currency in the economy. Higher the export higher
the reserve of foreign currency, the export department of AB bank, CDA Avenue branch
engage with various export-related activities for encouraging the exporter. The major
function of this section is comprises with purchase, collection and negotiate the export bill,
provide the exporter export financing and helps the exporter in different issues.
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• Bonded warehouse facilities to 100% export oriented firms
• Duty-free import if capital equipment for 100% export oriented firs
b. General Incentives:
• Trading course on external trade
• Arrangement of international trade fairs, commodity-based exhibits in
the country and participation in foreign trade fair
c. Other Incentives:
• Assistance in improvement of quality and packing of exportable items.
• Simplification of exports procedures.
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License officer
Buyer’s local agent
Export promoting organization
Bangladesh Mission Board
Chamber of Commerce
Trade Fair etc.
iii. Signing the contract
After communicating buyer, exporter has to get (writing or oral) for
exporting exportable items from Bangladesh detailing commodity, quality, price, shipment,
insurance and marks, inspection and arbitration etc.
iv. Receiving Letter of Credit
After getting the contract for sale, exporter should ask the buyer for Letter
of Credit clearly starting terms and conditions of export and conditions of export and
payment (here the regulatory framework is foreign exchange regulation of B. Bank &
UCPDC 600 published by ICC):
The terms of the L/C are in conformity with those of the contract
The L/C is an irrevocable one preferably confirmed bye the advising bank
The L/C allows sufficient time for shipment and negotiation.
Terms and conditions should be stated the contract in case of other mode of payment:
Cash in advance
Open account
Collection basis
v. Procuring the materials
After making the deal and on having the L/C opened in his favor the next
step for the exporter is to set about the task of procuring or manufacturing the contracted
merchandise.
vi. Shipment of Goods
Then the exporter should take the preparation for exporting arrangement for
delivery of goods as per L/C and in terms prepare and submit shipping documents for
payment/acceptance/negotiation in due time.
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2) Particular Verification
• Each and every document should be verified with the L/C
3) Cross Verification
• Verification of one documents to another
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Parties involved in L/C, particularly the seller and the buyer cannot always satisfy the terms
and conditions in full as expected due to the some obvious and genuine reasons. In such a
situation the credit should be amended. The seller being satisfied with the terms and
conditions of the credit proceed to dispatch the required goods to the buyer and after that
have to present the documents evidencing dispatching goods to the negotiating bank on or
before the stipulated expiry date of the credit. After receiving all the documents the
negotiating bank then checks the documents against the credit. If the documents are found in
order the bank will pay, accept or negotiate to the issuing bank. The issuing bank also
checks the documents and if they are found as per credit requirement, either effects payment
or reimburse in the pre-agreed manner.
Settlement means fulfill the commitment of issuing bank in regard to effecting payment
subject to satisfying the credit terms fully. This settlement may be done under three separate
agreements as stipulated in the credit. These are:
• Settlement by payment
• Settlement by acceptance
• Settlement by negotiation
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the importer is satisfied with the documents he pays the bill in cash and takes delivery of the
shipping documents (B/L, Invoice, etc.).
3. Consignment sales
Goods may be exported on consignment sales basis. Exporters ship goods to the
agent who receives and sells the same ad remit sale proceeds to the exporter after deduction
of commission and other charges along with a statement called Account Sale. The exporter
retains title to the goods exported. As per exchange control regulation only non-traditional
item can be sent on consignment basis. Export of goods on consignment sale basis request
prior permission from Exchange Control Authorities. In case of sale on consignment basis
the exporter must have sufficient knowledge regarding financial status of the agent. The
exporter signs an agreement with importer to act as an agent of the exporter. As in this
method generally no bill of exchange is drawn on the importer, the seller (exporter) is
exposed to possible default on the part of the importer.
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warehouse. Drawee pays the accepted draft on due date and take delivery of the documents.
But the drawee may also pay the draft before the due date and consequently take possession
of the goods. In this case drawee is entitled to some rebate at an agreed rate for the
unexpired period of the draft i.e. difference between the due date and the date of payment.
• Credit payment
1. Documents against Acceptance (D.A. Bill)
Sometimes drawee may take possession of the goods against "Trust Receipt" and in
this case responsibility for repatriation of export proceeds lies with the foreign bank that
allows release of the goods to the importers against Trust Receipt. In this method exporter
retains the title to the goods till the importer finally pays the bill.
Pre-shipment credit is given to finance the activities of an exporter prior to the actual
shipment of the goods for export. The purpose of such credit is to meet working capital
needs starting from the point of purchasing of raw materials to final shipment of goods for
foreign country. Pre-shipment credit is given for the following purposes:
• Cash for local procurement and meeting related expense
• Procuring and processing of goods for export
• Packing and transporting of goods for export
• Payment of insurance premium
• Inspection fees.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and
unrestricted export letter of credit in form of the following:
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Under this agreement, a credit is sanctioned against hypothecation of the raw
materials. Such facility is allowed to the first class exporters. As the bank has got no
normally insists on the furnishing collateral security.
Such credit facilities are allowed against pledge of exportable goods or raw
materials. In this case credit facilities are extended against pledge of goods to be
stored in the warehouse under bank’s control by signing letter of pledge & other
pledge document. In the event of failure of the exporter to honor his commitment,
the bank can sell the pledge merchandise for recovery the advance
D) Packing Credit
Packing credit means any loans or advances granted or any other credit provided by
an institution to an exporter for financing the purchase, processing, or packing of
goods on the basis of L/C.
2. Post-shipment credit
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The need for post-shipment finance arises because exports that sell goods abroad
have to wait for a long time before payment is received from the overseas buyers. The
actual period of waiting depends on the payment terms. In the meantime, the exporter
needs funds to carry on his normal export activities. Banks are the main source for the
exporters to seek the finance.
Bank generally finances the exporters at post-shipment stage on verifying of the credit-
worthiness and financial soundness of both the buyers and sellers. Post-shipment credit
ordinarily takes the following shape.
• Negotiation of documents under L/C
• Purchase of Foreign Bill under D.P and D.A bills
• Advance against Foreign Bill under collection.
Close of transaction
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Chapter Six
Foreign Remittance
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Local branches can draw TT to those banks with which they have accounting relationship &
message should contain test & brief description of the beneficiary.
Any Authorized Dealer (AD) branches can issue foreign drafts draw on the bank with which
they have an accounting relationship. AD branches can issue foreign currency notes as per
ceiling fixed by Bangladesh Bank.
AD branches can sale Travelers Cheques as per the ceiling fixed by Bangladesh Bank.
Foreign remittance can be cancelled such as unitized foreign currency against passport
endorsement or cancellation of loyalty issued foreign demand etc.
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Chapter Seven
Performance Evaluation
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50000000
40000000
30000000
20000000
10000000
0
2007 2008 2009
Im port ( in USD)
Figure: 01
From the above figure it is clear that the volume of import is increasing gradually and
mentionable that 2008-2009 is noteworthy.
Due to political unrest, adverse economic condition and economic recession was the main
reason of flat growth of import business during 2006-2007 and 2007-2008. In that period the
demand of import decreased significantly. Frequent fluctuation of domestic currency worth
against US dollar, unavailability and shortage of foreign currency was also important
reasons for small growth of import.
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But growth of import from 2008 to 2009 is remarkable due to inclusion of several corporate
customers and accordingly the profit during 2008-2009 is increased. The branch was in
progressing position because of the economic condition was good position in compare to
previous year.
300000
250000
200000
150000
Export (in USD)
100000
50000
0
2007 2008 2009
Figure-02
ABBL, CDA Avenue Branch was doing the foreign exchange business from the very
beginning of the branch and export renaissance also started that time. From the analysis of
export volume it is seen that in 2007-2008 there is a remarkable growth of export. The
reason behind this notable change is the insertion of several big corporate groups with
renowned buyer and as a result volume of export was outstanding. But in 2008-2009 the
volume of export again reduced to USD 44038.51 due to aversion of exporter to export
outside of country as political instability, disturbed economic growth was prevailed.
Inharmonious international relationship also had a great affect on volume of export
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Years 2007 2008 2009
Remittance(in USD) 2004108.14 1527503.99 2032263.34
2500000
2000000
1500000
Remittance(in USD)
1000000
500000
0
2007 2008 2009
The above table and graph shows that the total foreign remittance earning is not up to the
mark due to lack of non resident account & less relationship with different exchange house
all over the world. Due to change of management policy for collecting huge amount of
foreign remittance back signed a number of MOU with foreign exchange house and
insertion of several shipping companies, remittances is gradually increasing 2008-2009 and
at the end the December the volume of USD 2032263.34 which is better than previous year.
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1. Identifying Risk
a. Credit risk/counterparty risk- It is the risk of loss due to inability or unwillingness
of the counterparty to meet its obligation.
b. Liquidity risk- Liquidity risk is the risk that a bank will be unable to meet its funding
requirements or execute a transaction quickly and at a reasonable price.
c. Market risk- There is two types of market risk as and when investment is made in
foreign currency i.e. (i) currency exchange rate risk and (ii) interest rate risk.
d. Operational risk- operational risk can arise out of many situations i.e. on account
human error or faulty systems and procedures.
e. Other risks viz., country risk, legal risk etc.
a. Credit risk- Through selection of counter party and fixation of counter party limits.
b. Liquidity and market risk- To minimize these types of risks we can follow a
benchmark. Currency composition, investment portfolio, duration etc. are included in the
benchmark.
c. Operational risk- To ensure the minimum level of operational risk there are three
offices/groups/desks viz. (i) front office, (ii) middle office and (iii) back office.
d. Others- open position limit:- day-light limit/intra-day-limit-overnight limit, stop-loss
limit, currency-wise limit, dealer-wise limit, country limit etc.
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Chapter Eight
Concluding Aspect
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8.1 Findings
From the practical implementation of customer dealing procedure during the whole period
of my practical scope in AB Bank, CDA avenue branch, I have reached a firm and concrete
conclusion in a very confident way.
The foreign exchange of AB Bank, CDA Avenue branch is facing the following problems
which are barrier to improve their performance and distinguish from others:
• Want of modern technical equipment such as good software & computer the
mechanism of L/C process sometimes makes complication.
• In case of big L/C payment exchange rate or fluctuation of currency create problem
which is harmful for foreign exchange business
• Import and export business are remarkably increasing in 2006 & 2007 respectively
then previous year but later on not continue due to discontinuation of corporate
business and stuck up of previous financing
• For implementation of BASEL II the bank not yet started its work to make a rating
based bank. But now in every case BASEL II is very much needed which will help
to adopt better banking position in the country.
• Lack of variety of service is also a drawback of the general Banking area of the AB
Bank of Bangladesh Ltd. The bank provides only some traditional limited service to
its client. As result Bank is falling behind in competition.
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8.2 Recommendations
Here are the following recommendations embedded with:
• Bank will have to arrange more training program for the FOREX officers to improve
their analytical ability, communication skill & professional standard regarding the
customer dealing & different foreign exchange operation.
• For better profit than others we have to create good relationship with renewed
corporate client who have huge amount of Import & Export & remittance business.
• Bank should make more relationship with the foreign exchange house & special
strategies will have to take for increasing non resident account, indenting & shipping
line account.
• The bank needs to create new marketing strategy which will attract more clients
including priority customer and thereby increase the total export import business.
• New updated banking software should be installed for foreign exchange department
and bank should take proper step for implementation of BASEL II.
• Payments for L/C’s could also made through pre arranged credit facilities that the
customer may have with the bank. Usually the rates of interest on these credits are
excessively high which actually discourages the customers. Reducing interest on
such credit facilities would induce the clients to do more global trade thus increasing
bank’s profit as well as the well being of the country’s economy
• Bank should consider exchange rate at the time of big payment & L/C margin &
commission should be uniform.
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8.3 Conclusion
Now a day the world is called global village. Because business does not have national
boundaries, it reaches around the world. AB Bank Limited wants to cross the nation
boundaries. Already they develop a global network. AB Bank Limited plays an important
role in our national economy. The employees of the AB Bank are well organized. They
maintain a good employee relation policy.
ABBL is a company which has so far shown good performance and holds the strongest
position in the banking market. Overall the bank must make a positive attempt to be more
outward looking in their goals and aware of what is happening.
I hope in spite of my all limitations this experience of sharing works with such working
environment will help me a lot in professional life.
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References
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