Foreign Exchange Operations of JBL

Daffodil International University

1.1.

Introduction

1.2.

Objectives of the

Report 1.3.

Origin of the report

1.4.

Scope

1.5.

Methodology of

Study

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01.01. Introduction The theoretical knowledge and practical training is not the same theme. The theoretical knowledge is fulfilled when it can be used in the practical field. The goal of internship is to apply one’s theoretical knowledge in practical fields. Generally by the word “Bank” we can easily understand that the financial institution deals with money. But there are different types of banks such as; Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Co-operative Banks etc. But when we use the term “Bank” without any prefix, or qualification, it refers to the ‘Commercial banks’. Commercial banks are the primary contributors to the economy of a country. Janata Bank Limited a kind of commercial Bank in our country. Janata Bank a nationalized commercial bank established under the Bangladesh Banks (Nationalization) Order 1972. With its head office at Dhaka the bank started its operations with an initial authorized capital of Tk 50 million and paid up capital of Tk 10.5 million. The authorized capital was raised to Tk 30 million in 1973. In addition to traditional deposit taking in various accounts and providing loans to almost all sectors of the economy, the bank offers different types of other services and conducts 'off-balance sheet (OBS)' activities. The value of assets created by the OBS activities of the bank was Tk 26.07 billion in 1998 and Tk 25.46 billion in 2000. Janata Bank has a large participation in foreign exchange business including overseas remittance services. The total volume of foreign exchange business handled by the bank in servicing imports and exports and remittances during 1999-2000 amounted to Tk 40.312 billion. In 2009, the bank had correspondent relationships with 3,180 foreign banks/bank offices. In 1972, Janata Bank started its banking operations with a total initial deposit of Tk 1.57 billion. Ever since the bank has been making continuous and sustained efforts to mobilize deposits from untapped resources in both urban and rural areas. A special deposit mobilization programmed introduced by the bank in 1976 resulted in remarkable increases in the volume of its deposits, which grew at a rate of approximately 63% and 42% during 1972-74 and 1978-80. Major areas that received financing from the bank were jute trade, jute industries, tanneries, sugar industries, textile trade and industries, transport, iron and steel, tea plantation and trade, livelihood trades/income generating activities and housing. During 1999, Janata Bank disbursed Tk 16.383 billion in loans and advances and the recovery during the year was Tk 4.541 billion.

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01.02. Objective of the Report 01.02.01. Major Objectives The major objective of the study is to observe & evaluate Foreign Exchange operations of the Janata Bank Limited.

01.02.02. Specific Objectives Every report has an objective. The objective of the internship program is to familiarize students with the real business situation, to compare them with the business theories & at the last stage make a report on assigned task. Specific objectives are as follow:



To know the activities of the foreign exchange department.



To know function of foreign exchange.



To know export procedures of JBL.



To know import procedures of JBL.

01.03. Origin of the report This report is being assigned as a part of the BBA Degree (Internship) of Daffodil International University. To prepare this report, I accommodate my internship program in Janata Bank Ltd. For the completion of the course, as an essential part I had prepared a Report. This report is being formed on the “A Study on Foreign Exchange operations of the Janata Bank Limited., Gandaria Branch”. From the very beginning of my internship I have worked on General banking. After few weeks later I was shifted on Foreign Exchange department. For that reason I made my Report on Foreign Exchange activities of Janata Bank Limited., Gandaria Branch.

01.04. Scope Scope means area of operations or field of the study. The scope of this report was extended to the Foreign Exchange activities of Janata Bank Limited.

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01.05. Methodology of the Report 01.05.01. Appointing as an internship All the formalities have been completed I joined in Janata Bank Limited (JBL) in the Gandaria Branch. 01.05.02 Selection of the topic Internship topic selected very important for a student. I am a student of Daffodil International University and internship program completed in Janata Bank Limited (JBL) in the Gandaria Branch. The area chosen designed for the learning was selected by me and permitted by Professor M. Shahjahan Mina, Advisor, Faculty of Business & Economics, Daffodil International University. 01.05.03 Data Sources Two types of data are used to prepare the report, which are primary and secondary data. 1.5.3.1 Primary Sources: •

Practical desk work

•

Employees of the JBL

•

Clients of the JBL

•

Examine and study client files

1.5.3.2 Secondary Sources: Most of the necessary information will be collected from the client’s document. •

JBL Annual Report 2004-2009

•

Published documents

•

Website of JBL

•

Relevant books.

01.05.04 Target Populations All employees, management level and customer of JBL. 01.05.05 Sample Size: •

25 employees

•

20 Clients

01.05.06 Sampling Technique: Convenience sampling technique has been used.

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Daffodil International University 01.05.07 Data Collection Method: Most of the data required for the study was collected form primary sources through oral interviewing the employees. 01.05.08 Data Analysis Process: To analyze the gathered data of foreign exchange department, I used different types of charts, tables and graphs. To do that analysis I used different types of computer software like Microsoft Word and Microsoft Excel. Findings of the study: After finding out the data problems of the study were pointed out and they were shown under concerned heads. Recommendations were suggested thereafter to overcome the problems. Final report preparation: On the basis of the suggestions of my honorable supervisor some deductions and additions were made and final report was prepared thereafter.

Significance of the Report This report is the result of three month internship in Janata Bank Limited (JBL). And I have completed this internship period successfully. This internship report contains all the knowledge that I have gathered at the time of my internee at Janata Bank Limited (JBL) in the Gandaria Branch. My topic is study on Foreign Exchange operations of Janata Bank Limited (JBL). This is the basic rationale behind the study. Besides, it would be a great opportunity for me to get familiar with this system. So this study is very significant for both the company and as well as for me.

01.06. Limitations of the Report There were some problems while I doing internship. A whole hearted effort was applied to conduct the internship and to bring a reliable and fruitful result. In spite of having the wholehearted effort, there exit some limitations, which acted as a barrier to conduct the program. The limitations were noted to this page:  Bankers don’t want to disclose all the information I need.  Non-availability of some preceding and latest data.  Some information was withheld to retain the confidentiality of the bank. Internship Report

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Daffodil International University  Although the officers of the Janata Bank Limited have been very helpful, they didn’t have enough time to provide, as they are very busy with their assigned works. So, in some cases, observation was needed.

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02.01. An overview of Janata Bank Limited (JBL) Janata Bank Limited is the leading sector bank in Bangladesh offering full range of Personal, Corporate, International Trade, Foreign Exchange and Lease Finance. Janata Bank Limited is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments, assuring Excellence in Banking Services.

02.02. Brief Overview of the Bank ♦ Formation of Janata Bank: Immediately after the independence of Bangladesh in 1971, the erstwhile United Bank Limited and Union Bank Limited were nationalized and renamed as Janata Bank. ♦ Date of Incorporation as PLC: May 21, 2007.

♦

Authorized Capital: Tk. 8,000 million (as on 31.12.08) (now 20,000 Million as approved in the AGM/EGM dated 29.09.09).

♦ Pre IPO Paid up Capital: Tk. 2,593.90 million (as on 31.12.08) (however the bank has issued Bonus shares amounting to Tk. 1156.10 million and rights shares of Tk. 1250.00 in the said AGM/EGM i.e., paid- up would be Tk. 5,000 million).

♦ No. of Branches: Almost 850.

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02.03. Janata Bank Limited At a Glance Key Points Name

Particulars Janata Bank Limited

Logo

Date of incorporation as PLC Status

May 21, 2007 Public Limited Company

Chairman Managing Director Number of Branches Total Manpowers Earnings Per Share

DR. Abul Barkat S.M. Aminur Rahman Managing Director & CEO 851 13,122 78.02-(TK)

Total Assets

Tk.2,93,662 million

Authorized Capital

Tk.20,000 millions

Paid up capital Net Profit

Tk.5000 millions 2982 millions(2009)

Total Deposits

2,46,175 millions

Total Loan and Advances

1,66,359 millions

Fully committed To Head Office

Web and E-mail Address

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Deliver Shareholders Value Janata Bhaban Corporate branch 110, Motijheel Com. Area Dhaka-1000 Bangladesh. www.janatabank-bd.com

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02.04. Hierarchy of Janata Bank Limited Hierarchy of Janata Bank Limited

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02.05. Objective of Janata Bank Limited JANATA Bank Ltd will be the absolute market leader in the number of loans given to small and medium sized enterprises throughout Bangladesh. It will be a world – class organization in terms of service quality and establishing relationships that help its customers to develop and grow successfully.

02.06. Mission of Janata Bank Limited Janata Bank Limited will be an effective commercial bank by maintaining a stable growth strategy delivering high quality financial products, providing excellent customer service through an experienced management team and ensuring good corporate governance in every step of banking network.

02.07. Vision of Janata Bank Limited To become the effective largest commercial bank in Bangladesh to support socio-economic development of the country and to be a leading bank in South Asia.

02.08. Core Values of Janata Bank Limited •

Integrity

•

Fairness

•

Harmony

•

Courtesy

•

Commitment

•

Enthusiasm for work

•

Business ethics

02.09. Core Strengths of Janata Bank Limited  Quick Decision Making  Efficient team performance  Satisfied Customer  Internal Control

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02.10. Foreign Corresponding Janata Bank has already established a worldwide network and relationship with international banking through its four (4) overseas branches in UAE, subsidiaries “Janata Exchange S.R.l’ in Italy & 1125 foreign correspondents all over the world.

02.11 Business Philosophy of Janata Bank Limited. Janata Bank Ltd, a full service commercial bank with Local and International Institutional shareholding, is primarily driven by creating opportunities and pursuing market niches not traditionally met by conventional banks. Today Janata Bank Ltd is one of the fastest growing banks in the country to support the planned growth of its distribution, network and for its various business segments. The reason Janata Bank Ltd is in business is to build a profitable and socially responsible financial institution focused on markets and businesses with growth potential, thereby assisting Janata and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”. Which mean to help make communities and economy of the country stronger and to help people achieve their dreams. They fulfill the purpose by reaching for high standards in everything we do. For their customers, their shareholders, their associates and their communities upon, which the future prosperity of their company rests.

02.12. Management of Janata Bank Limited: For any financial and non financial organization Management is the most valuable and important resources of any kind of organization. And a well-organize management provides the organization to reach its ultimate goal. Management means planning, organizing, staffing, directing and controlling of all financial and non financial resources of an organization. Different aspects of management practice in Janata Bank Limited are discussed below.

• Planning Janata Bank Limited has done its planning within the preview of the corporate plan. The overall planning approach of Janata Bank Limited is Top-down. Each branch can plan according to the goal imposed by the corporate level. It doesn’t plan independently. And, Janata Bank Limited has a planning division. This department is mainly responsible for the overall planning.

• Organizing Internship Report

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Daffodil International University Janata Bank Limited is organized as per the existing business locations. It has 851 branches, each of which is a separate entity. Each unit is responsible for its own performance and followed by Managers each. He is directly responsible for performance of their unit. Within each branch it is organized functionally.

• Staffing The recruitment of Janata Bank Limited is done in two ways. One as a “probationary officer” for the management program and it has probation period of one year. Another one is nonmanagement level as “Trainee Officer” Probationary officer is recruited in officer category and their career path is headed towards different managerial jobs.

• Directing and controlling The management approach in Janata Bank Limited is top-down or authoritative. Information just seeks through lower management layer. Setting Management in all office is done in way that the superior can monitor the subordinate can all time. Budgeting, rewarding, punishing etc. are also practiced as control mechanism.

02.13. Product and services JBL has a very broad line products under the various business group, from short term to long term deposits, various types loans and advances, account service, it provides finance for export and import, finance for working capital, project financing, capital investment, remittance service, trade service, foreign exchange service, cash management service, Profit & loss sharing and also has other miscellaneous product and services around the nation.

Janata Bank Limited

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GENERAL BANKING

LOAN AND ADVANCE

CD, SD, STD, FDR, SND, DD, TT, MT, PO, SALE OF PRIZE BOND & SP.

CC, TR, LIM, OD, PROJECT LOAN.

FOREIGN EXCHANGE

EXPORT & IMPORT. LEGAL MEASURE FOR RECOVERY.

LEGAL AND RECOVERY

RECOVERY 02.14. Product of Trade service 3.3.1 Fund Based:  Cash Credit (CC Hypo)  Cash Credit (CC Pledge)  Overdraft (OD)  Trust Receipt (TR)  Foreign Bill Purchase (FBP)  Loan Against Important Merchandise (LIM) 3.3.2 Non-Fund Based:  Letter of Credit (LC)  Deferred LC  Sight LC  Letter of Guarantee (LG) A limit (amount) is set by the bank that can be availed by a particular Customer based on his / her Credit worthiness and record of business transactions with the bank.

02.15. Business area of Janata Bank Limited There are mainly eight major business areas where the Janata Bank Ltd. is performing with high reputation. These areas are:

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Daffodil International University  General Banking  Foreign Exchange  Small & Medium Scale Enterprise (SME)  Large Scale Industries  Agriculture Sector  Transport Sector  Financing In Housing Sector& Land Developing  Finance in Home Appliance Since I completed my internship on foreign exchange, it would be convenient for me to focus Foreign Exchange of Janata Bank Ltd.

02.15.01 General Banking It is most important side of the bank. Bank is nothing but a middleman between lenders (surplus unit) and borrowers (deficit unit). To provide loan, a bank needs a huge amount of money from the depositors. General banking is the side where banks offer different alternatives to the clients to deposit and remit their money. To encourage the clients, bank offers different options in front of their clients. Most of these options are very much similar between the banks, but the customer services and facilities may not be the same. General Banking of JBL is divided into 4 divisions: •

Account opening

•

Remittance

•

Clearing

•

Cash.

2.15.1.1 Account Opening The relationship between the banker and the customer begins with the opening of an account by the customer. Initially all the accounts are opened with a deposit money by the customer and hence these accounts are called deposit account. Usually a person needs to open an account to take services form it. Without opening an account, one can get only a few services from the

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Daffodil International University bank. So the banking begins actually by opening an account with a bank. Generally, there are four types of accounts in our country’s banking system: 1.

Current account or Demand Deposit (CD Account)

2.

Savings Deposit (SB Account)

3.

Fixed or Time Deposit (FDR)

4.

JBDS (Janata Bank Deposit Scheme)

5.

MDS (Medical Deposit Scheme)

6.

EDS (Education Deposit Scheme) & SPS

2.15.1.2 Remittance Remittance of funds is ancillary services of JBL. It aids to remit fund from one place to another place on behalf of its customers as well as non- customers of Bank. JBL has its branches in the major cities of the country and therefore, it serves as one of the best mediums for remittance of funds from one place to another. The main instruments used by JBL:i.

Payment Order Issue/Collection

ii.

Demand Draft Issue/Collection

iii. T.T. Issue/Collection

i. Payment Order: The pay order is an instrument issued by bank, instructing itself a certain amount of money mentioned in the instrument taking amount of money and commission when it is presented in bank. Only the branch of the bank that has issued it will make the payment of pay order. Issuing of Pay Order: The procedures for issuing a Pay Order are as follows: Ω Deposit money by the customer along with application form. Ω Give necessary entry in the bills payable (Pay Order) register where payee’s name, date, PO no, etc is mentioned. Ω Prepared the instrument. Ω After scrutinizing and approval of the instrument by the authority, it is delivered to.

ii. Demand Draft: Ω The person intending to remit the money through a Demand Draft (DD) has to deposit the money to be remitted with the commission which the banker charges for its services. The amount of commission depends on the amount to be remitted. On issue of the DD, the remitter does not remain a party to the instrument:

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Daffodil International University Ω Drawer branch Ω Drawn branch Ω Payee. Customer. Signature of customer is taken on the counterpart.

iii. Telegraphic or Telephonic Transfer (TT) This Method transfers money to one place to another place by telegraphic message. The sender branch will request another branch to pay required money to the required payee on demand. Generally for such kind of transfer payee should have account with the paying bank. Otherwise it is very difficult for the paying bank to recognize the exact payee. When sending money is urgent then the bank uses telephone for remittance. This service is only provided for valued customers, who is very reliable and with which banks have long standing relationship.

TT (Issue) ♦ Customer fills up the TT form and pays the amount along with commission in cash or by cheque. ♦ The respected officer issues a cost memo after receiving the TT form with payment seal, then signs it and at last give it to the customer. ♦ Next a TT confirmation slip is issued and its entry is given in the TT issue register. ♦ A test number is also put on the face of the slip. Two authorized officer signs this slip. ♦ The respective officer transfers the message to the drawee branch mentioning the amount, name of the payee, name of the issuing branch, date, test number and his her power of attorney (P.A.) number. ♦ The confirmation slip is send by post.

2.15.1.3 Clearing Clearing house is an assembly of the locally operating scheduled banks for exchange of cheques, drafts, pay orders and other demand instruments drawn on each other and received from their respective customers for collection. The house meets at the appointed hour on all

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Daffodil International University working days under the supervision of two central bank officers or its agent as the case may be, and works within the regulations framed therefore on the basis of prevailing banking practices. In Bangladesh, clearing house sites at Bangladesh bank where there is no office of the Bangladesh bank, Sonali Bank acts as agent of Bangladesh bank. There are mainly two types of clearing systems in Bangladesh, such as:  Internal clearing or inter branch clearing or inward clearing  External clearing or inter banks clearing or outward clearing What is clearing House? In Bangladesh Bank, there is a very large room, which contains fifty (50) or more tables for each bank that is called the clearing house. Nature of clearing house:  1st Clearing House  Return Clearing House

Types of Clearing Cheque JBL Gandaria Branch, Dhaka performs the clearing function through Bangladesh Bank. JBL Local Office, Dhaka acts as the agent of all JBL branches for the clearing house of the Bangladesh Bank. There are two types of cheque which are•

Inward clearing Cheque.

•

Outward clearing Cheque.

Inward clearing Cheques Inward clearing cheques are those ones which have drawn on the other branches of JBL, which will be cleared / honored through the internal clearing system of JBL operated by the Local Office of JBL.

Outward clearing Cheques Outward clearing cheques are those ones, which have drawn on the other bank branches which are presented on the concerned branch for collection through clearing house of Bangladesh Bank.

2.15.1.4 Cash Internship Report

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Daffodil International University The cash section of any branch plays very significant role in Banking Section. Because, it deals with most liquid assets. The JBL, Gandaria Branch has an equipped cash section. This section receives cash from depositors and pay cash against cheque, draft, PO, and pay in slip over the counter. Every Bank must have a cash counter where customer withdrawn and deposit their money. When the valued client’s deposit their money at the cash counter they must have to full fill the deposit slip his/her own, then they sing as the depositor option’s then they deposit their money through cash officer at the cash counter. Several Types of Deposit Slip There are several types of deposit slip as follows:  Current Deposit A/C Slip,  Saving’s Deposit A/C Slip,  Fixed or Time Deposit A/C Slip, Other Types of Deposit A/C Slip,  Pay order Slip,  Demand Draft Slip,  T.T. Slip.

Receiving Cash Any people who want to have deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. Then he put his signature on the slip along with the ‘cash received’ seal and records in the cash receive register book against A/C number. At the end of the procedure, the cash officer passes the deposit slip to the counter section for posting purpose and delivers duplicate slip to the clients.

Disbursing Cash The client who wants to receive money against cheque comes to the payment counter and presents his cheque to the officer. He verifies the following information: •

Date of the cheque

•

Signature of the A/C holder

•

Material alteration

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Daffodil International University •

Whether the cheque is crossed or not

•

Whether the cheque is endorsed or not

•

Whether the amount in figure and in word correspondent or not

Then he checks the cheque from computer for further verification. Here the following information is checked:  Whether there is sufficient balance or not  Whether there is stop payment instruction or not  Whether there is any legal obstruction or not After checking everything, if all are in order the cash officer gives amount to the holder and records in the paid register.

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03.01. Foreign Exchange 03.01.1. Foreign Exchange- its Meaning and Definition Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to another country. Foreign exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign trade gives rise to foreign exchange. Modern banks facilitate trade and commerce by rendering valuable services to the business community. According to foreign exchange regulation act 1947, “Any thing that conveys the right to wealth in another country is foreign exchange”. Foreign exchange department plays significant roles through providing different services for the customers. Opening or issuing letters of credit is one or the important services provided by the banks. 03.01.2. Principles of Foreign Exchange The following principles are involved in Foreign exchange: •

The entire system.

•

The media used.

•

The monetary unit.

03.01.3. Functions of Foreign Exchange The Bank actions as a media for the system of foreign exchange policy. For this reason, the employee who is related of the bank to foreign exchange, especially foreign business should have knowledge of these following functions: •

Rate of exchange.

•

How the rate of exchange works.

•

Forward and spot rate.

•

Methods of quoting exchange rate.

•

Premium and discount.

•

Risk of exchange rate.

•

Causes of exchange rate.

•

Exchange control.

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Convertibility.

•

Exchange position.

•

Intervention money.

•

Foreign exchange transaction.

•

Foreign exchange trading.

•

Export and import letter of credit.

•

Non-commercial letter of trade.

•

Financing of foreign trade.

•

Nature and function of foreign exchange market.

•

Rules and Regulation used in foreign trade.

•

Exchange Arithmetic.

03.02. Different Types of foreign exchange operations: There are three kind of foreign exchange transaction:  Import  Export  Foreign Remittance. The following chart is showing different types of activities of foreign exchange operation:

Chart 14: Different Wings of Foreign Exchange Operation

03.03 Import: Import trade in Bangladesh is controlled under the Import and Export control Act 1950. Authorized Dealer Banks will import the goods into Bangladesh following the import policy, public notice, F.E. circular and other instructions from competent authorities from time to time. The whole import functions of the branch as far I have understood are discussed below:

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03.03.1. Procedure of import Import of merchandise essentially involves two things:  Bringing of goods physically into the country  Remittance of foreign exchange towards the cost of the merchandise The Ministry of Commerce through the Chief Controller of Import regulates physical import and Exports being office at the important trade center while Bangladesh Bank regulates the payment for the imports through its various departments. The following are the steps involved in import of merchandise into Bangladesh.

Registration of importer In terms of the Importers, Exporters and Indenters (Registration) Order 1981, no person can import goods into Bangladesh unless he is registered with the Chief Controller of Import and Export or exempted from the provisions of the said order. So the following documents are required to be submitted to the licensing authority for registration as importers:

 Questionnaire form duly filled in and signed  Income tax registration certificate  Trade License from the Municipal or Local Authority  Bank certificate  Nationality certificate  Partnership Deed where applicable  Certificate of Registration with the Registrar of Joint Stock Companies,  Certificate from the Chamber of Commerce/Registered Trade Association  Ownership documents or rent receipts of the place of business  Any other documents required under the relevant import policy. 03.03.2. Licensing for Imports Most imports into Bangladesh require a license from the Licensing Authority. In recent years, the task of licensing has been delegated to the commercial banks. It is done by LCA (Letter of

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Daffodil International University Credit Authorization Form). Blank LCA forms can be obtained by the importer from their banker. The following documents are required to be submitted by the import to his banker.

 LCA Form property filled-in and signed.  LC Application  Purchase Contract in the shape of an Indent or Pro forma Invoice.  Insurance Cover Note  Membership Certificate from a chamber of Commerce and Industry or Registered Trade Association

 Import Registration Certificate (IRC).  In case of Public Sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity, and other terms and conditions against the imports.

03.03.3. An Opening of Letter of Credit •

Importer applies to the bank to open L/C in favor of foreign supplier. The bank has its printed application form and the importer should carefully fill in this form. On receiving this application, the bank scrutinizes it to ensure that:

•

Whether the customer fulfils all the required conditions/criteria to be eligible as an importer as per provisions of the Import Policy Order and Guidelines for Foreign exchange Transactions in force and the supporting documents/papers required are submitted.

•

Whether the items for import of which the documentary credit need to be opened is permissible i.e. not included in the negative/restrictive list as per Import Policy order in force.

•

Whether we are holding satisfactory credit report on the beneficiary to satisfy the relevant provisions of the guidelines for Foreign Exchange transactions

•

On receipt of the L/C application over the counter or through dispatch/mail section, the receiving date and time to be recorded on the L/C application.

•

Signature of the customer on the L/C application to be verified by authorized/ designated officer.

L/C application with all supporting papers to be checked to ensure that the required papers are as per requirement of Guidelines for Foreign Exchange Transactions and are consistent to each other Internship Report

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…..L/C application must show the following clearly: •

Full name & address of the beneficiary

•

The amount of the credit

•

The Credit whether to be irrevocable or confirmed irrevocable.

•

Whether the credit is available by payment, acceptance or negotiation

•

On which party the drafts are to be drawn and the tenure of such drafts

•

A brief description of the goods, including details of quantity and unit price

•

Whether freight is to be prepaid or not

•

The port of shipment and the destination

•

Whether the transfer of the goods from one vessel to another, or from one mode of transport to another, route, is prohibited.

•

The last date for shipment

•

The date and place of expiry of the credit

•

Negotiation period

•

Details of the documents required and how those are to be dispatched to the issuing bank i.e. by ordinary mail/courier. -

Whether the credit is to be a transferable one.

-

How the credit is to be advised i.e. by mail/telex.

•

Letter of Credit authorization from duly filled in and signed.

•

Indent or Performa Invoice issued by Seller or his agent (Indenter) duly counter signed by the customer.

•

Insurance certificate or policy (Marine/Air/Mail/Truck) covering the goods at 10% above L/C value for the whole journey/shipment together with unconditional premium paid receipt.

•

Prior permission/registered LCA form, No objection/any other certificates from the concerned authority as required as per provision of the Import Policy Order.

•

I.M.P. form duly filled in and signed.

•

In case the L/C application is not complete or in consistence or the required papers are not submitted, the customer should be promptly contacted for rectification of the defects.

Before Dispatching/ Transmitting the L/C: Internship Report

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Daffodil International University •

Check whether the opening of the Letter of Credit is approved by the competent authority.

•

Review all documents including the Letter of Credit and vouchers.

•

If found in order, sign the letter of credit including the accounting vouchers.

•

The original L/C must be signed jointly by two authorized signatories.

3.3.4. Verification and Lodgment of Documents by the L/C Opening Bank On receipt of the shipping documents from the negotiating bank, the L/C Opening Bank should carefully examine these to ensure that they confirm to the term of the credit: ♦ The documents have been negotiated within the stipulated date. ♦ The amount drawn does not exceed the amount authorized in to credit. ♦ The merchandise is properly invoiced. ♦ The bill of Lading is clean, shipped on board, showing freight prepared and endorsed to the order of the issuing bank shows the port of shipment, the port of destination, the name of the consignee and the date of shipment are in keeping with the term of the credit. ♦ It is properly signed by the shipping company ♦ The Certificate of Origin ♦ Other documents like weight list, packing list, pre-shipment Inspection Certificate etc. After the lodgment, the bank asks the importer to retire the bill. After retirement the amount of remittance towards cost of the merchandise is reported to Bangladesh Bank on Form “IMP”.

03.03.5. Shipping Guarantee: Shipping guarantee is a Letter of Guarantee/Indemnity issued jointly by importer (consignee) together with a bank (L/C opening Bank) in favor of a commercial carrier or their agent whereby they are authorized to release imported merchandise (title being in favor of the coissuer Bank) to a consignee in the absence of original shipping bill i.e. bill of Lading/airway bill while the co-issuer furnish an assurance/undertaking to submit the original Bill of Lading/airway Bill to the carrier as soon as the same is in their possession. However against the issuance of a letter of indemnity, the bank should obtain a counter indemnity signed by the Internship Report

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Daffodil International University importer in favor of the issuing bank whereby they assume full responsibility for any obligation the bank assume in issuing the shipping guarantee and also undertake acceptance/payment of documents/draft under the related Letter of Credit irrespective of whether those are discrepant or not.

Before Issuing the Shipping Guarantee: ♦ Head Office approval is essential in cash where the customer has not adjusted

the

related import liabilities or do not have approved LIM/LTR facility limit. ♦ The Branch shall obtain counter indemnity from the customer in favor of the Bank. ♦ The customer shall submit an unconditional undertaking to accept the related shipping documents even with any discrepancies. ♦ The Shipping Guarantee/Letter of indemnity must be signed jointly by two authorized signatories.

Important points to prepare an L/C: To prepare an L/C the branch takes care on the following points: L/C number: The branch will put a number for each L/C., which is the serial number of the L/C for a particular year. First L/C of JBL SKB branch in 2009 may be numbered like JBL / SKB /1742010401. Place and date of issue: L/C must indicate the place and date of issue. Date and place of expiry: L/C must have an expiry date. This is the last date of presentation of document under the L/C. Place of expiry of the L/C also to be mentioned in the L/C. Normally it should be the counter of the Negotiating Bank. Shipment date: There should be a last shipment date after which shipment is not allowed. Bank may also fix-up a first shipment date before which shipment will not be allowed. Presentation period: Issuing bank will allow a period within which exporter must present the export documents to the negotiating bank or to any other nominated bank. This may be 15 days from the date of shipment. Maximum may be allowed one month, but within the expiry date of the credit. Applicant: Name of the applicant with business address to be put in the L/C. Beneficiary: Name of the beneficiary with address also to the indicated in the L/C. Advising Bank: Name of the advising bank with address to be mentioned in the L/C.

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Daffodil International University Amount: Every L/C must show the amount of the L/C. The word “About” may be used with amount, which means 10% more or less of the said amount. Part-shipment and Trans shipment: Issuing bank also clearly indicate in the L/C whether part-shipment and Trans shipment are allowed or not. Availability: L/C must indicate whether the credit is available by payment, by negotiation or by acceptance. Port of shipment and port of destination: L/C will also indicate from where shipment to be made and where goods to be delivered. Tenure of the draft: Whether the draft to be drawn at sight or usance, also to be cleared in the L/C. Documents required: Bank will give the list of required documents and data content therein. Each and every term must be supported by the documents, because any term without asking document is valueless. Payment: When, where and by whom payment is to be made, also to be indicated in the L/C. Bill of lading: B/L must be issued or endorsed to the order of the Issuing Bank. It should be ‘clean’ and “freight prepaid” if L/C is on CFR basis short form and charter party B/L to be avoided. All these terms must be incorporated in the B/L clause of the L/C. Bill of exchange: bill of exchange to be drawn on the Issuing Bank. Pre-shipment Inspection: Pre-shipment inspection certificate is compulsory for both government and private import except in few cases. Data content: Invoice and other documents if required should indicate the H.S. code number. LCAF No with description of the item and country of origin. Special conditions: Special conditions, such as in case of food, machineries, vehicles and any other items should be incorporated in the L/C where required. Authenticity of the credit: L/C to be authenticated by putting a test number or signing by two authorized officers.

Additional confirmation to import Letter of Credit The beneficiary of L/C may ask for the additional confirmation to a letter of credit by an internationally reputed bank located in beneficiary’s country. In that case after adding confirmation, the negotiation becomes restricted to the bank who has added their confirmation to the credit.

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Daffodil International University In case there is no branch of the advising bank of the beneficiary’s country, the reimbursing bank may confirm to the advising bank that they are holding reimbursing authority. This may also serve the purpose of adding confirmation. As per normal practice, the charges of adding confirmation are borne by the beneficiary. In case the charges are to be borne by the importer, the L/C opening bank is to recover charges at the time of issuance of such instructions.

03.03.6. Amendment to Letter of Credit The letter of credit opened by a bank may need amendment. If the supplier finds that the term of the credit cannot be complied with in full, he would arrange for necessary amendment by the opener before the goods are shipped. These amendments must be advised by the opening bank to the supplier through advising bank. Sometimes the opener also may like to amend the credit after it has been advised. These amendments may relate to the decrease or increase in amount of credit, change in foreign currency, and change in the dates of shipment or negotiation, change in merchandise and other terms of the credit. These amendments must also be advised by the opening bank to the supplier through the advising or confirmation bank before the shipment is made. For this kind of amendment, the bank would need a written request from the importer who generally makes this request after obtaining consent of the supplier. Such amendments will, of course, be effective if all the parties to letter of credit namely the L/C opening bank, the advertising bank and the supplies, agree to it. Amendment is to be typed, like L/C, in the printed format in manifold. The copies of the amendment must be dispatched to all concerned as done in dispatching the L/C. Amendment can be done by SWIFT or Airmail. Amendment commission and other charges are to be realized from the party by debiting his account. If the amount of L/C is increased, the liability voucher is to be passed including the amount of increase on the date of amendment reserving the old entry passed at the time of opening the L/C.

03.03.7. L/C Advising The L/C duly signed by two authorized officers, whose specimen signatures are already recorded with the correspondent banks, must be addressed to the beneficiary. Bank generally does not enter into direct contact with the beneficiary. Instead they utilize the services of its

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Daffodil International University own branch office (if any) or correspondent bank at seller’s country for the purpose of advising it to the seller (beneficiary). Thus the correspondent bank becomes the “Advising Bank”. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding/advising the credit to the seller under appropriate forwarding coverage, the advising bank has to verify the signatures of the officers of the opening bank and ensure that the terms and conditions of the credit are not in violation of regulations relating to export. While advising, the advising bank does not undertake any liability. Advising a letter of credit:

IMPORTER

(L/C

L/C OPENING BANK

APPLICANT)

ISSUE L/C ADVICE

APPLICATION ON L/C BENEFICIARY

L/C ADVICING BANK/CONFIRMING BANK

Chart 15: Advising of L/C

03.03.8. Lodgment If import documents are found in order, they are to be made entry in the bill register and necessary vouchers to be passed, putting Bill number on the documents. This process is called Lodgment of the bill. The word “Lodgment’ means temporary stay. Since the documents stays at this stage for a temporary period i.e. up to retirement of the documents, the process is called lodgment. Bank must lodge the documents immediately after receipt of the same, not exceeding 7 banking days, following the day of receipt of the documents, (Article 14, UCPDC-500).

Security Documents The L/C opening bank being received the documents from the negotiated bank will scrutinize the documents with the respective L/C terms and condition.

 Forwarding schedule of Negotiating Bank  Whether there is any instruction.  Whether these instruction can be complied with.

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Daffodil International University  Whether the negotiating commission realized.

 Bill of Exchange (Draft)  Whether it is drawn in order.  Whether the amount of draft corresponds with the L/C amount.  Draft amount should be equal or less than the L/C amount.  Whether the date of the draft of the within the date as per L/C etc.

 Bill of Lading (B/L)  Whether the B/L is clean i.e. there is no clause like some cartons are broken or any other clause.  Whether there is signature of shipping Authority.  Whether the date of B/L is within the date of shipment as per L/C.  Whether the freight is prepared or not as per L/C terms.  Whether the part of shipment and part of destination are similar as per L/C.  Whether the title of B/L belongs to L/C opening bank.  Whether the full sets of B/L dispatched by negotiating bank etc.

 Commercial Invoice  Whether the full particulars of goods have been incorporated.  Whether the amount of invoice corresponds with the amount of Bill of Exchange and as per the L/C terms.  Whether IRC No. LCA No etc. have been incorporated.  Whether it is signed by the beneficiary.

 Other Documents

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Daffodil International University  Whether all other documents are prepared as per L/C. In case of discrepant documents The Article 16 of UCPDC (Publication 600) says,  When the issuing bank determines that a presentation does not comply, it may refuse to honor or negotiate.  When the issuing bank determines that a presentation does not comply, it may in its sole judgment approach the applicant for a waiver of discrepancies.  When the issuing bank decides to refuse to honor or negotiate, it must give a single notice to that effect to the presenter. The notice must state:  That the bank is refusing to honor or negotiate; and  Each discrepancy in respect of which the bank refuses to honor or negotiate; and  (a) That

the

bank

is holding the documents pending further instructions from the

presenter; or (b) That the issuing bank is holding the documents until itreceives a waiver of the applicant agree to accept it, or

receives for the instruction from the presenter

prior to agreeing to accept a waiver; or (c) That the bank is returning the documents; or (d) That the bank is acting in accordance with Instructions previously receipt from the presenter.  The notice required in sub-article (c) must be given by telecommunication or, if that is not possible, by other expeditious means no letter than the close of the fifth banking day following the day of presentation. If the documents are found in order and these are acceptable to the importer, the bank lodge the bill in PAD (Payment Against Documents) by converting the foreign currency representing the bill amount and foreign correspondences charges into Taka and asks the importer to retire the bill by sending a cost memo indicating the amounts payable by him under different heads.

03.03.9. Retirement When the importer release the import documents from the bank by acceptance/cash payment or under post import bank finance, it is known as retirement of the import document.

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Daffodil International University When the importer does not come forward to retire the import documents, or requests the bank for finance against the imported consignment, then arises the necessity of post import investment. If the consignment is not cleared within 45 days, from the date of arrival, custom authority may auction the consignment under section 167 (8) and amended section 82 of the Custom Act 1969. Under such a situation bank becomes compelled for forced clearance of the consignments under Murabaha post import investment. If the documents are discrepant, party’s acceptance is required for clearance of the goods.

03.3.11 Loan against Imported Merchandise- LIM (Post Import Finance) 03.3.11.1 Definition of LIM Import Finance plays vital role in a country's foreign trade business. Import of goods and service are needed not only for export production but also to supply domestic industry with the necessary inputs which are not locally available or available at uneconomic cost and are needed for expansion and development. Loan against Imported Merchandise (LIM) is a facility provided by the Bank to the importers who are in shortage of fund to retire the import bills and thus to clear the goods from the post authority. In other works it may be referred as an advance against merchandise.

3.3.11.2. Cases of LIM account LIM Accounts may be created in the following two cases: LIM Account on importer's request.  Forced LIM Account.

3.3.11.3. LIM Account in importer's request After lodgment of documents, the importers concerned to be intimated for early retirement of the documents by paying outstanding bill amount including other charge. If the importer is not in a position to retire the bill out of his own sources, at that moment they may request the bank to clear the goods by creating LIM Account. On receipt of the importers request the official of the import bills section will calculate the total landed cost of the consignment. To ascertain the landed cost the following points are to be considered. Efforts should be taken so that at least 20% to 30% margin of the landed cost may be realized from the importer. Realization of margin will depend on the banker customer relationship and also on the marketability of the goods. The following charge documents have to be executed by the importer:-

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Daffodil International University  DP Note (Demand Promissory note).  Letter of Arrangement.  Letter of Disbursement.  Letter of pledge.  Any other document of necessary. The branch Managers are not empowered to sanction the LIM A/Cs in favor of the importers for clearance the goods without obtaining the approval from Head Office. On getting approval from Head Office the branch will send the documents to the port city branch by endorsing the bill of lading in favor of them with certification of invoice value for clearance the goods through importers nominated as well as Bank's approved C&F agent. In the forwarding letter clear instructions to be given for dispatching the goods either by train or by truck duly insured. Before sending the documents to the port city branch the following charge documents have to be executed by the importer: DP Note (Demand Promissory note).  Letter of Arrangement.  Letter of Disbursement.  Letter of pledge.  Any other document of necessary.

3.3.12. Comparative Position on Overall Import Performance for the last 3 Years of “Janata Bank Gandaria Branch” Item Import

2008 2007 991.12 2056.79

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% of Growth 108%

2009 2056.79

(Figure in Million) 2010 % of Growth 2282.53 11% Source: Statement of Affairs

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Daffodil International University

2008

2009

2010

From the above graph it is observed that the Import is increased steadily. In the year 2007 is increased 108% as compared with 2006.And in the year 2008 it is increased 11% as compared with 2007.

03.04 Export Export means outflow of goods and services produced in one country, which purchase by Government, Firms and individuals of other countries. Development of a country depends on its participation in the international trade by increasing production and export of commodities and service sector. By way of this a country can improve Employment Generation-Income level-Savings-Growth-Economic Development. The imports and exports trade in Bangladesh is regulated by the Import & Exports Control Act 1950. There are number of formalities an exporter has to fulfill before and after execution of export, some of are as under:

03.04.1. Benefits of Export Development of a country depends on its participation in the international trade by increasing production and export of commodities and service sector. By way of this a country can improve Employment Generation-Income level-Savings-Growth-Economic Development.

03.04.2. Procedure/Formalities for Export  The imports and exports trade is regulated by the Import & Exports Control Act 1950.  There are number of formalities an exporter has to fulfill before and after execution of export, some of are as under:  The intending exporter has to register with CCI&E and obtained Export Registration certificate [ERC]. The ERC number is to be used in all places relating to exports.

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03.04.3. Securing Export Order To secure export order the exporters may contact local chamber commerce of potential buyers, the export promotion bureau, Bangladesh mission abroad and by direct contact with foreign buyer through correspondences.

03.04.4. Receiving Letter of Credit After making contact with foreign buyers and reaching on agreed price and terms, conditions the exporters receive Letter of Credit.

03.04.5. Procurement and Shipment of Goods After receipt of LC the exporter has to procure or manufacture the contracted goods and ship the same.

03.04.6. Preparation and procurement of Export Documents After making shipment the exporter has to prepare documents i.e. Bill of Exchange, Commercial Invoice, Beneficiary’s certificates and procure some documents i.e. Transport Documents, Certificate of Origin, Insurance certificate, Inspection certificate and other documents as required as per LC terms.

03.04.7. Submission of documents to the bank for Negotiation After preparation and collection of all documents as per LC terms the exporter has to submit the documents to the bank for Negotiation/Payment/Purchase.

03.05. Role of Banks in the Export Sector of Bangladesh All the financial requirements of an exporter, from the time he enters into a sale contract and start working on it and till he receives final payment from abroad, are met by commercial banks. In that case banks play an important role in the export sector of Bangladesh and contribute by financing in the export sector by following categories:  Pre-Shipment Credit: Pre-shipment credit is given to the exporters, for the activities prior to shipment of goods for export. Some example of Pre-shipment credit: Cash for

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Daffodil International University local procurement of raw materials and its related expenses, Procuring & Processing of goods for export, Packing and transportation of goods for export, Payment of insurance premium, Inspection fees, Freight charges etc.  Post-Shipment Finance: Usually the exporter cannot afford to wait for a long time for payment to local manufacturer/supplier and other financial obligations. Resulting which the exporters need post-shipment credit facility. Considering the genuine need, and worthiness of export and other security measures bank allow credit facility to exporters.

03.06. Different parties involved Foreign exchange transaction Normally the following parties are involved to a documentary credit:

Importer: The buyer or the importer is he who initiates the credit. He applies to bank for issue foreign a documentary credit. The obligations between the importer and the issuing bank are governed by the application-cum-agreement submitted by the importer to the bank. He is bound to reimburse the bank, which effects payment or incurred a deferred payment undertaking or has accepted or negotiated under the credit as per terms, and to take up the documents.

Opening Bank: The issuing or opening bank is the importer’s bank and it issues a letter of credit normally pursuant to the terms of sales contract as set out in the application for the credit by the importer. The issuing bank should nominate the bank, which is authorized to pay or to accept drafts or to negotiate, unless the credit allows negotiation by any bank.

Exporter: The seller or exporter is the beneficiary of the credit. The letter of credit is opened in his favor and addressed to him. The beneficiary has the obligation to make export as per the contract and produce the documents as required by the credit.

The Advising Bank: It is the bank in the exporter’s country (normally the exporter’s bank), which is usually the foreign correspondent of importer’s bank through which the L/C is advised to the supplier. If the intermediary bank simply advises/notifies the L/C to the exporter part, it is called “Advising Bank”.

The Confirming Bank: If the advising bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, he becomes the confirming bank. In addition, becomes liable to pay for

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Daffodil International University documents in conformity with the L/C’s terms and conditions. The liability of the confirming bank is the primary liability and it is not contingent on the fulfillment of the obligation by the issuing bank.

The Accepting Bank: Accepting bank is the bank nominated in the letter of credit to accept bills drawn under the credit. If the bank so nominated accepts the nomination, its responsibility to the beneficiary is not only to accept the drafts drawn but also to make payment on their due dates.

The Paying Bank: Paying bank is a bank in the beneficiary’s country nominated in the letter of credit to make payment against documents to be tendered under the credit. Paying Bank must examine all documents with reasonable care to ascertain that these are drawn in accordance with the terms and conditions of the credit.

Reimbursing Bank: The issuing bank may indicate in the credit the name of a bank. From whom the paying/negotiating bank can obtain reimbursement. The documents are sent to the issuing bank. The negotiating/paying bank simultaneously makes a claim with the reimbursing bank for the payment effected. Normally the reimbursing bank would be the bank with which the issuing bank maintains an account.

The Transferring Bank: If the L/C is transferable, then the 1st beneficiary of the L/C may transfer the L/C to the 2nd beneficiary, through a bank nominated by the Issuing Bank. This bank is called the Transferring Bank.

03.07. Document required for Foreign Exchange Transactions Export-Import transactions ask for the following documents: ¥

Transport Documents

¥

Letter of Credit

¥

Insurance Documents

¥

Commercial Invoice

¥

Other Documents

03.07.1. Transport Documents

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Daffodil International University Transport documents comprises of Bill of Lading, Airway Bills, Truck Receipts, Railway Receipts and Inland Waterway Receipts. Checking points of this document are: •

The Bill of Lading is issued/endorsed to the order of Negotiating Bank.

•

Bill of Lading is clean, showing “Shipped on Board” notation, marked ‘Freight o Prepaid” [For CFR Basis] and ‘Freight Collect” [For FOB Basis], not short form, Blank back or pre dated.

•

The Bill of Lading appears the merchandise covers in Commercial Invoice.

•

The port of Shipment, Destination, Shipment Date, Name of consignee, o Shipping Mark [if any] appears on the Bill of Lading are as per LC term.

•

Bill of Lading is signed by the carrier company or his agent.

03.07.2. Letter of credit A letter of credit is a letter issued by a bank (known as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter gave been complied with. The following diagram brings out clearly the operation of letter of credit:

Contract of Sale (1) M/s. Mark Style 73 Motijheel C/A. Dhaka (Applicant/Importer)

M/s. Concord Int’l New York, USA (Exporter/Beneficiary) Ships Goods to (5)

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Daffodil International University

Recovers Amount From (8)

Presents Docts. Forwards L/C to (4)

and obtains

Applies For opening of L/C

payment from

Obtains Reimbursement From Citibank NA, USA (7)

SCB, USA Advising/Negotiating Bank

The Trust Bank Ltd. Dhaka (Issuing Bank)

Opens L/C and Sends it to (3)

Chart 16: Flowchart of Letter of Credit Operation

03.07.3. Commercial Invoice It include all types of information such as description of goods, Port of destination, Port of loading, LC no, Importer name, name of issuing Bank etc. Checking points of this document are: •

The invoice dated and signed by the beneficiary.

•

The invoice is issued to the party concerned as stated in the LC.

•

Description of goods is as stated in the LC.

•

Unit price mentioned as stated in the LC.

•

Proper Trade-Term is mentioned.

03.07.4. Insurance Documents Checking points of this document are (in case of CIF basis):  The Insurance Policy is valid.  The policy is issued in the name of LC Issuing bank a/c: importer.  The policy is signed by the authorized official of the Insurance Company.  The policy is in negotiable form, duly stamped and dated prior the BL date.

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Daffodil International University  Description of goods, name of carrying vessel shown in Insurance Policy are same as shown in BL.  The policy covers Transshipment [if allowed in LC] clause.  Policy covers 10% above the value of consignment.  Policy indicates where and in which currency the claim [if any] will be settled.

03.08. Foreign Remittance 03.08.1. Outward remittance: On March 24, 1994 Bangladesh Taka was declared convertible for current international transaction. As a result remittances become more liberalized. Outward remittance include sale of Foreign Currency by TT, MT, Draft, TC or in cash for private, official and commercial purpose.

Issuance of outward DD and TT ADs may also issue DD, TT on their foreign correspondent favoring Bangladesh nationals or foreign nationals as per their entitlement. But foreign TT and DD are not issued in this branch.

03.08.2. Inward remittance: The term inward remittance includes not only purchase of foreign currency by TT, MT, Draft etc. but also purchase of bills, purchase of TC. Utmost care should be taken while purchasing notes, TC, DD and similar instrument for protecting the bank from probable loss as well as safety of the bank officials concerned. But this type of purchase is not done in this branch.

03.08.3. Collection of foreign currency instrument The Janata Bank Ltd. collects F.C. instruments on behalf of their customer. To collect proceed of Foreign Instrument following procedures to be maintained:  Receive instrument with deposit slip  Affix crossing stamp of the bank  Entry in the register putting OFBC number  Affix endorsement “pay to the order of any bank or trust company, prior endorsement guaranteed.”  Instrument to be sent to adjacent correspondents. Internship Report

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03.09. Different Methods of International Trade Payment: Cash in Advance: Under this arrangement, buyer pays the value to exporter against the goods to be shipped and services to be provided in some future date. After receipt of payment exporter ship the goods and provides services to buyers. But the system is disadvantageous for buyer because buyer blocking his fund in advances having no assurance of receipt of goods and service in time as per contract. So such type of payment is considered as risky and expensive for buyers but favorable for seller. Open Account: Under this method, the sellers are in risky situation because he has to deliver the goods and service to buyer before receiving payment. Buyer makes payment only after receipt of goods and services as per contract terms. So before going such transaction sellers should check the past record, worthiness and business history of the buyer and if it is found satisfactory only seller can proceed further. Collection against Payment [D/P]: Under this method, exporter ship the goods and draw bill of exchange on the buyer and submit the documents to a bank with instruction to collect the proceeds through its correspondent bank located in the buyers country. In this case documents delivered only against payment. Collection against Acceptance [D/A]: Under this method, exporter ship the goods and draw bill of exchange on the buyer and submit the documents to a bank with instruction to collect the proceeds through its correspondent bank located in the buyers country. In this case documents delivered against acceptance of Drafts by the buyer. Documentary Credit: Documentary credit is the classic method. This method reduced payment related risks for both exporter and importer substantially. Because documentary credit is conditional payment undertaking of issuing bank to the exporter against compliance of certain terms and conditions and submission of required documents as per credit terms. So under this payment method both exporter and importers feel safe to deal.

03.10. Examination and Negotiation of Export Documents:

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Daffodil International University There are many instances where exporters involve themselves in committing fraud so while exporters tendered export documents for negotiation, special care should be taken in checking the said documents to avoid fraud forgery and protect the interest of the bank. Following are some important checking points: •

Know your exporter

You should know your customer considering his relationship

with the bank, previous track

record and worthiness. •

Proper checking of Export LC

Export LC is authenticated, irrevocable, valid, Free

Negotiable in Bangladesh, Payment

instruction is clear, issued under UCPDC. •

Proper checking of Export Documents

Bill of exchange, Commercial invoice, Transport documents and other documents are prepared and presented as per LC terms.

Shipment After the contract the exporter takes all necessary steps to ship the goods. He may procure or manufacture the goods. Failure to maintain the delivery schedule will expose the exporter to claim from the buyers for damages on account of non-shipment or late shipment, and in addition the exporter may also lose the patronage of the buyer for future export orders. While shipment and after shipment the exporter should obtain or prepare the following documents:  EXP Form  Photocopy of registration certificate  Photocopy of the contract  Photocopy of the L/C  Customs copy of ERF Form for shipment of jute goods and EPC Form for raw jute  Freight certificate from the bank in case of payment of the freight at the port of lading is involved  Bill of Lading, Railway receipt, Postal receipt, Air way bill or Truck receipt  Packing list  Certificate of origin

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Daffodil International University  Shipping instructions  Insurance policy. 

Issuance of EXP Forms All exports must be declared on EXP Form. AD branches supply these forms. The bank certifies EXP form only after confirming the following:  Arrangements have been made for realization of export proceeds.  Bonfires of the importer/consignees abroad  Arrangements have been made for receipt by authorized dealer of documents of title to goods,  The exporter has signed the EXP. EXP number should be as under: ADs Code 0

1

Register Serial No 1

0

0

0

2

Year 5

3

1

0

Submission of Documents After the shipment, the exporter submits all these documents to bank for negotiation. The exporter remains in constant touch with the negotiating bank for early negotiation of export bills. If any minor mistake is detected or any document is found missing the same should immediately be corrected or supplied for early settlement of the matter.

Export Documents checking After submission of exports documents by the exporter, bank must check, whether all the required documents submitted or not. Bank must examine all documents stipulated in the credit with reasonable care to ascertain whether or not they appear, on their face to be in compliance with the terms and conditions of the credit. Documents not stipulated in the credit will not be examined by the bank. The following points of documents should be carefully scrutinized:  Bill of exchange Internship Report

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Daffodil International University  Amount of bill differs with invoice  Not drawn on L/C issuing branch  Not signed  Tenor of C/E not identical with L/C  Full set not submitted

Invoice:  Not issued by the beneficiary  Not signed by the beneficiary  Not made out in the name of the applicant  Description, price, quantity, sales terms of the goods not correspond to the credit  Not marked one fold as original  Shipping marks differs with B/L and packing list

Packing List:  Gross weight, net weight and measurement, number of cartoons/ packages differs with B/L.  Not marked one fold as original  Not signed by the beneficiary  Shipping marks differs with B/L

Bill of Lading/Air Way Bill:  Full set of bill not submitted  B/L is not drawn or endorsed to the order of IBBL  “Shipping on Board”, “Fright Prepaid” or “Freight collect” etc. notations are not marked on the B/L.  B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L.  Shipped on board notation not showing name of pre-carriage vessel/ intended vessel  Shipped on board notation not showing port of loading and vessel name (in case B/L. indicated a place of receipt or taking in charge different from the port of lading)  Short form B/L.  Charter party B/L.

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Daffodil International University  Description of goods in B/L. not agrees with that of invoice, B/E.  Alterations in B/L. not authenticated  Loaded on deck

03.11. Modes of Payment The most common methods of payment under a L/C are as follows:

Payment methods under L/C

Deferred Payment Credit

Sight or Payment credit

Negotiation Credit

Acceptance Credit

Chart 17: Modes of Payment

3.11.1. Sight or Payment credit When the credit stipulates that drafts (bill of exchange) should be drawn under it on DP terms involving payment to the beneficiary on presentation of documents, it is known as a “Sight or Payment Credit”. In this credit the issuing bank nominates a bank in the exporter’s country as the paying bank. If the paying bank accepts its nomination, its position is that of an agent of the issuing bank. When the documents under the credit are presenter to it, it pays the beneficiary Internship Report

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Daffodil International University provided all the terms and conditions of credit have been complied with. It gets reimbursement from the issuing bank for the amount paid.

3.11.2. Deferred Payment Credit The term “Deferred” means postponed to a future period or date. When a credit does not require the payment to the beneficiary immediately on presentation of the documents but after a specified period has elapsed, it is known as “Deferred Payment Credit”. According to this type of credit, the payment is hot made in full on the tender of documents but by installments at predetermined future dates. Deferred payment credit may be used where the beneficiary wishes to allow the importer time to pay for the document.

3.11.3. Acceptance Credit When under the terms of a letter of credit drafts are drawn on DA terms involving payment to the beneficiary on the maturity of the accepted Bill of Exchange drawn under it, the letter or credit is referred to as an “Acceptance Credit” or a “Term Credit”. In this form of credit the beneficiary draws a draft for particular usance (e.g. 30, 60, 90 days sight or even longer), payable upon either the correspondent bank or the issuing bank.

3.11.4. Negotiation Credit In a negotiation credit the documents are accompanied by a sight draft (bill of exchange). The bill of exchange may be drawn on the issuing bank or the importer or any other bank stipulated in the credit. The bank, which negotiates documents under the credit, purchases the bill of exchange and pays the amount to the beneficiary who tenders the documents. The issuing bank reimburses the negotiating bank.

Settlements of claim Exporter very often claims of various natures from the foreign buyers against their exports. It should be ensured that genuine claims of the foreign buyers are settled expeditiously by the exporters concerned so that the reputation of the country is not jeopardized in the international market. Under the Exchange Control instructions in force, Bangladesh bank’s prior approval in individual case is necessary for making remittances against export claims. Internship Report

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Daffodil International University General permission has, however, been accorded to the ADs to make remittances in foreign exchange towards claims against exports of non-traditional items, provided the exporters are willing to make such remittance from the exchange market. Settlement of claims against cash foreign exchange resources of the country will, however, require Bangladesh Bank’s prior approval.

03.12. Foreign Currency Accounts: The Janata Bank Ltd opens the following accounts for dealing remittances:

NFCD Accounts: Non-resident Foreign Currency Deposit (NFCD) accounts may now be maintained as long as the account holders desire. Amounts brought in by non-resident Bangladeshis can be deposited in foreign currency account any time after return to Bangladesh.

F.C Accounts of non-resident Bangladeshis Foreign currency accounts opened in Bangladesh in the names of Bangladesh nationals or persons of Bangladesh origin working or self employed abroad can now be maintained as long as the account holders' desire.

RFCD Accounts: Persons ordinarily resident in Bangladesh may maintain foreign currency accounts with foreign exchange brought in at the time of their return to Bangladesh from visits abroad. These accounts are termed as Resident Foreign Currency Deposit (RFCD) accounts. The amount brought in with declaration to customs authorities on form FMJ and up to US $ 5000 brought in without declaration may be credited to this account. RFCD accounts may be opened in US Dollar, Euro, Pound Sterling, Deutsche Mark or Japanese. Interest may be paid on these deposits if these are for a term of not less than one month and the balance is not less than US $ 1000 or Pound Sterling 500 equivalent.

F.C Accounts of other entities ADs do not require prior permission of Bangladesh Bank for opening of foreign currency accounts of: o Non-resident foreign persons/firms; Internship Report

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Daffodil International University o Diplomatic missions in Bangladesh and their expatriates; o Diplomatic bonded warehouses (duty free shops); o Local and joint venture contracting firms employed to execute projects financed by foreign donors/international donor agencies.

Foreign Remittances occurs for the following reasons:  Investment in shares/securities by non-residents  Remittance of profits  Remittance of dividend/capital gain  Remittance of salaries and savings by expatriates  Remittance on account of training and consultancy  Remittance by shipping lines, airlines, courier service companies

Visit Abroad ♦ Booking of Passage ♦ Private Travel ♦ Business travel quota for importers and manufacturers producing for domestic markets ♦ Education ♦ Medical treatment ♦ Taking out/bringing in of Bangladesh Taka ♦ Taking out/bringing in of personal jewelry

Miscellaneous Remittances ♦ Remittance of membership fees ♦ Evaluation and Visa Processing Fee ♦ Visa fee: ♦ Family maintenance

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03.13. Other services There are some other activities performed by foreign exchange department. These are mentioned in below: ♦ NRB( Non-resident of Bangladesh) Share ♦ Different types of security for NRB, Wage earner ♦ Passport services

3.13.1. NRB Share: Now Non-Resident of Bangladesh can invest in capital market. Every company provides some benefit to attract NRB investors. They give quota on a portion of their authorized capital for NRB. JBL also provide these services to their NRB clients.  JBL apply for NRB share on behalf of their clients  JBL issues DD  Other services like refund warrant, buy sell of their share etc. It is also most profitable for the bank. The contribution of NRB share on total earnings of foreign exchange will discuss in next part of the report.

3.13.2. Different Types of Securities for NRB: JBL also issues different types of government securities for wage earners, these are:  Wage Earners Bond  Wage Dollar Bond etc.

03.14. Financial Performance of Foreign Exchange operation of JBL 3.14.1 Import Earnings: The import earning of the JBL from the import related services has increased to Tk 23,680.00 million in 2009 from Tk 9,746.00 million in 2005.

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Daffodil International University Year

Import Earnings (Taka

2005 2006 2007 2008 2009

in

Million) 72,912.00 90512.00 84,065.16 1,11,413.98 1,18,525.00

Table 11: Import Earnings Chart 18: Import earnings growth Source: Annual Report of JBL, 2005 -2009 Interpretation: In the year 2009, import earning is in the highest level, it was increasing from the year 2005. The line is upward slopping. So it indicates a positive sign on import earnings of JBL.

3.14.2. Export Earnings: The export earning of the JBL from the export related services has increased to 6078.79 million in 2008 from Tk 2636 million in 2004. Year

Export Earnings (Taka in

2005 2006 2007 2008 2009

Million) 58,394.00 70,897.00 71,855.87 85,418.79 88,653.00 Internship Report

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Daffodil International University Table 12: Export Earnings Chart 19: Growth of Export Earnings Source: Annual Report of JBL, 2005-2009 Interpretation: The table and graph show the same result that the export earnings are increased year by year. In the year of 2009 it was in the highest point as the same time upward slopping. It is also positive sign for JBL.

3.14.3. Foreign Remittance: The foreign remittance of the JBL is increased to TK. 5789 million in 2008 from Tk 2612 million in 2007. This indicates a 121% increase in remittance performance from the previous year. The following graph shows the growth in the foreign remittance: Year 2005

Foreign Remittance (Taka in Million) 26572.80

2006

29267.00

2007

36,788.00

2008

45,924.00

2009

56190.00 Table 13: Foreign Remittance Chart 20: Growth of Foreign Remittance Source: Annual Report of JBL, 2005-2009 Foreign Remittance

9000 8000 7000 6000 5000

Foreign Remittance

4000 3000 2000 1000 0

2005

2006

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2008

2009

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Daffodil International University Interpretation: In the year 2005, JBL earn only 535.20 million taka from foreign remittance. After 2005 it was increased dramatically. In the year of 2009, it was earned 8669.00 million taka which was nearly 16 times greater than the year 2005.

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Daffodil International University

During my three months internship in the Janata Bank Ltd, Gandaria Branch, Dhaka following positive and negative things are found from my observation:

Positive Findings: ♦ Import earnings and earnings from remittance quite satisfactory levels. ♦ JBL have enough branches in our country. ♦ The Bank Introduce NRB (Non Resident Bangladeshi) branch, which is new idea in Bangladesh.

Negative Findings: ♦ The first problem of this bank is employees are not punctual. ♦ They have no uniform. For that reason some customer find it, difficult to identify the bank employee. ♦ Some superior officers of this bank are not available sometime. ♦ Lack of motivation among mid and lower level officers. ♦ Some employees are less trained to handle technologies. Such as – computer , Internet etc. ♦ Modern technology is hardly used to maintain documentations yet they are using registered based document.

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Daffodil International University ♦ Where computer leads every sphere of lives including foreign exchange dept, Janata Bank does not have experts in computer. ♦ Though JBL has qualified employee in foreign exchange department, but bank should recruit some new employee to run this department smoothly.

♦ Most of the time they try to provide quality services to the known person, it may loses general customer. ♦ JBL charge very low margin to the known clients. ♦ JBL also charge very low commission compare to another banks. ♦ Long term training much required for the foreign exchange officers. ♦ Lack of promotional initiatives to expand the foreign exchange business.

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Daffodil International University

Ω Management of JB should pressurize employees for being punctual. Ω Janata Bank should arrange uniform for the employees. Ω Should be improving customer services. Ω JBL should take the motivational strategies among mid and lower level officers to progress their activities.

Ω The bank waste enough time of their clients in providing services as it lacks in expert computer operators. So JBL has to hire computer expert.

Ω In case of L/C opening, Bank provides NIL margin facility to only some known clients, but they should also provide this facility to some small but efficient client.

Ω In case of payment of remittance, they should introduce debit card so that customer can withdraw money within a second.

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Daffodil International University

Ω JBL should be improving the promotional initiatives to expand the foreign exchange business.

Ω The bank has the provision of internship program but there is no organized program for internship. The bank can properly utilize the interns at minimum cost.

I believe these steps will be helpful to improve the performance of Janata Bank Limited and the financial sector of Bangladesh.

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Daffodil International University

There are a number of nationalized and foreign banks operating their activities in Bangladesh. Among them Janata Bank Limited is one of the leading commercial bank.

Janata Bank Ltd has introduced a new dimension in the field of innovative and benevolent banking in our country. The bank has successfully made a positive contribution to the economy of Bangladesh. Its profit is gradually increasing. It plays a great role in collecting scattered Deposit, Loan settlement and International Trade etc.

The Bank ensures quality services to the customers. For better growth and healthy economic position, it should introduce new and lucrative long-term credit schemes especially for new investors and schemes for poverty alleviation like micro credit.

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Daffodil International University

I hope Janata Bank Ltd will do more work for socio-economic development besides their banking business. To keep pace with ever-changing uncertain domestic business environment and face the challenges of revised global economic scenario, the bank should be more

pro-active and responsive to introduce new marketing strategy to hold the strong

position in home and abroad.

For the future planning and the successful operation in its prime goal in this current competitive environment I hope this report can provide a good guideline. I wish continuous success and healthy business portfolio of Janata Bank Limited.

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References ♦ Annual report from the year 2005 to the year 2009, Janata Bank Limited. ♦ Foreign Exchange Manual, Janata bank Limited. ♦ Brochures published by Janata Bank Ltd. ♦ Madura, Jeff International Financial Management 9th Edition ♦ Bank Paricrama – A journal of Banking & Finance March 2006 ♦ Bangladesh Bank (1997), Guideline for Foreign Exchange Transactions, Vol-1, Dhaka ♦ Ali, Syed Ashraf (1995), Foreign Exchange and Finance of Foreign Trade, First Edition, Lita Academics, Dhaka ♦ Web Site •

www.janatabank-bd.com

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Daffodil International University •

www.bangladeshpedia.search.com

Annexure Financial and Operational Performance of Janata Bank Limited

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Daffodil International University Particulars

2004

2005

2006

2007

2008

0 1 0 2 0 3 0 4 0 5 0 6

Authorized Capital

8000

8000

8000

8000

8000

Paid Up Capital

2594

2594

2594

2594

2594

Reserve Fund

1293

1296

1727

3224

4183

Deposits

151036

168897

182947

198,636

2,21,336

Advance

107786

124467

138493

121200

144678

Revenue

10934

13143

16272

18522

20922

0 7

Cost

8621

9842

12059

13559

13919

0 8

Operating Profit

2312

3301

4213

4963

7003

0 9

Provision for Loans/Assets

2180

3123

10707

11698

9051

1 0 1 1 1 2 1 3

Net Profit

-

-

-

1681

3145

Export

54623

58395

70897

71855

85418

Import

74920

72912

128809

84065

129413

Total No. Employees

15705

15321

14772

13860

13379

1 4

No. of Foreign Correspondent

1120

1125

1198

1198

1202

1 5

No. of Branches

847

847

848

848

849

Abbreviation

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Daffodil International University A/C

:

Account

B/E

:

Bill of exchange

B/L

:

Bill of Lading

BTB

:

Back to Back

CC

:

Cash Credit

CD

:

Current Deposit

CCI & E

:

Chief Controller of Import & Export

CIF

:

Cost Insurance & Freight

CIP

:

Carriage & Insurance Paid

DD

:

Demand Draft

EXP

:

Export Form

ERC

:

Export Registration Certificate

EPB

:

Export Promotion Bureau

ETDA

:

Exchange Transaction Debit Advice

ETCA

:

Exchange Transaction Credit Advice

EPS

:

Earning Per Share

EPB

:

Export Promotion Bureau

FDR

:

Fixed Deposit Receipt

FDBC

:

Foreign Document Bill Collection

FDBP

:

Foreign Document Bill Purchase

FER

:

Foreign Exchange Regulation

FTT

:

Foreign Telegraphic Transfer

ID

:

International Division

ITC

:

International Trade Control

IRC

:

Import Registration Certificate

L/C

:

Letter of Credit

LCAF

:

Letter of Credit Authorization Form.

LIM

:

Loan against Imported Merchandise

PC

:

Packing Credit

JBL

:

Janata Bank Limited

PAD

:

Payment against Documents

PI

:

Pro -forma Invoice

ROA

:

Return on Asset

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Daffodil International University SWIFT

:

Society

for

Worldwide

Inter

Bank

Financial

Telecommunication TIN

:

Tax Identity Number

TT

:

Telegraphic Transfer

TR :

Trust Receipt

UCPDC

:

Uniform Customs & Practice for Documentary Credit

VAT

:

Value Added Tax

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