Internship Report on Foreign Exchange Operation of NCC Bank Ltd. Khatungonj Branch. 2013

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Internship Report On Foreign Exchange Operation Of

(Khatungonj Branch, Chittagong)

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Letter of Submission June 13, 2013 To The Supervisor Faculty of Business Studies Premier University, Chittagong. Subject: Submission of Internship Report. Sir, It is a pleasure and honors for me to submit the internship report on “Foreign Exchange Operation‖ a study on National Credit & Commerce Bank limited as per our Masters of Business Administration (MBA) program requirement. I have been placed in Khatungonj Branch of National Credit & Commerce Bank Limited. I have tried my best in the course of working period of two months to gather the relevant information. I have prepared this report based on my practical and observation and from the information of the circulation of Bangladesh Bank as well as circulation of National Credit & Commerce Bank Limited. It was a great opportunity for me to acquire knowledge and experience on current issues face by Commercial Banks in Bangladesh. Under the shade of the report, I have to collect primary data. I have also collected various papers, journals, periodicals etc. for the purpose of secondary data. On the basis of these primary and secondary data, I have prepared the report later on. It would be pleasure for me if this report can serve its purposes and I will be available to explain your queries if you feel necessary. Thanking You. Sincerely yours, ----------------------Bandan Sen Gupta I.D No : 1114280774 Section: B Semester: 2nd Major: Finance Faculty of Business Studies. Premier University, Chittagong.

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Acknowledgement At the very beginning, I would like to express my deepest gratitude to the almighty God, the merciful and the benevolent who have enabled me to complete this report. It is indubitably an immense contentment on my part to have the opportunity to submit this internship report after 7 weeks of practical orientation in National Credit and Commerce Bank Ltd. (NCCBL), Khatungonj Branch, Chittagong. It was not an easy task to fit in a situation where I was never before. But I have got an amiable and affable working atmosphere there. With the kind supervision of my honorable internship supervisor teacher and some cordial officials in the bank I was able to complete my internship program smoothly. That‘s why at the outset, I would like to convey my deepest gratitude to my honorable supervisor Mr. Rajib Datta, Lecturer of Faculty Business Studies, Department of Finance, Premier University, Chittagong. I have been fortunate that I have received encouragement and cooperation from him. I would not be able to complete this study without his counsel and kind cooperation. I am very much indebted to Mr. Joynal Abedin, Senior Vice President and Branch Incharge, National Credit & Commerce Bank Limited, Khatungonj Branch, Chittagong to give me permission to do internship. I also want to render my special thanks to Mr. Himadri Bhattacharjee, Deputy Manager and In-charge of GB, for his valuable guidance, support, co-operation, encouragement and advice throughout the internship program. I also want to give thanks to Mr. Abbas Uddin Chowdhury; Mr. Bishwajit Chowdhury, Senior Principal Officer of Foreign Exchange Department and Mr. Jashim Uddin Chowdhury; Mr. Shahadat Karim Chowdhury and Mr. Sourav Barua, Senior Officer of Foreign Exchange Department of NCCBL who helped me very much during my internship period. Finally, I would like to express my gratitude to all the Executives and Officers of NCC Bank Ltd, Khatungonj Branch, Chittagong who have given me their precious time.

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Preface Internship Report is a scope for acquiring substantial knowledge after perfecting of academic classes. MBA is an important academic degree of our educational life. Before joining the substantial field, we need to a acquire knowledge about the planning, staffing, motivating, directing, control, administration, organization & different managerial activities. It is scoped for observing and learning how the theoretical matters are related with substantial tasks. The necessity of the internship program is increasing day by day with growing complexity of the business environment. Internship program is a part and parcel of MBA curriculum. Therefore, after completion the MBA examination every student should require to attach with an organization to carryout internship as a partial fulfillment of MBA program. Considering the wide range of activities of Commercial bank, I have decided to complete my internship on private commercial bank. Accordingly, I have deputed to accomplish my work of internship in National Credit & Commerce Bank Limited, Khatungonj Branch, Chittagong. The banks have to satisfy the requirements of different customers belonging to different social groups. The banking business has, therefore, become complex and requires specialized skills. They function as a catalytic agent for bringing about economic, industrial and agricultural growth and prosperity of the country. The banking can, therefore, be conceived as an “A sector of economy on the one hand as a lubricant for the whole economy on the others.” As a result, different types of banks have come into existing to suit specific requirements.

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Executive Summary The internship program is a partial fulfillment requirement of one year MBA program by which a student can gather practical knowledge. The aim of this program is to connect practical knowledge and theoretical knowledge. I was decisive to serve a financial institution and I got chance to placement in NCC Bank Ltd, Khatungonj Branch Chittagong. To fulfillment of internship, time is not sufficient to prepare report on ―Foreign Exchange Operation of NCC Bank Ltd” at Khatungonj Branch Chittagong. The main objective of the study is to Analysis the Foreign Exchange Business of the NCC Bank Khatungonj Branch, Chittagong. To discuss the rules and regulations, Foreign Exchange Mechanisms are also in the way attaining the main goal. In this study primary data as well as secondary data has used. Primary data collected by personal interview and observation .The secondary data collected by bank annual report & web site, different training materials and articles etc. This report has contained comprising with introductory chapter, Organizational overview, and Foreign Exchange Business and Performance evaluation of the Branch. Organizational Overview parts includes different information related with introduction of NCC bank, management, mission, vision, product & services, rendered by the company for the customer. The Foreign Exchange Business discusses the rules and regulation, activities of import and export procedure, remittance, foreign exchange operation mechanism. The performance Analysis has presented regarding Foreign Exchange Business which exists Import and Export, Remittance performance etc. Finding of the report have been presented that NCC Bank Ltd. Khatungonj Branch mostly deals in Import related business rather than Export. Most of the clients are highly satisfied with the service provided by the officials in the branch and find it best in comparison to other banks. The foreign exchange is running its operation by efficient hands and at the same time some minor problems have been identified from different sector of the department. The report has been conducted by some recommendation that identified problem and evaluation should be implemented to save the time, cost, difficulties and increase best performance of the bank. Finally, the report concluded that proper financial system of a country can contribute towards the development of its economy. In our country, Banks are leading in the financial system. Certainly NCC Bank Khatungonj Branch is mobilizing it‘s all resources on this track to achieve maximum possible contribution to the nation. And the Foreign Exchange Department is performing this task is very efficient way.

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Table of Content SL No

Particulars

Page No

Chapter One: Introductory Aspects 1.1 1.2 1.3 1.4 1.5 1.6

Introduction Rationale of the study Objectives of the study Scope of the study Methodology of study Limitations of the study

1 2 2 3 3-4 4

Chapter Two: Overview of NCC Bank Ltd. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 214 2.15 2.16 2.17 2.18 2.19

Profile of NCC Bank Ltd. Historical Background of NCC Bank Ltd Nature of the business Mission & Vision of NCC Bank Ltd. Goal of NCC Bank Ltd. Philosophy of NCC Bank Ltd Objectives of NCC Bank Ltd, Branch Network of NCC Bank Ltd. Office Automation & Use of Technology Overview of the Branch Organization Structure Organogram of NCC Bank Ltd. Khatungonj Branch, Ctg. Departments of NCC Bank Ltd. Khatungonj Branch, Ctg. Functions of the NCC Bank Ltd. Social Commitment SWIFT Service Human Resource Practice Bank Operational Area Product & Services of NCC Bank Ltd.

5 5 6 6 6 6 6 7 7 7 8 9 9 10 10 10 10 10 11-12

Chapter Three: Foreign Exchange Business 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12

Definition of Foreign Exchange Regulatory Acts for Foreign Exchange Foreign Exchange Regulation Act International Regulations of Foreign Exchange Objectives of Foreign Exchange Foreign Exchange Trend at NCC Bank Ltd. Functions of AD in Foreign Exchange and Foreign Trade Transaction by Khatungonj Branch as AD Branch Operational Process in NCC Bank’s Foreign Exchange Dept. Concept of Letter of Credit Types of Letter of Credit Importance of Letter of Credit

13 13 13-14 14 14 15 15 16 17 18 19-20 20

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3.13 3.14 3.15 3.16 3.17 3.18 3.19

The Letter of Credit (L/C) Process Process of Documentary L/C Parties Involved in Letter of Credit Various Documents under Letter of Credit Operational Procedure of L/C Types of Contracted Price for L/C Advantages & Disadvantages of L/C

21 22 23 24 25-26 26 27

Chapter Four: Import Procedure of NCC Bank Ltd. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26

Legislation of Import policy General Conditions for Import of Goods Instructions Issued by Bangladesh Bank for Opening and Operation L/C for Import of Goods Import Procedure Flow Chart of Opening L/C for Import Documents Required for Opening L/C Application for L/C Limit An Opening of Letter of Credit Margin and Other Charges Issuing the Letter of Credit Different Means of Payment Transmission of Letter of Credit Payment Receipt of Documents Scrutiny of Documents Securitizations of L/C Application Credit Report Amendment of Credit Presentation of Documents Settlement Examination of Import Documents Payment Through the Reimbursing Bank Lodgment Retirement of The Documents Import Financing Import Portfolio of NCC Bank Ltd. Import Items

28 29-31 31-32 32 33 34 34 35-36 36 36-37 37 38 38 38-39 39 40 40 40 40-41 41-42 42 42-43 43-44 44-45 46 46

Chapter Five: Export Procedure of NCC Bank Ltd. 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11

Export Mechanism Documents Required for Export Transaction Registration of The Exporter Export Registration Certificate(ERC) Export Permit Form(EXP) Securing The Export Order Signing the Contract & Receiving Letter of Credit Shipment of Goods Registration of Sale Documents for Export L/C Realization of Export Proceeds

47 47-48 48 48 49 49 50 50 50 51 51

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5.12 5.13 5.14 5.15 5.16 5.17 5.18 5.19 5.20 5.21

Modes of Payments of Export Bills Under L/C Issuing of Export L/C Bills Negotiation Export Financing Pre-Shipment Credit Post-Shipment Credit Scrutiny of Documents Export Portfolio of NCC Bank Ltd. Accounting Treatment for Export Procedure Summary of Export Procedure

51 52 52 52 52-54 54-55 55-56 56 57 57

Chapter Six: Foreign Remittance Section 6.1 6.2 6.3 6.4 6.5

Foreign Remittance Modes of Foreign Remittances Types of Foreign Remittance Purposes of Foreign Remittance NCC Bank Remittance Sending Partner

58 58-59 59 60 60-61

Chapter Seven: Performance Analysis 7.1 7.2 7.3 7.4

Number of L/C Import Business Export Business Foreign Remittances SWOT Analysis

62 63 64 65 66-67

Chapter Eight: Conclusionary Aspects 8.1 8.2 8.3

Findings of The Study Recommendations of The Study Conclusion References Acronyms Appendix

68 69 70

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Chapter One

INTRODUCTORY ASPECTS

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1.1 Introduction: Banking system occupies an important place in a nation‘s economy because of its intermediary role; it ensures allocation and reallocation of resources and keeps up the momentum of economic activities. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core at the money market of any country. In a developing country like Bangladesh the banking system as a whole has a vital role to play in the progress of economic development. The overall purpose of banking is to collect money from surplus unit and transfer it to the deficit unit. The Subject of my Report is “Foreign exchange Operation of National Credit & Commerce Bank Limited- A Study on Khatungonj Branch”. So my focus is mainly on Foreign Exchange activities of NCCBL for contributing total profit of the bank. Foreign trade plays an important role in economic development of a country. The economic development of a country is comprised with domestic production and foreign trade (especially the balance of export and import). It plays a vital role in the Balance of Payment (BOP) of a country. Surplus (export-import) is favorable for a country. Although Bangladesh usually exercise deficit BOP (import-export) it has to continue foreign trade. To conduct foreign trade of a country, bank plays an important role; usually this duty is played by commercial banks. As a commercial bank, National Credit & Commerce Bank Limited also engaged in the dealing of foreign trade in Bangladesh. Foreign trade operations play a significant role in the overall business of National Credit & Commerce Bank Limited. in order to strengthen its position. National Credit & Commerce Bank Limited. has further consolidated its relationship with the existing network of international correspondents. The revenue earning sources of banks are mainly loans and advances. The credit facility can be of two types: funded & non-funded. Funded credit can be expensive as the bank has to pay interests. Non-funded credit includes LC, which is the main source of income for the Foreign Exchange business. If a bank can increase its import and export transactions, its profit will obviously reach a higher level, as the costs are negligible. In order to conduct a worthwhile report preparation of National Credit & Commerce Bank Limited, it is necessary to go through the profiles of the banks understudy. From the very beginning of taking birth, this Branch is playing an outstanding role for the betterment of the Import & Export market in this country.

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1.2 Rationale of the study: The rationale of the study is to assess the banking system of National Credit & Commerce Bank Limited (NCCBL). NCCBL‘s banking service is one of the finest services among the banking industry. With the state-of-the-art technology, efficient employees and diversified services NCCBL is facilitating the banking operation for Bangladeshi national. The benefit of the existence of NCCBL‘s banking service in this country is enormous because, NCCBL has countrywide operation with worldwide network which facilitates the trade function of domestic exporter and importer with a great professionalism and care. This also increases the opportunity for this country‘s entrepreneurs to expose in the industrial growth of the country with finance of NCCBL. The increased financial growth of the bank over the year attributes the trust and reliability of depositors and investors on NCCBL‘s banking service. Simply, this is one of the most important indicators of the superior performance of NCCBL. In a situation of low rate of economic growth, high rate of inflation, unemployment, the analysis of the status of contribution indicators of NCCBL banking operation to the economy of Bangladesh is of immense significance.

1.3 Objectives of the study: The objective of the report is to gather practical knowledge and experience about the banking activities performed by the different officials into the Foreign Exchange Department. The report is prepared with the purpose of getting an overview of Foreign Exchange Business through L/C operation at NCC Bank Ltd. This study attempts to pursue the following tasks:  To understand the import procedure  To understand the export procedure  To know about the various documents and procedures which are used in banking services of International Trade.  To gain the depth knowledge of import and export portfolio of the Bank.  To find out the performance of import and export business in recent years.  To recommend actions that may be necessary to redesign the foreign trade procedure of NCC Bank Ltd.

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1.4 Scope of the study: Now in this global arena the activities of commercial banking are very fast. This report is an attempt to analyze the every banking operation of the NCC Bank Ltd. This study focuses on the Foreign exchange division of NCC Bank Ltd. This report has the crisp details of the procedure of the Foreign exchange division. Along with that, a relevant stream of discussion has been made on the theory and policy issues relating to Foreign exchange division. I had a great opportunity to have an in depth knowledge of all the banking activities practiced by the NCC Bank Limited.

1.5 Methodology of the study: The report is prepared on the extensive use of secondary data available in different text, reports, journals etc. as well as primary data collected from the bank personnel by means of informal interview. I consulted banks Annual report (Income Statement) and made discussion with the officials of Khatungonj Branch, international division and other department about methods and procedures of export-import business, problems related to foreign exchange transactions I also had to talk to the exporters and importers for getting impression about NCC Bank Ltd. The methodology that was followed throughout the study may be summarized below: For this study I have relied on both primary and secondary source of Data. The sources are as follows:

Primary Sources:  Face to Face conversation with the respective officers and staffs.  In-depth study of selected cases.  Interview with the Clients.  Practical work experience from different desks of Foreign Exchange Department of the Branch.

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Secondary Sources:  Annual Report of NCCBL.  Official Website of NCCBL.  NCC Bank Training Books, Catalogs.  Foreign Exchange Guidelines.  Relevant Books, Research Papers, News Papers and Journals.  Internet and various study selected reports.  Relevant documents related to the study provided by the officials.

1.6 Limitations of the study: From the beginning to end, the study has been conducted with the intention of making it as a complete and truthful one. However, many problems appeared in the way of conducting the study. During the study, it was not possible to get know all about the account opening systems and its procedures covered by the bank although the financial statements and other information regarding the study have been considered. The study considers following limitations Banking sector and its operation is a complex issue.  The main hindrance behind preparing this study was time. The span of the internship program is only three months. But I have got only two months due to some unavoidable circumstances. Since Foreign Exchange is a vast area, it is not possible to cover or go through within this short span of time.  There is also insufficiency of current information, relevant to the study.  Consolidated data related to the study were not available for the current year. So the most of the information is used from the previous years.  Inaccurate or Contradictory information created huge confusion during preparation of this study.  Bank secrecy posed a major problem since disclosure of some information has been restricted.  Relevant documents were not available as it is a technical issue.  Lack of Knowledge.  Lack of experience.

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Chapter: Two

OVERVIEW OF NCC BANK LTD.

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Overview of National Credit & Commerce Bank Limited. 2.1 Profile of NCC Bank Ltd: As Banking structure is changing day by day and the far-reaching program of economic reform is carried out towards efficient utilization of scarce resources and the development of private entrepreneurship, in the vast changing business environment, financial intermediaries are gradually being left to be guided by market forces rather than regulations. Competition is strengthened by the entry of new and innovative providers of financial services through the development of Money Market and Capital Market. Under the ongoing financial liberalization program, the NCC Bank Ltd emerged as a fast growing leading and prominent bank in the private sector to operate on the commercial arena of Bangladesh. The bank has been sponsored by a group of renowned personalities from the field of trade, commerce and industries including some eminent entrepreneur. Highly skilled professionals having wide experience in domestic and international banking manage the bank. The NCC Bank Ltd has already occupied a challenging position among its competitors after achieving success in all areas of banking operation. It offers all kind of commercial, corporate and personal banking services covering almost all segments of the society. To serve the customers through capacity building across multi delivery channel is one of the main strategies of the NCCBL. The bank is gradually expanding branch for coming nearer to its customers for providing various convenient services. Thus, in the local market the operation of the NCCBL is highly appreciated for its customer oriented focus.

2.2 Historical Background of NCC Bank Ltd: At the first leg of the decade of 1980s, the Government of Bangladesh changed its policy regarding Banking Business, which was until then restricted to the public sector only besides a few number of foreign banks. With the change of policy, the country witnessed advent of banks in private sector. This shift in policy also paved the Way of establishing non-banking finance company to build up capital market of the country. At that time on 25th November 1985 National Credit Limited here in after called NCL was established and incorporated as a public limited company in order to operate as a financial company with its registered Head Office at 7-8, Motijheel C/A, Dhaka-1000. The aim of the company was to mobilize resources from within and invest them in such a way so as to develop country‘s industrial and trade sector and playing a catalyst role in the formation of capital market as well. The NCL faced severe setback in 1992 in respect of business and came on the verge of collapse. However, with the initiative of Boards of Directors and Management and with the permission of the Central Bank, NCL was converted to a full-fledged private commercial bank in the name and style of National Credit and Commerce Bank Limited here in after called NCCBL on 17th May, 1993 with authorized capital TK 75.00 crore and paid up capital TK 39.00 crore. Day by day NCC Bank has achieved a standard position among all financial institution as a full-fledge commercial bank. The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange business. Its various deposit & credit products have also attracted the clients-both corporate and individuals who feel comfort in doing business with the Bank.

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2.3 Nature of the Business: Undertakes and transacts all kinds of banking activities with its customers in Bangladesh and abroad. Motto The Bank will be a confluence of the following three interests: Of the Bank : Profit Maximization and Optimum Growth. Of the Customer : Maximum Benefits and Satisfaction. Of the Society : Maximization of Welfare. The Bank will also cater to the new expectations of the customers. It will be a customerdriven Bank.

2.4 Mission & Vision of NCC Bank Ltd:  Mission: To mobilize financial resources from within and abroad to contribute to Agricultures, Industry & Socio-economic development of the country and to pay a catalytic role in the formation of capital market.  Vision: To become the Bank of choice in serving the Nation as a progressive and Socially Responsible financial institution by bringing credit & commerce together for profit and sustainable growth.

2.5 Goal of NCC Bank Ltd:  General goal: To Share a significant portion of the banking sector by utilizing available manpower and state of the art technology for maximizing the shareholders wealth.  Long term goal: To maximize the wealth of shareholders.  Short term goal: To earn satisfactory rate of return on investment by providing wide range of banking services.

2.6 Philosophy of NCC Bank Ltd: At present, the bank has as many as 95 branches across the country and it is committed to become equal service providers compatible with the norms of commercial schedule bank. It renders all types of personal, commercial and corporate banking services to its customers within the purview of the Bank Companies Act, 1991 and in line with the directives and policy guidelines laid by down, by Bangladesh bank.

2.7 Objectives of NCC Bank Ltd: The NCCBL has been established with the objective of providing efficient and innovative banking services to the people of all sections of our society one of this bank is that it is backed by the disciplined and strongest Institution of Bangladesh. The bank has extensively in the country‘s industrial and agricultural sectors in the coming days. The bank is committed to contribute as such as possible within its limitations for the economic growth and for ensuring value of its available resources.

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2.8 Branch Network of NCC Bank Ltd: The Bank had successfully established a network of 95 branches, including 7 SME/AGRE Branch. NCC is the Private bank in Bangladesh. There are 84 branches all over the country. Among them 37 in Dhaka Division, 36 branches in Chittagong Division, 4 branch in Khulna Division, 9 branches in Sylhet Division, 8 branch in Rajshahi Division and 1 branch in Barisal Division. NCCBL continues to enjoy distinction of being the only private sector bank to be operating 24/7. Booths within the CTG Port premises. In addition to the branch network, the Bank has established a Proprietary ATM network, with 47 ATMs initially. The objective is to create more investment by Customer Convince. On-Line Banking services cover the entire network of Branches, which ensures technology based enhanced delivery systems and provide the necessary competitive edge.

2.9 Office Automation & Use of Technology: The Bank remains committed towards progressing as a technology driven institution. It became the first Bangladeshi Bank to have installed Co Universal Banking software namely Flora Banking Software so as to provide on-line, real time banking services to its clients. The bank continues to reinforce inter branch connectivity to facilitate on-line banking and provide uninterrupted real time services to the clients. The Bank is a SWIFT member with online SWIFT capability available at all the Authorized Dealer Branches. Through installation of Flora Banking Software, NCC Bank Limited has established itself as the first Bangladeshi Bank to be equipped with a fully integrated computerized system.

2.10 Overview of the Branch: Name of the company

: National Credit & Commerce Bank Limited.

Date of Commencement

: 27 January, 1986

Present No. of branches

: 95

No of ATM Booths

: 47

Location

: 601, Ramjoy Mahajan Lane, Khatungonj, Ctg.

SWIFT Code

: NCCLBDDHKTB

Phone No

: 031-612990, 636085

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2.11 Organization Structure: HIERARCHY OF THE NCC BANK LTD.

Managing Director (MD) Deputy Managing Director (DMD) Senior Executive Vice President (SEVP) Executive Vice President (EVP) Senior Vice President (SVP) Vice President (VP) Senior Assistant Vice President (SAVP) Assistant Vice President (AVP) Senior Principal Officer (SPO) Principal Officer (PO) Senior Officer (SO) Officer (G-1) Junior Officer (JO) Assistant Officer (AO)

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2.12 Organ gram of NCC Bank Limited, Khatungonj Branch, Chittagong:

Vice President (VP) Assistant Vice President (AVP) Senior Principal Officer (SPO) Principal Officer (PO) Senior Officer (SO) Officer (G-1) Junior Officer (JO) Assistant Officer (AO)

Others 2.13 Departments of Khatungonj Branch: Several departments are in Khatungonj Branch to support for smooth running of the banking operation.

Departments of Khatungonj Branch

General Banking

Loan and Advance

Foreign Exchange

Accounts Opening

Accounts

Import

Remittance Clearing

Ledger & Deposit Cash

Fixed Deposit Receipt (FDR)

Export

Foreign Remittance

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2.14 Functions of the NCC Bank Ltd.: 1) The main task of the NCC Bank is to accept deposited from various customers through various accounts. 2) Provides loans on easy terns and condition. 3) It creates deposits. 4) The bank invest it fund in to profitable sector. 5) It transfers money by Demand Draft, Pay Order and On-line etc. 6) The bank is doing the transaction of bill exchange, cheque etc. On behalf of the clients. 7) NCC Bank assists in the foreign exchange by issuing LC. 8) It brings the increasing power of the dimension of transaction.

2.15 Social Commitment: The purpose of our banking business is obviously to earn profit, but the promoters and the equity holders are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art, culture and sports of the country. We want to make a substantive contribution to the society where we operate, to the extent of our separable.

2.16 SWIFT Service: The SWIFT services helped the bank in sending and receiving the messages and instructions related to our account operations and LC related matters. NCC Bank has brought all branches under SWIFT network.

2.17 Human Resource Practice: Quality human resources denote an organization worthy, knowing of one‘s job and having interest in it, is a precondition of good functioning. NCC Bank has well diverse pool of human resources, which is composed of people with high academic background. In addition, there is a positive demographic characteristic. Most of the employees are comparatively young in age and mature in experience.

2.18 Bank Operational Area: As a commercial Bank, they do the all traditional Banking business including the wide range of savings and credit scheme products, retail Banking and ancillary services with the support of modern technology and professional Excellency. But their main focus is for obvious reason, on export and import trade handling and the development of entrepreneurship and patronization of private sectors.

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2.19 Product & Services of NCC Bank Ltd: 











Deposit Products:  Current A/C  Savings Bank Deposit A/C  Short Term Deposit A/C  Term Deposit A/C  Premium Term Deposit A/C  Instant Earnings Term Deposit A/C  Special Savings Scheme  Special Fixed Deposit Scheme  NRFCD  RFCD  Money Double Program  NCCB Youngster A/C Loan & Advanced Products:  Working Capital Financing.  Commercial & Trade Financing.  Long Term Capital Financing.  Retail & Consumer Financing.  Agricultural Financing.  Import & Export Financing. Retail/Consumer Loan Products:  Personal Loan.  Car Loan Scheme.  Education Loan.  House Building Financing.  Consumer Finance Scheme.  House Repairing & Renovation Loan.  Home Improvement Loan. SME Banking:  Small Business Loan.  Lease Finance.  Working Capital Loan.  Festival Business Loan.  Festival personal Loan. Cards:  Debit Cards  Credit Cards  MBridge Cards. Remittance Products:  Wage Earners Welfare Deposit Pension Scheme.  Overseas Employment Loan Scheme.

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Services: 

Securities & Financial Service:  Member, Dhaka Stock Exchange Ltd.  Full Service Depository Participant.



Treasury Service:  Primary Dealer of Govt. Approved Securities.



Locker Service.



Remittance Service:  Correspondence arrangement with more than 330 Financial Institutions all over the World.  For Wage Earners Remittance we have Agency arrangement with 12 reputed Exchange Houses covering major Locations of our Expatriates.

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Chapter: Three

FOREIGN EXCHANGE BUSINESS

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Foreign Exchange Business [L/C Operation] at NCC Bank Ltd. The export and import business is now are executed through the intervention of commercial banks. Banks make the way through which the exporter can get payment from importer. Foreign exchange is the department of commercial banks which facilitates importers and exporters in their trades. It is very significant department in the financial sector of the country especially in the developing countries. Bangladesh bank has some regulations regarding the foreign exchange to maintain for the authorized dealer. Authorized dealer is the dealer of the foreign currency who is authorized by the Bangladesh Bank to exchange foreign currency. NCC Bank Ltd has 4 branches which are authorized by the Bangladesh Bank to exchange foreign currency.

3.1 Definition of Foreign Exchange: Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. 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 currency to effect ―International Trade‖ payment. This mechanism by which commercial investment and others transactions between countries are being settled.

3.2 Regulatory Acts for Foreign Exchange: The foreign exchange activities in Bangladesh are controlled by the following acts, and regulations: 1. Foreign Exchange Regulatory Act-1947; 2. Circulars imposed by Bangladesh Bank from time to time; 3. Policies adopted by the Ministry of commerce;

3.3 Foreign Exchange Regulation Act: Foreign exchange regulation act 1947, as adopted in Bangladesh, is an act to regulate certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This act was passed on 11th March 1947. This act has 27 sections and a number of sub-sections. The main purpose of this act is as follows: 1. Conserve the limited foreign exchange resources; 2. Ensure that the available foreign exchange is utilized only for priority requirements in the economic and financial interests of Bangladesh and also to maintain the proper accounting of foreign exchange receipts and payments. The main clauses of this act are as follows; 1. Exchange control in Bangladesh is administered in accordance with this act; 2. Bangladesh Bank reviews the exchange control measures from time to time and revises the instructions on policy and measures, whenever necessary through different Foreign Exchange (FE) circulars;

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3. This act empowers Bangladesh Bank to authorize persons (known as authorized dealers) to deal in foreign exchange. An authorization is given to deal in all or in some specified foreign currencies either for all types of transactions or for specified transactions; 4. Central Bank has also permitted a number of money changers to exchange cash foreign currency notes, coins or foreign currency instruments such as Travelers cheques. In the Foreign Exchange Regulation Act some regulatory measures were adopted regarding dealings in foreign exchange, payments of foreign exchange and import/export of certain currency. Without prior permission of Bangladesh Bank no person other than an authorized dealer was permitted to deal in any foreign exchange with any person not being any authorized dealer. All the dealings were required to be at exchange rates authorized by Bangladesh Bank. No person could take or send out of Bangladesh any gold, jewelry or precious stones or Bangladesh currency notes, bank notes, coins or foreign exchange without general or special permission of Bangladesh Bank. Government by notification in the Official Gazette could prohibit export of any goods/class of goods from Bangladesh.

3.4 International Regulations of Foreign Exchange: There are also some international organizations, influencing our foreign exchange transactions. Few of them are discussed below:  International chamber of commerce (ICC) is a worldwide non-governmental organization of thousands of companies. It was founded in 1919. ICC  Has issued some publications like UCPDC, URC, & URR etc, which are being followed by all the member countries. There is also an international court of arbitration to solve the international business disputes.  World trade organization (W.T.O) is another international trade organization established in 1995. General Agreement on Tariff & Trade (GATT) was established in 1948, after completion of its 8th round; the organization has been  Abolished & replaced by W.T.O. This organization has vital role in international trade, through its 124 member countries.

3.5 Objectives of Foreign Exchange:       



To settle the transaction related in export and import. To help the own people in abroad to send their money. Encourage foreign investment in the home country. To enhance the foreign investment. To help the own people to go in abroad. To facilitate the foreigner to visit in our country. To help the people to remit money who are working in abroad or the foreigner who are working in the home country. To maintain the international trade.

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Our study on foreign exchange mechanism covers Import, Export, and Foreign Remittance business which are sequentially discussed hereafter.

3.6 Foreign Exchange Trend at NCC Bank Limited: The study is based on the current Foreign Exchange Trend for NCC Bank Ltd. It deals with Export, Import and Remittance services that the bank provides, giving us the current trend of business in each of this area's. In addition in-depth analysis of statistical data covering the types of commodities, amount of foreign currency that is being traded has also been covered in this report. But first let us take a look at the role of foreign trade in Bangladesh. Foreign Trade plays an important role in the economic advancement of every nation. So the government of almost all developing countries including Bangladesh focuses on the import and export relations of foreign countries. In our country, the foreign trade is controlled by Bangladesh Bank under the Import and Export Control Act, 1950. Here any importer and exporter who are not registered with CCI &E are not allowed to import the goods in the country or export goods to other countries. While the foreign Exchange Business was becoming more complex and hounded by more rules and regulations, the L/C is one type of undertaking that could reduce the risk and legalize the contract between buyer and seller. And through the L/C, the contract between the importer and exporter is given a legal shape by the Authorized Dealer-the bank .As the banks are included in the process, the contract becomes more reliable for both the importer and exporter to both the parties. While through the L/C a reputed bank guarantees the payments for imported goods on the behalf of the importer, the exporter gets the security for payment .Therefore; the Letter of Credit constitutes one of the most important methods of foreign trade. All documentary credit covering imports into Bangladesh are subjected to the provisions of UCPDC600.

3.7 Functions of AD in Foreign Exchange and Foreign Trade: The Authorized Dealer (AD) Bank has vital role in the foreign trade of a country. They provide the finance needed to execute the transaction. They form the channel through which the documents and money are exchanged between the exporter and importer. NCCBL Khatungonj Branch is an AD branch having the right to perform foreign exchange operation with the foreign trade of the country. Including Khatungonj Branch, there are also 3 branches of NCCBL in Chittagong area that perform foreign exchange operation. They are  

Agrabad Branch. Jubilee Road Branch. O.R. Nizam Road Branch.

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3.8 Transaction by Khatungonj Branch as AD Branch:

Foreign Exchange Transaction

Foreign Trade

Import

rade Foreign Exchange & other on Transaction Export

L/C

PAD

LTR

LIM

Foreign Guarantee

Foreign Remittance F.C A/C Opening Credit ce Other Transaction Outward Remittance

Private F.C A/C

Import Trade Finance

Inward Remittance

NRFCD A/C

Export Trade Finance

TC/ CFC

ECC (P)/ECC (H) B to B L/C Packing Credit

Dealing in F/C Forward Dealing in Foreign Exchange

RFCD A/C

APG PG BID

FDBC FDBP

FC = Foreign Currency A/C = Account, BID = Bid-Bond PAD = Payment Against Import Document FDBC = Foreign Documentary Bill For Collection FDBP = Foreign Documentary Bill For Purchase TC = Traveler Cheque CFC = Cash Foreign Currency PG = Performance Guarantee APG= Advanced Payment Guarantee LIM = Loan Against Import Merchandise LTR = Loan Against Trust receipt CC (P/H) = Cash Credit ECC (P/H) = Export Cash Credit NRFCD = Non Resident Foreign Currency Deposit RFCD = Resident Foreign Currency Deposit

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3.9 Operational Processes In NCC Bank’s Foreign Exchange Department: The International Division placed at the NCC Bank's head office at Motijheel is the backbone of all international transaction that is conducted through the various branches of the bank. A total of 21 branches of NCC Bank have the license to carry out international trade functions. Each of these AD branches have foreign exchange department whose sole purpose is to carry out cross border transaction demanded by the customers. The functions of such Foreign Exchange Department can be divided into three sections: a) Import Section b) Export Section, and c) The Foreign Remittance Section The following is a brief description of each of these sections.  Import Section: This section deals with the import of foreign commodities into Bangladesh. It starts with the opening of an L/C till the payments are made to the foreign exporters. The import section is in turn is divided into two divisions. One division looks after Sight L/C and another one looks after Back to Back L/C. The Basic difference between these two types of L/C is that, sight L/C requires at sight payment for the imported items, the buyer should pay within three days of documents arrival. And on the other hand, (the issuance period for Back to Back credit can range from two months to even a year depending on the L/C terms.  Export Section: All Export departments of NCC Bank's branches are equipped with facilities that would help an exporter ship their good beyond the nation's boundary, thus earning foreign currency for the country. And majority of such customers for NCC Bank Ltd are involved in the Ready Made Garment sector with only a few exporting other different commodities.  Foreign Remittance Section: Foreign remittance can be stated as the purchase and sale of freely convertible foreign currency as admissible under Exchange Control Regulations of the country. Inward remittance is the purchase and outward remittance is the sale of foreign currency. Later this section will be discussed.

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3.10 Concept of Letter of Credit: A letter of credit is an instrument issued by a bank to a customer placing at the letters disposal such agreed sums in foreign currency as stipulated. An importer is a country requests his bank to open a credit in foreign currency in favor of his exporter at a bank in the letters country. The letter of credit is issued against payment of amount by the importer or against satisfactory security. The L/C authorizes the exporter to draw a draft under its terms and sell to a specified bank in his country. He has to hand over to the bank, will the Bill of exchange, shipping documents and such other papers as may be agreed upon between the exporter and the importer. The exporter is assured of his payment because of the credit while the importer is protected because documents in respect of export of goods have to be delivered by the exporter to the paying bank before the payment is made. The Letter of Credit signifies a commitment on behalf of the buyer (importer) by the buyer‘s bank to effect payment to the seller (exporter) subject to fulfillment of certain condition by the seller. ―The Uniform Customs and Practice for Documentary Credits‖ 2007 Revision, International Chamber of Commerce (ICC) Publication No. 600 defines documentary credit agreement, however named or described, whereby a bank acts at the request and on the instruction of a customer:  To make a payment or to order the third party (the beneficiary).  Authorized another bank to make due payment or to accept and pay such bill of exchange or authorizes another bank to negotiable against stipulated documents provided that the terms and conditions are complied with. The customary clauses contained in a L/C are as follows:  A clause authorizing the beneficiary to draw the bill of exchange up to a certain amount on the opener  List of shipping document that are accompany the bill  Description of the goods to be shipped  An underwriting by the opening bank that bill drawn in accordance with the conditions will be duly honored.  Instruction to negotiating bank for abstaining reimbursement of payment under the credit.

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3.11 Types of Letter of Credit: There are many types of Letter of Credits that are used in different countries of the world. But International Chamber of Commerce (ICC) vides their UCPDC- 600, which denotes only two types of Letter of Credits. 1. Revocable Letter of Credit: A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. This type of letter of credit can be revoked or cancelled at any time without consent of, or notice to the beneficiary. The buyer maximum flexibility, as it can he amended or cancelled without prior notice to the seller up lo the moment of payment but the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread. 2. Irrevocable Letter of Credit: An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/ amended or cancelled without the consent of all parties- buyer (Applicant), seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit). Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of Credit both the Issuing and Conforming Bank have some liability. Some other types of Letter of Credit: 1. Revolving Letter of Credit: Revolving L/C can be used when goods are to be delivered in installment at specified intervals. The amount available at any one time is equivalent to the value of one partial delivery. A revolving credit can be cumulative or non-cumulative means that amount from unused or incompletely used portions can be carried forward to subsequent period. 2. Back to Back Letter of Credit: The Back to Back letter of Credit is a wing of Export department at the advising bank on behalf of beneficiary. If the beneficiary exports readymade garments products then he may have to open this letter of credit for import of raw materials. It is a sort of Pre-shipment finance before export of products. 3. Transferable Letter of Credit: Transferable credit is particularly well adapted to the requirements of international trade. A trader who receives payment from a buyer in the form of a transferable documentary credit can use that credit to pay his own supplier. This enables him to carry out the transaction with only a limited and lay of his own funds. The costs of the transfer are usually charged to the trader and the transferring bank is entitled to delete them in advance.

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The following types of Letter of Credits are used in the NCC Bank, Khatungonj Branch: 

Cash or Sight Letter of Credit: The most commonly used credits are Cash Letter of Credit or sight payment credits. These provide for payment to be made to the beneficiary immodestly after presentation of the stipulated documents on the condition that the terms of the credit have been complied with. The banks are allowed reasonable time to examine the documents.



Deferred Letter of Credit: A deferred letter of credit is a credit in which the seller will be paid on a fixed or determinable future time. The buyer is obligated to pay the face amount at maturity. The only difference between cash Letter of Credit and deferred letter of Credit lied in the terms of payment. Payment under deferred Letter of Credit is made after certain days of presentation of the export bill.

3.12 Importance of Letter of Credit: In international trade, since the buyer and seller are quite distant from each other, a problem often arises as to when to make the delivery of the goods and when to make the payment for the delivery. This problem is absent in trading within the national boundary as both the buyer and seller can meet each other and settle the deal. However, in international trade neither the exporter nor the importer can rely completely upon the other. A letter of credit is an effective instrument that not only slaves this problem but also acts as a means of finance for the buyer. This method is a compromise between the buyer and the seller because it affords certain advantages to both the parties. The exporter is assured of receiving payment from the issuing bank as long as it presents documents in accordance with the letter of credit. It is important to point out that the issuing bank is obligated to honor drawings under the L/C regardless of the buyer‘s ability or willingness to pay. On the other hand, the importer does not have to pay for the goods until shipment has been made and the documents are presented in good order. However, the importer still must rely upon the exporter to ship the goods as described in the documents, since the letter of credit does not guarantee that the goods purchased will be those invoiced and shipped. So, the usual time of payment under a letter of credit is when shipment has been made, while the goods are available to the buyers after payment. The risk to the exporter is very little or none, depending on credit terms, while the risk to the importer is that he has to rely on the exporter to ship goods described in the documents. Because of all the protection and benefits it accords to both the exporter and importer, letter of credit is a critical component of many international trade transactions.

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3.13 The Letter of Credit (L/C) Process: The various steps involved in the operation of a letter of credit are described as follows. Please refer to Figure below for an elaborate illustration. 1) The importer and exporter have made a contract before a letter of credit has been issued. 2) The importer applies for a letter of credit from his banker known as the issuing bank. He may have to use his credit lines. 3) The issuing bank opens the letter of credit that is channeled through its overseas correspondent bank, known as the advising bank. 4) The advising bank informs the exporter (the beneficiary) of the arrival of the letter of credit. 5) Exporter ships the goods to the importer or other designated place as stipulated in the letter of credit. 6) 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 his banker, which is acting as the negotiating bank. 7) 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. 8) Documents are sent to the issuing bank (or reimbursing bank, which is a bank nominated by the issuing bank to honor reimbursement from negotiating bank) for reimbursement or payment. 9) Issuing bank honors its undertaking to pay the negotiating bank on condition that the documents comply with the letter of credit terms and conditions. 10) Issuing bank releases documents to the importer when the latter makes payment to the former or against the latter‘s trust receipt facility. 11) The importer takes delivery of goods upon presentation of the transport (usually shipping) documents.

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3.14 Process of Documentary L/C:

Intender

OR

Foreign Exchange Department

Reimbursing Bank

FIG: Foreign Exchange Mechanism

Pays or Reimburses

Advising Bank/ Negotiating

Issuing Bank

Instruction to Pay or Reimburse

Submit Documents

Advises and/or confirms L/C

Application for Opening L/C

Present Document

Makes Payment against Document

Makes Payment

Seller /Exporter /Beneficiary

Buyer/ Importer

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3.15 Parties Involved in Letter of Credit:  The Applicant: The applicant is the party who approaches a bank in order to issue the letter of credit. Generally, the applicant is an importer who reaches an agreement with the exporter before approaching the bank to issue the letter of credit. The applicant is also normally obligated to reimburse the issuing bank for any payments made under the letter of credit.

 The Issuing Bank: The bank issuing the letter of credit is known as the issuing bank and it is usually the bank with which the importer maintains an account. The issuing bank undertakes an absolute obligation to pay upon presentation of documents drawn in strict conformity with the terms and conditions of the letter of credit.

 The Advising Bank: The correspondent bank in the beneficiary‘s country to which the issuing bank sends the letter of credit is commonly referred to as the advising bank. The advising bank simply advises the letter of credit without any obligation on its part. However, the advising bank shall take reasonable care to check the apparent authenticity of the credit that it advises.

 The Beneficiary: The beneficiary or exporter is the party entitled to draw payment under the letter of credit. The beneficiary will have to present the required documents to avail payment under the letter of credit.

 The Confirming Bank: The confirming bank confirms that the issuing bank has issued a letter of credit. The confirming bank becomes directly obligated on the credit to the extent of its confirmation and by confirming, it acquires the rights and obligations of an issuer. Letter of credit confirmation is usually done by the advising bank or a third bank in the beneficiary‘s located.

 The Negotiating Bank: The bank that agrees to examine the documents under the letter of credit and pay the beneficiary is called the negotiating bank. Typically, the advising bank is nominated as the negotiating bank.

 Reimbursing Bank: The bank nominated by the issuing bank to provide reimbursement to the negotiating bank or the payee bank is referred to as the reimbursing bank.

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3.16 Various Documents Under Letter of Credit: 1. Pro forma Invoice: Performa Invoice is the sale contract between seller and buyer in import-exporter business. The sale contract, which is direct correspondence between importer and exporter, is called Performa Invoice. This is no intermediary between them. On the other hand, there may be an agent of exporter in importer‘s country. In this regard, if the sale contract is occurred between the indent of exporter and importer then it is called indent. 2. Import Registration Certificate (IRC): The importer collects from the C.C.I & E office by submitting required documents and payment of required fees. 3. Bill of exchange: The Bill of exchange is a negotiable instrument through which payment is effected in the trade deals. It is an unconditional order or writing, addressed the buyer to seller by which the seller can obtain payment from the buyer for the invoiced value of the goods. 4. Bill of Lading: It is the list of goods being shipped which the captain gives to the person sending the goods to show that the goods have been loaded. 5. Airway Bill: Sometimes goods are transported through small bulk or those are perishable in nature then the mode of transport other that shipping may be resorted to far carriage of the goods, Airway Bill receipt take place of loading depending on the nature of the carrier. 6. Commercial Invoice: It is the seller‘s bill for the merchandise. It contains a description of goods, the price per unit, total value of the goods, packing specifications etc. the seller under his own form and signature in the name of the buyer issues the invoice. 7. Certificate of Origin: This is the certificate issued by a recognized authority. In the exporting country certifying the country of origin of the goods. It is usually made by the chamber of commerce. 8. Packing list: The exporter prepares an accurate packing list showing item by item. The content of the consignment to enable the receiver of the shipment to check the contents of the goods and marks of the packages, quantity, weight etc. of the goods exported. 9. Bill of Entry: It is a document, which contains the particulars of the imported goods as well as the amount of customer duty payable. 10. Clean Report of Findings: The certificate is provided by the Pre shipment Inspection concerns. The entire world has been brought under the three supervision of the three pre-shipment inspection concerns based on different territory.

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3.17 Operational Procedure of L/C: Pro forma Invoice Importer L/C opener Or Applicant

Contract Intender’s Intend

Exporter Or Supplier Beneficiary

Shipment of Goods

Issuing Bank

The bank will deal with L/C for the buyer against supplier & through the L/C advising bank. Reimbursement Bank This bank deals with payment in favor of issuing bank.

Negotiation Bank This bank negotiates with issuing bank in the favor of exporter for the bill and pays the amount to the exporter.

Advising Bank This bank will deals with the exporter & inform the supplier that a L/C came from the buyer.

Summary: The points of the above drawn figures are illustrated. 1. The Buyer and the seller agreed for a contract about the payment of a documentary credit. 2. The buyer contacts to the issuing bank to issue a L/C in favor of the seller/beneficiary; 3. The issuing bank issues and asks another bank (advising bank) in the country of the seller (Usually) for advising the L/C to the seller. 4. The advising bank informs/advises the L/C to the seller. 5. As soon the seller receives the L/C and satisfied about that he starts his action regarding the shipment of goods as per L/C; 6. Seller then sends the required documents to the bank where L/C. If it is satisfactory the bank pays accept or negotiates according to the term of L/C. 7. The bank examines the documents against the L/C. If it is satisfactory the bank pays accept or negotiates according to the term of L/C.

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8. The bank which receives the documents send to the Issuing Bank; 9. The issuing bank examines and if the documents meet L/C requirements reimburses in the pre-agreed manner; 10. When the documents meet the L/C requirements then they are releases to the buyer; 11. The issuing bank obtains the reimbursement from the buyer. 12. The buyer forward the transport documents to the local office of the carrier who will then affect deliver the goods to the firm.

3.18 Types of Contracted Price for L/C: a. Under FOB basis, the exporter quotes the price covering all his expenses until the goods duly packed are delivered ‗on board‘, FOB Price (Free on Board)

C&F/CFR (Cost and Freight)

b. The carrying vessel named and arranged by the buyer with the freight and the insurance being paid by the buyer along with any cost and all risks from the time the goods are placed on board inclusive of those arising out of the ship‘s failure on berth. a. In this case, the exporter quotes the FOB price plus freight and also makes all arrangements for the shipment of goods. b. Importer bears insurance cost.

CIF (Cost, Insurance & Freight)

a. Under CIF, the exporter quotes C&F price plus insurance cost. The responsibility of carrying out all formalities for shipment of the goods devolve upon the seller.

FAS (Free Alongside Ship)

a. Under FAS, the seller quotes the price covering all his charges until such time as goods are loaded on train at the specified railway station. The buyer is responsible for all further necessary arrangements and charges.

FOR (Free on Rail)

a. Under this type of contract the seller quotes the price covering all his charges until such time as the goods are loaded on train the specified railway station. The buyer is responsible for all further necessary arrangements and charges.

EX- Factory

a. The seller quotes the price of the goods ex-factory on the date agreed. The importer is responsible for all charges from the time he takes delivery of the goods from the exporter‘s yard.

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3.19 Advantages & Disadvantages of L/C:

Advantages 

Importer



  



Exporter



 

Disadvantages

An importer can be assured that the exporter has complied with certain terms and conditions as specified in the L/C before payment. He can insist on shipment of goods within a certain time by stipulating a latest shipment date. He can have expert advice from the banker as to the L/C terms. He can ask for financial assistance from his banker. Protection offered by Uniform Customs and Practice for Letter of Credit (UCP 600).



The risk of non-payment is lower provided he complies with L/C terms and conditions. It is safe method through which to obtain prompt payment after shipment. The exporter can have expert advice from his banker. The exporter can also seek financial assistance from his banker before the buyer makes payment, such as negotiation of export bills, export bills etc.

 



 



Since banks deal in documents only, goods may not be the same as those specified in the credit. Issuing banks are obliged to pay even though the conditions of goods may be poor. L/C commissions are relatively costly. Line of credit or application is necessary before an importer can open an L/C, and this may cause extra inconvenience and is timeconsuming.

It is comparatively costly. Sometimes, the terms and conditions cannot be fulfilled, such as unreasonable shipment date and expiry date, adding on L/C the clause of ―restriction of a designated vessel to be informed by L/C amendment‖. The goods are shipped before receiving payment, and so it is not 100 percent safe.

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Chapter: Four

IMPORT BUSINESS

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Import Procedure through Letter of Credit Operation of NCC Bank Ltd. Import is the process of purchasing goods and services from foreign countries into Bangladesh. It is the flow of goods and services purchased by economic agents staying in the country from economic agents staying abroad. Individuals, firms and Government of Bangladesh import foreign goods to meet their various necessities. In ease of international trade, buyers and sellers are mostly unknown to each other. Therefore, seller always seeks guarantee for that is payment of his goods exported and bank plays the role exactly at this phase. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus, the contract between importer and exporter is given a legal shape by the banker through 'Letter of Credit'. When a buyer goes to import some goods from a foreign buyer, he requests his bank to make payments to the exporter of goods, and the bank recovers the amount from the importer.

4.1 Legislation of Import Policy: Imports are foreign goods and services purchased by consumers, firms & Governments in Bangladesh. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export (CCI & E) provides the Registration certificate (IRC) to the importer. Import of goods in Bangladesh is regulated by the  Ministry of Commerce in terms of the Import and Export Control Act 1950;  Import Policy Order and the Public Notice issued by the Office of the Chief Controller of Imports and Exports (CCI&E);  At present it is regulated by the Import Policy Order (2012-2015), which was come into effect on 9th January, 2010. And Import Policy directs certain Import Procedure, which administers the whole activity. Import section of Foreign Exchange Department facilitates import related banking services concerned to import of goods in cash foreign exchange. The main facilities provided by the import section are:  Opening of Letter of Credit;  Facilitating Payments to the Exporter on behalf of the Importer  Providing Funded and Non-funded Credit Facility;  Issuing Bank Guarantee in foreign currency on behalf of Foreign Companies.  Receive and Scrutinize of Export Documents sent from beneficiary‘s country.

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4.2 General Conditions for Import of Goods:  Import Trade Control Schedule Number For import purpose, use of ITC Number (H.S. Code) with at least six digits corresponding to the classification of goods as given in the Import Trade Control Schedule I98.S, based on the Harmony Commodity Description and Coding System, shall be mandatory. But in cases where a particular aim has been classified under a H. S. Code Number (having more than six digits). The Eight Digit H.S, Code published by Bangladesh Bureau of Statistics may also be mentioned in the Letter of Credit Authorization Form, Letter of Credit and other relevant paper within a bracket in addition to normal H. S. Code as mentioned above. No bank shall issue Letter of Credit Authorization form or open Letter of Credit without properly mentioning I. T. C. number (H. S. Code) thereon.

 NOC (No Objection Certificate) On the basis of ROR (Right of Refusal) A. No Objection Certificate on the basis of Right of Refusal (ROR) form any authority shall not be required for import of any freely importable item by any Public Sector agency. However, in case where a public sector agency is required to import banned/restricted items included in the Control List, prior permission of the Ministry of Commerce .shall have to be obtained on the basis of ROR issued the Ministry of Industries or by Sponsoring Ministry/Division, or by both as the case may be. B. In case of import of banned/restricted items for approval projects financed under foreign aid the concerned Government Department/Agency will approach the Chief Controller of the Import and Export directly for necessary permission together with a list of items duly certified under proper seal and signature giving "description, quantity/number, price and H.S. Code Number against each item required to be imported. The details about the aided project and specific provision of the relevant contract and other necessary information shall also have to be furnished along with the list of the items. The Chief Controller shall issue permission/permit on the basis of above documents.

 Restriction regarding source of procurement of goods A. Goods from Israel or goods originating from that country shall not be importable. Goods are not also importable in the flag vessels of that country. B. All kinds of import from and export to Serbia and Montenegro, fragments of former Socialist Republic of Yugoslavia, shall be banned.

 Pre-shipment inspection Unless otherwise specified, pre-shipment inspection of imported goods shall not be obligatory incase of import by private sector importers.

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 Shipment of Bangladesh Flag Vessels Subject to waiver specified below shipment of goods shall not be made on Bangladesh Hug vessels: A. Imports of goods up to maximum twenty metric tons in case of single individual consignee or up to maximum 100 (one hundred) metric tons in case of group import may be made in non Bangladeshi flag vessels. However the Director General of Shipping may notify general waivers in the following cases, such as (1) shipment of goods from foreign ports which are not visited by Bangladeshi Vessels, and (2) import of goods on the basis of specific agreement which provides C & F (Cost & Freight) contract. In all other eases a certificate of waiver shall be obtained from the Director General of Shipping of Importation of goods in non-Bangladeshi flag vessels, if there appears to be possibility of any Bangladeshi Hag vessels, visiting a port with in next seven days, waiver shall be given within twenty-four hours of application for waiver. Otherwise, it will be considered that waiver has been given. However, the specific condition of compulsory shipment of goods on Bangladeshi flag vessels, or the condition of obtaining certificates of waiver from the Director-General of Shipping shall not apply in cases of import under such foreign aids, loans or grants which contain specific provisions regarding shipment of goods. B. In case of import and export of goods by export oriented industries shipment may be made in non-Bangladeshi Flag vessels.

 Import at competitive rate A. Import shall be made at the most competitive rate and importers may be recruited, at any time, to submit documents regarding the price paid or to be paid by them. B. In case of import under United Commodity Aid in the Private sector, goods shall be imported at the most competitive rate by obtaining quotations from a minimum of three suppliers indenters representing at least two countries abroad. This condition shall however not apply for opening Letter of Credit up TK. One lac. For import at most competitive rate by the Public Sectors the condition mentioned at Para 27(8) of this order shall apply.

 Import on C&F and FOB (free on Board) basis All imports by sea, air and land route shall be made either on C&F or FOB basis. However in ease of import on FOB basis the concerned importer shall have to properly comply with the circular issued by Bangladesh Bank in this regard. Before opening L.C necessary insurance cover note shall have to be purchased from the Shadharan Bima Corporation or any other Bangladeshi insurance company. Unless there are specified provisions in the relevant loan agreement/projects agreement concluded with the foreign donors for import of CIF (Cost, Insurance & Freight) basis, no import shall be allowed on CIF basis without prior approval from the Ministry of Commerce. However, Bangladesh nations, living abroad, for sending goods against their earned foreign exchange and foreign investors, for sending capital machines and raw materials against their equity share portion shall be allowed on CIF basis.

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 Import by Mentioning "Country of Origin" A. In all cases of import, "country if origin shall be mentioned clearly on goods, package/container. A certificate regarding "country of origin" issued by the concerned Government agency/approved authority/organization of the exporting country must be submitted, along with import documents to the Customer Authority at the time of release of goods. However, the provisions of "country of origin" shall not be applicable to coal and export oriented garments industries. In case of this cotton import, it shall not be required to mention the country of origin on each bale. But "country of origin" shall be mentioned in the phyto sanitary certificate. Besides, 100% export oriented industries, which are recognized by Custom Authority, shall be waived from the restriction of"‖country of origin" subject to the conditions imposed by the Foreign Exchange Regulation Act, Bangladesh Bank and Commercial bank. B. In case of import of Limestone, in different consignments/lot by the rope-way or by river, as raw-materials for Chatak Cement Factory, "country of origin" certificate from the exporting country's Government/approved authority/organization shall be submitted once to the customs authority at the time of release of goods, instead of each consignment/Jot for the quantity mentioned in Letter of Credit, in case of riverway and as per supplied carrying list as case of roadway.

4.3 Instructions Issued by Bangladesh Bank for Opening and Operation of L/C for Import of Goods: 

 

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All Letter of Credits and similar undertakings covering imports into Bangladesh must be documentary Letter of Credits and should provide for payment to be made against full sets of onboard (shipped) transport documents (BL, AIB, TR etc.) showing dispatch of goods covered by Credit to a destination in Bangladesh; They must ensure that they deal only with known customers having a place of business in Bangladesh and can be traced easily if any occasion arise for this purpose; They should establish Letter of Credit against specific authorization on behalf of their own customers who maintain accounts with them with and know to be participated in the trade; It is not permissible to open to clean or revolving credits; They are allowed to open divisible, transferable Letter of Credits for import into Bangladesh under cash LCAF (Letter of Authorization Form); It is not permissible to open Letter of Credits in favor of beneficiaries in countries from which import into arc banned by the component authority; Letter of Credits to be opened only against firm contract between the Applicant and beneficiary. Bankers should sec documentary evidence, before opening Letter of Credit, that a firm order for the goods to be imported has been placed and accepted; The full description of goods to be imported along with unit price and quantity to be given in the Letter of Credit; Confidential report of the exporter to be obtained by the bank, where the amount of Letter of Credit exceeds TK. 2,00,000 in case of import against pro forma invoices

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issued direct by foreign supplier and TK. 5,00,000 against indent issued by local agents of the suppliers; Payments against discrepant documents may be made after the goods have been cleared from the customs on the basis of the locative LCAF; Advanced remittance against import may be made after getting prior permission from Bangladesh Bank where the goods arc of specialized or capital nature.

4.4 Import Procedure: Imports are purchase of goods and services from foreign country by the consumers, firms and Government in Bangladesh. The importer must obtain an Import registration Certificate (IRC) from the CCI&E. The importer functioning is to be made according to the terms of Import & Export Act-1950, and other regulatory circulars of Ministry of commerce and Industries. The overall import procedure is illustrated briefly as follows:  Step 1: The importer obtain IRC from the CCI&E;  Step 2: The importer contacts with the seller outside the country to obtain the proform Invoice from him or his agent with in the country (Indenter)  Step 3: If the importer accepts the indent/pro-forma invoice, he makes an agreement with the seller detailing the term and conditions of the import;  Step 4: Importer opens L/C his bank in favor of the seller and offers to take necessary steps regarding the L/C.  Step 5: The Issuing bank asks another bank to advice it to the seller;  Step 6: The advising bank advises the L/C to the seller;  Step 7: After Issuing Bank receives the documents and reimburses the payment by his reimbursing bank provided that the delivered documents are according to the L/C and there is no discrepancy;  Step 8: The Issuing Bank receives the documents and reimburses the payment by his reimbursing bank provided that the delivered documents are according to the L/C and there is no discrepancy;  Step 9: The importer collects the documents from the bank and release the goods. The above described import procedure is usually maintained but the payment procedure of the advising may be different if there is any clause regarding the movement of the L/C.

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4.5 Flow Chart of Opening L/C for Import:

Following document duly signed L/C application form LCA form IMP form authority to debit account.

Documents submitted by the importer by the importer indent/ PI/ Insurance cover note etc.

Banker examines the liability position of the importer from different departments and whether the item is importable or not.

Credit report of the exporter asked from the negotiation bank.

L/C is opened and sent to advising bank through swift.

Positive or Negative

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Original IRC submitted to the bank TIN certificate Trade License (up to date) copy Membership certificate of chamber of Commerce

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4.6 Documents Required for Opening of L/C:  L/C application and agreement Form (Bank's prescribed application form) with adhesive stamp.  Letter of Credit authorized Form (LCAF)  CIB.(Credit Information Bureau)  Pro-forma Invoice (Approved by BRTC in case of Mobile Set)  Import Registration Certificate. Tax Identification Number, VAT (IRC renew)  Membership Certificate.  Last year income tax assessment.  Harmonized System Code (HS Code)  Charged Documents. Under Charged Documents the following letters are required:  Demand Promissory Note.  Letter of Disbursement  Letter of Agreement  Letter of Authority.  Letter of Undertaking  Letter of Continuity.  Letter of Revival.  Letter of Guarantee. (Signature without Seal) Some Exemption:  No IRC required for importation of capital machinery for setting up new industry. Only BOI approval required.  Country of origin‖ issued by government/competent body. Trade body CO is not required in case of importation of raw materials for Coal & RMG industry.

4.7 Application for L/C Limit: Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer submits an application to the bank furnishing the following information Full Particular of Bank A/C maintained with the bank  Nature of Business  Required Amount of Limit  Payment Terms and Conditions  Goods to be Imported  Offered Security  Repayment Schedule A credit officer scrutinizes this application and according prepares a proposal (CLP) and forwards it to Head Office Credit Committee (HOCC). The committee, if satisfied, sanctions the limit and \returns back to the branch. Thus the importer is entitled for the limit.

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4.8 An Opening of Letter of Credit  Importer applies to the bank to open L/C in favor of foreign supplier. The bank has its 

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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 areas per requirement of Guidelines for Foreign Exchange Transactions and are consistent to each other. 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.

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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.

4.9 Margin and Other Charges: Before issuing Letter of Credit, bank asks the applicant to deposit Letter of Credit margin according to the terms of sanction and other necessary charges which includes commission, handling charges, foreign correspondence charge, telex/SWIFT charge etc, as per terms and conditions of sanction. Margin charged against any particular Letter of Credit depends upon the Item or Goods of the import. Margin varies between nil to 100%. Generally the higher value of margin, the higher it means that Bangladesh Bank discourages to import that goods or items.

4.10 Issuing the Letter of Credit: In this stage, the issuing bank fills the bank-specified-form for issuing Letter of Credit. Generally a Letter of Credit contains the following information and terms and conditions:  Charges;  Country of origin of goods;  Currency and amount;  Date and place of the expiry of the Documentary Credits ;  Description of goods and quantity ;  Documents required for negotiation;  Instruction for negotiating bank;  Last date of shipment;  Letter of Credit Authorization Form (LCAF) number, IRC (Import Registration Certificate) number and Harmonized System (HS) code;  Mode of Carrying -Air/Ship/Truck;  Name and address of beneficiary ;  Name and address of the advising bank;  Name and address of the applicant;  Name of the issuing Bank and Branch;  Negotiating bank preferably freely negotiable in any bank;  Number of Letter of Credit and date of opening ;  Payment Term-Sight  Period of Negotiation ;  Period of presentation ;

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Port of Loading and port of Discharge; Reimbursing Bank and payment mode; Terms and conditions regarding Transshipment and Partial Shipment;

Depending on the specific provision in the underlying sales-contract (mentioned below), it may be necessary to incorporate one or more of the following additional terms in the Letter of Credit:  Whether the pay of the bank charges is on account of the opener or seller.  Whether short form of Bill of Lading (B/L) is acceptable.  Whether, in case of bulk import, charter-party Bill of Lading (B/L) is acceptable or not.  Whether shipment by chartered vessel is allowed, the following causes must be stipulated in the Letter of Credit.  Shipping documents must include copies of Charter-party agreements.  Bill of Lading must be signed by named carrier or his authorized agent.

4.11 Different Means of Payment: Importer settles the means of payment with the seller after making the purchase contract. Import procedure differs with relation to different means of payment. In our country in most cases, the Documentary/Letter of Credit makes import payment. Purchase Contract contains which payment procedure has to be applied. a) Cash in Advance: Importer pays full, partial or progressive payment by a foreign DD, MT or TT. After receiving payment, exporter will send the goods and the transport receipt to the importer. Importer will take delivery of the goods from the transport company. b) Open Account: Exporter ships the goods and sends transport receipt to the importer. Importer will take delivery of the goods and makes payment by foreign DD, MT, or IT at some specified date. c) Collection Method: Collection methods are either clean collection or documentary collection. Again, Documentary Collection may be Document against Payment (D/P) or Document against Acceptance (D/A). The collection procedure is that the exporter ships the goods and draws a draft/ bill on the buyer. The exporter submits the draft/bill (only or with documents) to the remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the draft/bill (with or without documents) and a collection instruction letter to the collecting bank. Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of the draft. The title of goods is released to the importer upon full payment or acceptance of the draft/bill. d) Letter of Credit: Letter of credit is the well-accepted and most commonly used means of payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon submission of some stipulated documents and fulfilling the terms and conditions mentioned in the letter of credit.

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4.12 Transmission of Letter of Credit Payment: The Letter of Credit duly signed by the authorized persons of the bank is then sent to the advising bank. There are three modes of sending the Letter of Credits which are as follows:  By Mail/Courier: Letter of credit can be sent to the advising bank by mail /courier.  By Telex & Fax It was practiced earlier in the other branches, but now NCC Bank does not transmit letter of credit through telex & fax.  By SWIFT: SWIFT Stands for Society of World Wide Interbank Financial Telecommunication. This is special format maintained round the world. Through this facility party can communicate within few minutes with other party staying any part of the world. NCC Bank Limited, Khatungonj Branch Provides this facility to the clients. The advising bank verifies the authenticity of the Letter of Credit. NCC Bank has corresponding relationship or arrangement throughout the world by which the Letter of Credit is advised. Actually the advising bank does not take any liability if otherwise not requested.

4.13 Receipt of Documents: After opening the Letter of Credit the next step would be to await shipment followed by negotiation of documents by a bank abroad. The beneficiary of the Letter of Credit (supplier), after effecting shipment of the goods as per Letter of Credit terms, prepare or collect necessary documents as required under the terms of Letter of Credit and presents the drafts to the negotiating bank along with the supporting documents for negotiation. The negotiating bank negotiates the draft if the documents are found in order as per terms of the Letter of Credit, pays the beneficiary. The negotiating bank will reimburse itself either by debiting NCC Bank's Account, if any, maintained with them (the NOSTRO Account) or will seek reimbursing bank mentioned in Letter of Credit, if there is no account. Simultaneously, the bank will send the documents to NCC Bank. The nature of documents has to be sent by the negotiating bank will depend primarily on the terms of the Letter of Credit and secondly the sales contact between the buyer and seller. However, generally the following documents are asked to send: Bill of Lading or Airway Bill or other evidence of shipment (e.g. Railway Receipt, Truck Receipt etc.)

4.14 Scrutiny of Documents: On receipt of the documents, the branch shall immediately set itself to the task of scrutinizing the documents, what they would ensure is that the documents received from the negotiating bank are drawn strictly in conformity with the terms of the Letter of Credit and respond to the requirement of the underlying Letter of Credit in every respect, examination of the documents generally includes the following points:  Completeness of the documents;  Consistency of the documents with each other;  Compliance with the Uniform Customs and Practices for Documentary Credits (UCPDC) issued by the International Chamber of Commerce, Paris. One of the basic principles of documentary credit is that all parties deal with document and not with

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goods (Articles 6 of UCPDC-600). That is why the documents should be scrutinized properly. If any discrepancy in the documents is found, that is to be informed to the party. A checklist may be followed for examining the documents. In the UCPDC the Standard for Examining of Documents is mentioned as follows: a) Banks 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. Compliance of the stipulated documents on their face with the same terms and conditions on the Credit shall be determined by international standard banking practice as reflected in these Articles. Documents which appear in their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with (he terms and conditions of the credit. Documents not stipulated in the credit will not be examined by banks. If they receive such documents, they shall return them to the presenter. b) The Issuing Bank, the Confirming Bank, if any or a Nominated bank acting on their behalf, shall each have a responsible time, not to exceed five banking days following the day of receipt of the documents, to examine the documents and determine whether to take up documents and inform the party from which it received the documents accordingly. c) If a credit contains conditions without stating the document(s) to be presented in compliance there with, bank will deem such conditions as not stated and will disregard them.

4.15 Securitizations of L/C Application:  The NCCBL Officer scrutinizes the application in the following manner The terms and conditions of the L/C must be complied with UCPDC 600 and Exchange Control and Import Trade Regulation.  Eligibility of the goods to be imported  L/C must not be opened in favor of the importer  Radioactivity report in case of food item  Survey report or certificate in case of old machinery  Carrying vessel is not of Israel  Certificate declaring that the item is in operation not more than 5 years in case of car. As soon as a L/C is opened, the following vouchers are passed in the books of the opening bank: Customer’s liabilities on L/C – DR Banker’s liabilities on L/C – CR Margin commission postage and SWIFT charges are recovered from the party by the passing entry as follows: Party’s A/C - DR Margin A/C on L/C - CR Commission - CR Postage - CR

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4.16 Credit Report: If the amount of L/C exceeds US $10,000 then NCCBL takes the credit report of the beneficiary to ensure the worthiness of the supply of goods.

4.17 Amendment 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.

4.18 Presentation of Documents: The seller being satisfied with the terms and conditions of the credit makes shipment of the goods as per L/C terms. After making the shipment of the goods in favor of the importer the exporter submits the documents to the negotiating bank. 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 negotiates to NCCBL. Branch & bank received seal to be affixed on the forwarding schedule. The Bill of Exchange & transport documents must immediately be crossed to protect loss or fraudulent.

4.19 Settlement: The documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accept the draft and at Settlement means fulfillment 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: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied the paying bank makes payments to the beneficiary and in case of this bank is other than the issuing bank,

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then sends the documents to the issuing bank. If issuing bank is satisfied with the requirement, payment is obtained from the issuing bank.  Settlement by acceptance: Under this arrangement, the seller submits documents evidencing the shipment to the accepting bank accompanied by a draft drawn on the bank (Where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.  Settlement by negotiation This settlement procedure starts with the submission of documents by the seller to the negotiation bank accompanied by a draft drawn on the issuing bank or any other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. The bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner. This settlement process start with the submission of documents by the negotiating bank accompanied by a draft on the buyer or other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirement, the bank may negotiate the draft. This bank if other than the issuing bank, then send the documents and draft to the issuing bank. As usual, reimbursement will be in the pre agreed manner.

4.20 Examination of Import Document: One of the basic principles of documentary credit is that all parties deal with document and not with goods. That is why the documents should be scrutinized properly. If any discrepancy in the document is found that is informed to the party. A checklist may be followed for examining the documents. The following things can be happen. These are indicated in the following –  Discrepancy found but importer accepts – then the bank lodges the documents.  Discrepancy found and importer not agrees to accept – issuing bank would imitate negotiation bank for revised document or return the documents to the Negotiation bank for necessary action. Here the issuing bank is not bound to pay because the documents send by the exporter is not in accordance with the terms of L/C.  Documents are ok importer is not willing to retire the documents in this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as FORCED PAD.  Every things is ok but importer is fail to clear goods from port and request bank to clear in, this case the banks clears the goods and takes delivery of the same by paying

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customers duty and sales tax etc. So this expenditure is debited to the importer‘s account and in banking called LIM. Sometimes bank gives the documents to the importer before paying money depend on importer‘s goodwill and in banking it is called LTR.

4.21 Payment Through the Reimbursing Bank: The L/C issuing bank after getting the document and check the document and if the terms and condition met the requirement the issuing bank take initiative to make payment to the exporter through reimbursing Bank.

L/C opening Bank

Reimbursing Bank

Negotiating Bank

The issuing bank then informs the importer that his/her document has come to the bank and by giving the payment he/she can release the document and unloading his/her goods form the ship or any other place as per L/C terms and conditions. After realizing the SWIFT charge, service charge, interest (if any), and the shipping documents is then stamped with PAD number and entered in a PAD Register. Information is given to the customer calling on the bank‘s counter requesting retirement of the shipping document. After passing the necessary vouchers, endorsement is made on the bank of the bill of exchange as ―Received Payment‖ and the Bill of Lading is endorsed to the effect ―please deliver to the order of M/S………‖ under two authorized signatures of bank‘s officers (P.A Holder). Then the documents are delivered to the importer.

4.22 Lodgment: After the scrutiny the following steps are taken step-by-step to process for lodgment of import documents received from the negotiation bank. Lodgment means retirement of funds. Usually payment is made within five days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest (LIBOR) for making delay. Lodgment constitutes the followings:  Requisition for the Foreign Currency: For arranging necessary fund for payment, a requisition is sent to the International Department.  Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an IBETCA is send to ID.  Creation of PAD Liability: NCCBL lodges the converted bill amount at Bill Collection (BC) rate prevailing on the date of lodgment to PAD A/C and an IBETCA prepared at the converted bill amount at T.T clear is sent to ID. PAD A/C should be adjusted within 21 days.  Payment Instruction: Payment instruction is given to the reimbursement bank to debit the issuing banks. NOSTRO A/C to make payment to the negotiating bank. Payment Intimation to the Negotiating Bank:

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Stamping: Shipping documents are then stamped with PAD number and entered in the PAD register. Intimation to the Applicant: As soon as above formalities are completed the importers are served with PAD bill intimations for retirement of concerned import documents. A letter of intimation regarding receipt of the documents should be sent to the applicant with a request to take delivery of the documents on settlement of all dues against it.

The following accounting treating are givenClient’s A/C …………………………….. .Dr Margin on L/C………………………Cr VAT (15% of Commission)…………Cr FCC…………………………………..Cr Registration Fee A/C………………...Cr SWIFT charge………………………..Cr Miscellaneous Charges A/C………....Cr After that L/C number and the above entries are given in the L/C register. The Contra entries stating the liabilities of the bank and the client are as follow Customer’ liability……………….Dr Banker’s Liability……………Cr

4.23 Retirement of The Documents: On receipt of cost memo/lodgment voucher the importer pays the necessary amount. This stage of t he 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. After lodgment the issuing bank will send the importer an intimation regarding the document arrival notice. On intimation the importer calls on the bank‘s counter requesting retirement of the shipping documents against payment to the debit of their account by the bill amount and other charges payable. Steps involved in retirement are:      

Calculation of interest it any. Preparation o the Memo, Bill amount, Interest commission, overdue interest if any, Agents charges, postage etc. Passing vouchers. Entry in the register. Endorsement is made on the back of the bill or exchange as ‗Received Payment‘ On the back of bill of lading endorsed to the effect that ‗Please deliver to the order of M\S under two authorized signatures of the bank.

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Acknowledgement received on the office copy of the cost memo from the importer in his authorized agent. Filling of the office copy. Then the documents ape delivered to the L/C (Importer)

On scrutiny if it is found that the document drawn in conformity with the terms of the credit, the documents are in order NCCBL lodges the document in PAD and L/C Margin A/C. L/C Margin A/C………………Dr PAD A/C…………………Cr (Margin amount transferred to PAD A/C) Customer A/C…………………………Dr PAD A/C………………………Cr (Customer’s A/C debited for the remaining amount) PAD A/C……………………………..Dr NCCBL General A/C………….Cr Exchange gain A/C…………….Cr (Amount given to NCCBL General A/C and interest credited) Reversal Entries Banker’s liability………………….Dr Customer’s liability…………..Cr (When lodgment is given)

4.24 Import Financing: Import financing can be divided into two types:  Pre Shipment Finance  Post Shipment Finance

 Pre shipment Finance: This type of finance refers to the facilities extended to the importers in the form of Letter of Credit. Actually Banks do not invest any fund at this stage of financing. But from the definitions of Letter of Credit we understand that by Opening L/C on behalf of the customer, Bank undertakes to make payments to the supplier of goods against the L/C subject to submission of certain documents. Normally bank allows the customer to open L/C against certain margin i.e., without having full coverage of the L/C value. As such Letter of credit is a sort of direct finance of the customer.

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Before allowing Pre shipment finance, a bank normally considers: 1. Credit worthiness 2. Import performance 3. Import Regulation 4. Marketability of goods.  Post Import Finance: NCCBL‘s foreign Exchange provide three types of Post Import Finance for the clients  Payment Against Documents (PAD)  Loan Against Import Merchandise (LIM)  Loan Again Trust Receipt (LTR) These are described in below:  Payment against Documents (PAD): Advance against Import Bills originates from the lodgment of shipping documents received foreign correspondent against letter of credit established by the bank on behalf of its clients. PAD is created for 30 days at interest of 15% of L/C. If importer does not take the documents within these days then bank may sell the imported goods to recover the given credit.  Loan against Import Merchandise (LIM): Advances allowed for retirement of shipping documents and resell of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance. When the importer failed to pay the amount payable the exporter against import L/C, then NCCBL gives Loan against Imported Merchandise ((LIM) to the importer. The importer will bear all the expenses i.e. go down charges, insurance fees, etc. and the ownership of the goods is retaining to the bank and the outstanding under PAD or Bills of Exchange (B/F) is transferred to Loan against Imported Merchandise (LIM) account. Normally part delivery is not allowed white on LIM account.  Loan Again Trust Receipt (LTR): This is excluded by the Borrower(s) to release shipping documents for taking delivery of merchandise, which is hypothecated, to bank. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within a given period. The borrower(s) agree to take delivery of the merchandise as the banks agent(s) arid acknowledge(s) that the bank remains owner of the goods and they will holding the goods on behalf of the bank as trustees until complete repayment of the debts to the bank. Usually the loan is granted the basis of trust and is allowed 60-90 days time to make payment. For giving these types of loan, officer makes loan proposal and sends it to H/O for approval. After getting approval from H/O, bank grants loan in the form of LIR. It‘s needless to say that bank only deals with the documents, not with goods & services in case of foreign exchange business.

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4.25 Import Portfolio of NCC Bank Ltd. Import portfolio consists of the goods or items are being imported through the bank, total letter of credit opened by the bank, volume of goods etc. In Our Country fast moving consumer goods to Capital machinery are imported. There are basically two types of importer. They are as follows: a. Industrial Importer: Industrial importer basically imports raw materials for further processing. They sell the finished goods to the abroad or in Bangladesh. Other than raw materials they imports ―Capital Machinery‖ for different industrial purpose. b. Commercial Importer: Commercial importers import finished goods. They import those goods directly for selling into the market. But they are very limited in number. Through this branch the majority of the goods imported are raw materials by the industrial users.

4.26 Import Items: Importable items of NCC Bank Ltd, Khatungonj Branch.         

Rice. Wheat. Vehicle. Fabrics. Accessories for readymade garments Cotton yarn for textile industries. Spare parts of marine diesel engine. Un-manufactured Tobacco Filter Rods.

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Chapter: Five

EXPORT BUSINESS

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Export Procedure through Letter of Credit Operation of NCC Bank Ltd. Economic development of any country depends on the expansion of production and increasing participation in international trade. By increasing production in the export sector we can improve the employment level of such a highly populated country like Bangladesh. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country's export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through NCC Bank Ltd are readymade garments exporters, They open export L/Cs here to export their goods, which they open against the import L/C opened by their foreign importers. Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter. NCC Bank Ltd as an authorized dealer (AD) deals a lot of letter of credit on behalf of beneficiary. Here NCC Bank Ltd acts as an advising or negotiating bank which advice the L/Cs.

5.1 Export Mechanism: Export means lawfully carrying out of anything from one country to another country for sale. In our country the import & export trade are regulated by the Imports & Exports (control) 1950. Under the export policy of Bangladesh the exporter has to get the valid export registration certificate (ERC) from chief controller of Export & Import (CCI&E). The ERC is required to renew every year. The ERC number is to be incorporated on export. form & other paper connected with exports. The goods and services sold by Bangladesh to foreign country called export. In broader aspect the major responsibility that are performed here are —    

L/C Advising. Documents Collection. Documents negotiation. Export financing.

5.2 Documents Required For Export Transaction: There are two types of document for export transaction. They are Substantive Document and auxiliary document. The name of the documents under these two categories is given below: 1. Substantive Document: a. Draft or Bill of Exchange. b. Commercial Invoice. c. Bill of Lading or Airway Bill. d. Marine Insurance Policy.

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2. Auxiliary Document: a. Packing List. b. Consular Invoice. c. Certificate of Origin d. Quality Control Certificate. e. GSP Certificate. f. Inspection Certificate. Other documents and formalities:  For Export of jute, jute goods, tea and tobacco, an exporter, in addition to Export Registration Certificate, needs a separate license to be issued by the concerned agencies.  Sanitary certificate is required for all livestock and plants and plant products (except fruit and vegetable) certifying that they are free of injurious insects, pests and diseases.

5.3 Registration of the Exporter: The foremost requirement to engage in the business of import and export is registration with the Chief Controller of Imports and Exports (CCI&E). For this purpose an application in the prescribed, form is require to be submitted to that office along with the following documents:  Trade license issued by the municipal Authority.  Nationality Certificate from the Local Authority.  Bank Certificate.  Income Tax Clearance Certificate.  Payment of Registration fees and renewal fees in a Treasury Chalan.  Copies of Contract or L,/C (if any)

5.4 Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI&E No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exporters. For obtaining export registration certificate from CCI&E the following documents are required:      

Nationality & assets certificate. Trade license. Partnership deed (partnership business) Bank certificate Income tax certificate. Memorandum & Articles of Association & certificate of incorporation (limited company)

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5.5 Export Permit Form (EXP): After having the registration, the exporter applies with the Trade License, ERC and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied then an EXP is issued to the exporter. An EXP contains the following particulars1. Name & address of the authorized dealer 2. Particulars of the commodity to be exported with code 3. Country of destination 4. Port of destination 5. Quantity 6. L/C value in foreign currency 7. Terms of sales 8. Name & address of the importer 9. Bill of lading 10. The L/C is an irrevocable one, preferably confirmed by the advising bank. 11. The L/C allows sufficient time for shipment and a reasonable time for registration. 12. If the exporter wants the L/C to be Transferable, divisible and advisable, he should ensure those stipulations are specially mentioned in the L/C. 13. Procuring the Materials No & date 14. Port of shipment 15. Land custom post 16. Shipment date 17. Name & address of the exporter 18. CCI & E‘s Registration number and date of the export.

5.6 Securing the Export Order: After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent. In this purpose the exporter may get help from: a) b) c) d) e) f)

License Officer Buyers Local Agent Export Promoting Organization Bangladesh Mission Abroad Chamber of Commerce (local & foreign) Trade Fair etc.

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5.7 Signing the Contract & Receiving Letter of Credit: After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment. The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit-. The terms of the L/C are in conformity with those of the contract" The L/C is an irrevocable one, preferably confirmed by the advising bank; The L/C allows sufficient time for shipment and negotiation. (Here the regulatory framework is UCPDC-600, ICC publication) Terms and conditions should be stated in the contract clearly in case of other mode of payment:  Cash in advance,  Open account,  Collection basis (Documentary/ Clean)  Description of the goods  Quantity of the commodity  Price of the commodity  Shipment  Insurance and marks  Inspection  Arbitration

5.8 Shipment of Goods: The follow are documents normally involved at the stage of shipment1. EXP Form 2. Photocopy of registration certificate 3. Photocopy of the contract 4. Photocopy of the L/C 5. Customs copy of ERF Form for shipment of jute goods and EPC Form For raw jute. 6. Freight certificate from the bank In case of payment of the freight at the port of lading is involved. 7. Railway receipt, Berg Receipt or Truck Receipt. 8. Shipping instructions. 9. Insurance policy. After those, exporter submits all these documents along with a Letter of Indemnity to NCCBL for negotiation. An officer scrutinizes all the documents, if the document is a clean one, NCCBL purchases the documents on the basis of banker- customer relationship.

5.9 Registration of Sale: This s needed when the items propos to be exported are raw jute and jute goods.

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5.10 Documents for Export L/C: These documents should be submitted to the bank for negotiation1. Export L/C 2. EXP form 3. Commercial invoice 4. Bill of Exchange 5. Certificate of origin 6. Bill of Lading 7. Packing list 8. Inspection certificate

5.11 Realization of Export Proceeds: The period prescribes by the Bangladesh Bank within which exporter must receive full foreign exchange proceeds of exporter in four months if the receipt of the full Proceeds of any shipment is delayed beyond the period without a special authority from the Bangladesh Bank. The exporter will be liable to action under FER Act, 1947.

5.12 Modes of payments of Export Bills Under L/C: The most common methods of payment under a L/C are as follows: At Sight Payment Credit

Deferred payment Credit Payment Method under L/C Negotiation Payment Credit

Acceptance Payment Credit

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5.13 Issuing of Export L/C: a) Advising L/C: When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that, L/C has been issued. b) In Land L/C: Inland L/C means L/C within the same country. These types of L/Cs are opened when the seller does not believe the buyer though they are of the same country and also in the cases where the sales contract is of a big amount.

5.14 Bills Negotiation: The beneficiary (exporter) receives the letter of credit from advising bank. After proper shipment of goods as per terms and conditions of the L/C, required documents like Commercial Invoice Bill of Lading and bill of exchange are presented to the negotiating bank by the beneficiary for negotiation. For sight L/C, if the documents are in order as per L/C then the negotiating bank negotiates the drafts making payment to the beneficiary. Then the negotiating bank forwards the drafts along with the shipping documents to the L/C opening bank.

5.15 Export Financing: Financing exports constitutes an important part of a bank's activities. An exporter is one who exports the goods to another customer whether in domestic country or in abroad. In exporting the stipulated goods he nay requires financing. So export financing may be required at two stages1. Pre-shipment credit. 2. Post shipment credit

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

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

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An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in farm of the followings   

Packing credit (PC). Back-to-Back letter of credit. Export Cash Credit (Hypo). Export Cash Credit (Pledge).

These types of are described in below:  Packing Credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, packing and ships the goods. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Exporter can get PC up to 10% of the Export L/C value and has to be liquidated by negotiation / purchase of Bills of Exchange. The drawings of P.C are required to be adjusted fully once within a period of 180 days. Charge Documents for PC Banker should obtain the Following charge documents duly stamped prior to disbursement Demand Promissory Note  Letter c Arrangement  Letter of Lien of Packing Credit (On special adhesive stamp)  Letter of Disbursement  Packing Credit Letter  Back-to-Back Letter of Credit: A Back-to-Back letter of credit, a new L/C (an Import L/C) is opened on the basis of an original L/C (an Export L/C). Under the Back-toBack concept, the seller as the Beneficiary of the First L/C offers it as a ‗security to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back-toBack L/C may be located inside or outside the original Beneficiary‘s country. As per instruction of the central bank commercial banks are rendering Back-to-Back L/C at nil margins. Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back-to-back L/C arrangement, Back-to-Back L/C is of two types Foreign back-to-back L/C.  Inland back-to-back L/C. A Back-to-Back L/C is opened against an irrevocable L/C opened bank having reasonable period of validity to cover shipment of merchandise after completion of validity to cover shipment of merchandise after completion of the manufacturing process. The export L/C is lien marked with the back-to-back L/C issuing branch, import is opened on issuance basis covering usance of not more than 180 days. The payments normally made from the proceeds

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or export bills negotiated after shipment. Import L/C is opened for 75% of the value of Export L/C. The payments normally made from the proceeds or export bills negotiated after shipment. Payment of Back-to-Back L/C Client gives the payment of the BTB L/C after receiving the payment from the importers. But in some cases, client sells the bills to the NCCBL. But if there is discrepancy, the NCCBL sends it for collection. In case of BTB L/C, NCCBL gives the payment to the beneficiary after receiving the payment from the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate. In case Back-to-Back L/C as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank. For Backto-Back L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 5% to 7%.  Export Cash Credit (Hypothecation): Under this arrangement the bank sanction the loan to the 1st class exporter, as there is no security against this loan. The letter of hypothecation creates a charge against the merchandise in favor of the bank but neither the ownership nor the possession is passed to it.  Export Cash Credit (Pledge): Under this arrangement the bank advance loan to the exporter against pledge of raw materials or exportable goods. The exporter surrenders the physical possession of goods under banks control till the payment of dues is made. If the exporter does not able to pay the loan the bank can sell the exportable goods to recover the credit.

5.17 Post-Shipment Credit: This type of credit refers to the credit facilities, extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises, as the exporter cannot afford to wait for a long time for without paying manufacturers / suppliers. Before extending such credit, it is necessary on the Part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force, Banks in our country extend post shipment credit to the exporters through —  Negotiation of documents under L/C  Foreign Documentary Bill Purchase (FDBP).  Local Documentary Bills Purchased (LDBP). These are described in below:  Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods. A slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse to reimbursement of the payment already made by the Negotiating bank. So,

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the Negotiating bank must be careful, prompt, systematic and indifferent while scrutinize the documents relating to the export.  Foreign Documentary Bill Purchase (FDBP): In case of Deferred L/C the payment usually received after a certain period that is 90,120180 days later. In that case party (exporter) sometimes wants to negotiate the bills to the negotiating bank, for incise or need of money. In FDBP bank negotiates the bills & documents to adjust the Packing Credit (PC) or back to-back L/C payment and gives the rest amount to the client in cash or by crediting his account. In this process the negotiating bank collect acceptance letter from the payment bank and purchase the export bills at a usance rate of currency. FDBP is created only for the foreign documents. For this purpose, NCCBL maintains a separate register named FDBP Register. This register contains the following information —  Date  Reference number (FDBP)  Name of the drawee  Name of the collecting bank  Conversion rate  Bill amount both in forei9n currency & Taka.  Export L/C number  Local Documentary Bills Purchased (LDBP): It created only for the local export documents. Local exporters are usually small one and act as backward linkage industry to the large foreign exporters. So, in case of deferred L/C (Usually done in Textiles/ Garments) the exporters want to negotiate the bills for quick receiving of payments. The negotiating bank checked the documents thoroughly and transferred the discounted value of Bills by converting it into Bangladeshi Taka at a ruling usance rate. This temporary liability is adjustable from the proceeds of the bills.

5.18 Scrutiny of Documents: The authorized dealer scrutinizes the documents very carefully. Because, they have to report it to the Bangladesh Bank at the interval of every fifteen days in a month. The following process is done by the authorized dealer for scrutiny of the documents. 

On receipt of the EXP form and documents covering exports the AD compares the authorized signature with the specimen signature of the duly authorized officer of the shipping company to ensure the genuineness of the documents.



The AD should also compare the relative bill and /or documents with the relative form and satisfy itself that the declaration made on the form is correct and the amount for which the bill is drawn or the invoice is written is not less than the invoice value stated on the form.

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

If the difference between the value stated on the form and the amount of the bill is small the AD may accept bill /documents for collection. The details of such adjustment must be given on the relative form and must be authenticated by the AD under its stamp and signature.



After negotiation of the bill or acceptance of the documents for collection, the ADs should complete the certificates in this behalf on the space provided on the duplicate copies of the EXP form.



If the payment is received in foreign currency or nonresident taka account of a bank branch correspondent abroad the Ads shall certify on the reverse of the triplicate copy of the form retained with them and forward it to Bangladesh Bank with the usual return. The quadruplicate will be retained by the AD for record.

5.19 Export Portfolio of NCC Bank Ltd: Export Portfolio consists of the items exported, the value of export bills that NCC Bank gets from issuing banks from foreign countries as well as Bangladesh. Various sorts of commodities are exported abroad through NCC Bank Ltd. But Readymade Garments consist of most of the foreign exports. Other exported items are shrimp, jute and jute goods, leather tobacco, ceramic tiles, fresh vegetables, tempered coated glass, bone crust, betel- nut etc. There are two modes of export payments that are practiced in foreign trade worldwide. These are:  Sight Bill: In this bill the exporters are paid at sight for the products they just exported.  Usance Bill: In this bill the exporter gets payment after a certain period of time depending on the L/C terms and condition. This bill is usually for raw materials or semi finished products that are exported from Bangladesh and once the goods reach in final destination they are employed for further processing. Foreign Export: In the branch foreign export activities play a vital role in the export division. About 75% of the total export comes from this section. At this branch majority of the foreign exports are ―Ready Made Garments.‖ Local Export: Local export indicates that goods are exported within the boundaries of Bangladesh. Local exports consist 25% of the total export as it is not very common practice in Bangladesh. ―Yarn and Accessories‖ are the main commodities of the local export at this branch.

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5.20 Accounting Treatment for Export Procedure: Like import procedure a number of journals are to be passed at the different stage of the Export procedure. The journals are described below with the cause of occurrence: 1. For obtaining Securities: PC a/c.................................Debit Exporter a/c......................Credit 2. For Negotiate Documents: FDBP a/c...................................Debit Exporters a/c.......................credit 3. For the retirement of the FDBP: Head Office (FCY) a/c.................... Debit FDBP a/c..............................Credit Exchange Earning ................Credit

5.21 Summary of Export Procedure: As in import procedure in the export a number of procedural restriction to be passed in the way of sending goods from one country to another one. Export is one of the most important activities which can increase economic agents to foreign buyer. The overall procedure of export is described as follows followed by the flow chart of such procedures:  The Exporter has to get Export registration certificate from CCI&E.  Making contract with the buyer for securing export order.  He asks the buyer for letter of credit clearly stating terms and conditions of export payment; (here the regulatory framework is UCPDC 600)  He takes preparation for export and arrange for delivery of goods as per L/C and INCOTERMS.  He prepares and submits shipping documents for payment/acceptance/negotiation;

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Chapter: Six

FOREIGN REMITTANCE

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Foreign Remittance Section of NCC Bank Ltd. 6.1 Foreign Remittance: Remittance means sending of fund from one place to another place, When fund in transferred to or received from foreign country it is called foreign remittance. The word Foreign Remittance means sending/ transferring of fund through a bank from one place to another between two countries. ―Foreign Remittance‖ means purchase and sale of freely convertible foreign currencies as admissible by ―Foreign Exchange Regulations Act-1947‖ and ―Guidelines for Foreign Exchange Transaction – VOL. 1&2‖ of the country. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign remittance. The transactions of the Authorized Dealer in foreign Exchange involve either outward or inward remittances of foreign exchange from one country to another. In cover of the remittances, the authorized Dealer makes sales and purchases of equivalent foreign currencies on spot or forward basis. The sale involves exchange of foreign currency of home currency i.e. conversion of home currency into foreign currency and the purchase involves exchange of home currency of foreign currency i.e. conversion of foreign currency into home currency.

6.2 Modes of Foreign Remittances: The remittance process involves the following four modes: 1. Cash Remittance: The bank sells dollar/pound for using the abroad by purchaser. The maximum amount of such sell is mentioned in the Bangladesh bank publication of "Convertibility of Taka for current transactions In Bangladesh". They can purchase dollar from resident and nonresident Bangladeshi or foreigner. Most dollars purchased cones from realization of Export Bill of Exchange. 2. Traveler's Cheque: Traveler's cheques are useful to persons, who frequently traveled abroad this bank issue Traveler's cheque of AMEX. Customers can en-cash the TC in abroad from the drawer‘s bank. Customers buy TC for use in abroad. But some leave may be remained unused. The customer can surrender these unused leaves against payment of equivalent amount. Generally it takes 21 days for collection of TC and customers can draw cash after one month. 3. Telex Transfer: Bank also remit fund by tested telegraphic massage via its foreign correspondence bank in which it is maintaining its NOSTRO account. In the same manner, it makes payment according to telegraphic massages of its foreign correspondence bank from the corresponding VOSTRO account. 4. Foreign Demand Draft: Bank issues demand draft in favor of purchaser or any other according to instruction of purchaser. The payee can collect it for- the drawer bank is which the issuing bank of demand draft holds it NOSTRO account. Bank also makes

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payment on DD drawn on this bank by its foreign correspondence bank through the VOSTRO account. 5. M.T (Mail Transfer):M.T is an instrument issued by a remitting bank to the paying bank advising in writing to make payment of certain amount to specific beneficiary. 6. D.D (Demand Draft): A demand draft is a negotiable instrument issued by a bank drawn on other bank with the instruction to pay a certain amount to beneficiary on demand.

6.3 Types of Foreign Remittance: There are two types of foreign remittances. These are: Foreign Remittance

Inward Remittance

Outward Remittance

1. Inward Remittance: Inward remittance refers to the extent where by bank makes payment to the client against foreign demand draft. They will make payment to the client by verifying the, test number, and signature of the authorized officer. The bank makes payment immediately if the amount is less than Tk. 100000. If the amount exceeds Tk. 100000 it must wait to get the credit advice from the issuing bank. Inward Remittances include the TT, FDD, purchase of bills and drafts under L/C, purchase of foreign currency, etc. But the most significant amount in the inward remittances of NCC Bank Limited is the remittances from wage earners. The bank maintains proper records of ail inward remittances and provides particulars as required by the Exchange Policy Department of Bangladesh Bank in Returns.

2. Outward Remittance: The remittances in foreign currency which are being made from our country to abroad is known as foreign outward remittances. Outward remittances comprise remittance on account of imports and private remittance on sundry items, sale of traveler‘s cheques, currency notes and coins etc. The outward remittances include M.T, Draft, sale of Foreign Exchange under L/C and against Import Bills, etc .To facilitate foreign exchange transaction and each bank maintains accounts with foreign banks in principal financial centers. NCC Bank also have NOSTRO Accounts for dollar payments and other currency accounts for payment in currencies like pound, yen, rupee , etc, The Bank has a list of foreign correspondents and arrangements with their agencies in Bangladesh.

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6.4 Purposes of Foreign Remittance:             

Family maintenance. Indenting commission. Recruiting Agents commission. Realization of export proceeds. Export brokers commission etc. Payment of import bills. Remittances of freight and passage. Agency commissions for handling vessels. Operation expenses of Bangladesh Shipping Corporation and Bangladesh Biman. Charter of foreign ships and aircrafts. Export claims. Opening of branches or subsidiary companies abroad. Remittances of dividends of joint venture enterprises to foreign collaborators of EPZ.

6.5 NCC Bank Remittance Sending Partners: Sl No

Product Name

Transaction Type

1

Money Gram, USA (Worldwide)

Online (Cash)

2

(i). U A E Exchange Centre LLC (DD), UAE (ii). U A E Exchange Centre LLC (EFT),UAE

Account Transfer Account Transfer

3

Xpress Money, UAE

Online (Cash)

4

(i). Placid Express (TT), USA (ii). Placid Express (Cash), USA

Account Transfer Online (Cash)

5

(i). Habib Qatar (TT), Qatar (ii). Habib Qatar (Habib Express), Qatar

Account Transfer Online (Cash)

6

Wall Street Exchange, UAE

Account Transfer

7

Instant Cash World Wide, UAE

Online (Cash)

8

(i). Al Farhan Ex. Centre LLC (TT), Qatar (ii). Al Farhan Ex. Centre LLC (Cash), Qatar

Account Transfer Online (Cash)

9

First Solution, UK

Account Transfer

10

Kaymaks, UK

Account Transfer

11

Tele Money (Arab Normal Bank), KSA

Account Transfer

12

Dhaka Janata, Italy

Account Transfer

13

National Exchange Co. Srl, Italy

Account Transfer

14

Federal Exchange, UAE

Account Transfer

15

Zeni Exchange (Turo Cash), Bahrain

Online (Cash)

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16

Majan Exchange, Oman

Account Transfer

17

Three Star Remittance, Malaysia

Online (Cash)

18

Itua Unibanco, Tokyo Branch, Japan

Account Transfer

19

Unicredito Italiano, Italy

Account Transfer

20

IME (M) SDN. BHD. Malaysia

Online (Cash)

21

Al Zaman Exchange, Doha, Qatar

Account Transfer

22

Al Mulla International Ex. Co., Kuwait

Account Transfer

23

Transmit International inc., USA

Account Transfer

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Chapter: Seven

PERFORMANCE ANALYSIS

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Performance of NCC Bank Ltd. Khatungonj Branch. 7.1 Number of L/C: The total number of L/C issued by the branch 2012 was 533 and at the year of 2011 the number of total L/C was 594 Year

2010

2011

2012

Number of L/C

601

594

533

Graphical Representation Figure in million

Number of L/C 620 600 580

560 540

Number of L/C

520 500 480 2010

2011

2012

Analysis: From the above graphical presentation we can easily understand that in the year of 2010 the total number of L/C was the highest among the three years but remaining two years number of L/C is decreasing where as it is sharply decreased in the year of 2012.

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7.2 Import Business: As on 30th December, 2012 branch‘s total import stood at $ 1041.848 Million, in the year of 2011 it was $1390.5 million and at the end of the 2010 it was 1221.6million. Year

2010

2011

2012

Import

1221.6

1390.5

1041.484

Graphical Representation: Figure In Million

Import 1600 1400 1200 1000 800 600 400 200 0 2010

2011

2012

Import

Analysis: From the above graphical presentation we can see that import of the bank is fluctuating over the three years. But in 2011 the import of the Branch was 1390.5 million & in the year of 2012 the branch total import was 1041.484 which is represents that the import of the branch is reducing.

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7.3 Export Business: As on 30th December, 2012 branch‘s total export $891.7million stood at the end of 2011 it was $149.95million & at the end of year 2010 it was 225million. Year

2010

2011

2012

Export

225

149.5

891.7

Graphical Representation: Figure n Million

EXPORT 1000 900 800 700 600 500 400 300 200 100 0

Export

2010

2011

2012

Analysis: At the year of 2012 the total export volume is increased by 742.2 million against at the end of year 2011. Which shows the export of the branch is rapidly increased.

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7.4 Foreign Remittances: At the end of year 2012 the Brunch received total remittance 182.64 million; at the end of 2011 it was 152.68million and at the end of 2010 it was 142.28million. Year

2010

2011

2012

Remittance

142.28

152.68

182.64

Graphical Representation Figure in million

Remittance 200 180 160 140 120 100 80 60 40 20 0

Remittance

2010

2011

2012

Analysis: From the above graph we can say that the remittance of the branch is gradually increased over the three years in the year of 2012 it was 182.64million which represents that it was the highest among the three years.

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SWOT Analysis for Foreign Exchange Department at NCC Bank Ltd. SWOT Analysis: SWOT analysis is the detailed study of an organization exposure and potential in perspective of its Strength, Weakness, Opportunity and Threats. These facilities the organization to make their existing line of performance and also for see the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current option, it can also be considered as an important tool for making changes in the strategic management of the organization.

SWOT Analysis Internal

External

Factors

Factors

Strengths

Weakness

Opportunities

Threats

 Strengths: 1. Existence of strict and standard Foreign exchange department. 2. Young Enthusiastic workforce. 3. Experienced manpower in Foreign in foreign exchange department. 4. Strong financial position. 5. Membership with SWIFT.

 Weakness: 1. Small number of rural branches for distributing remittances 2. Lack of trained and highly educated officers. 3. Absence of modern equipment in banking needs. 4. Lack of proper media presence. 5. Lack of advertisement of the Foreign exchange banking 6. Some officials are having attitude problem at workspace. 7. Small number of rural branches for distributing remittances 8. CIB report is not available from Bangladesh bank. 9. Political instability.

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 Opportunities: 1. Country wide Network 2. More Experienced and Managerial Know-How 3. Can recruit fresh graduates and train them to bring up a team of talented officers. 4. Can take initiative for introducing Islamic Banking system. 5. Increasing trend of sending remittance.

 Threats: 1. Govt. policies are not in favor of the private banks. 2. Up Coming Bank. 3. Moderate levels of Customer Satisfaction. 4. Effects of the World Economic Slums. 5. Fluctuations of exchange rate. 6. Foreign banks used highly modern technology. 7. Regulation restriction.

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Chapter: Eight

CONCLUSIONARY ASPECTS

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8.1 Findings of the Study: After analyzing the performance and during the organizational attachment of internship program the following findings have been found out:  The position of NCC Bank Ltd. in import business and remittance is not as higher as some other banks operation in Bangladesh. This might be keeping NCCBL away from deriving the dominant position among the banks in Bangladesh.  In this modern technological era banks of this country are still relying on lots of paper works which are possible to accomplish electronically. In Bangladesh, NCC Bank Ltd also doing lots of manual tasks in order to comply with local systems. Specifically, Foreign Exchange Department of NCCBL in this country is still maintaining different forms, registers etc. Remittance Department preparing advice for inter branch transaction with register in order to serve the purposes of local corporate clients and comply with different domestic rules and regulations.  Management of NCC Bank Ltd introduces ―Flora‖ software to the employee for better service. But it‘s not properly ready yet. Sometimes problems create on data storing and finding records by using Flora.  The advertisement of National Credit and Commerce Bank Limited (NCCBL) in TV, Newspaper, or in any mass media is not available.  National Credit and Commerce Bank Limited (NCCBL) does not update their website properly as a result the client or customer cannot get details about the bank.  Booth facility of the bank is not sufficient.  Training facility is not sufficient especially of the lower level officer.  For better marketing of the bank products, the bank doesn‘t have a dedicated team of officials who will only concentrate on marketing.  Recovery of classified loans is very slow, as because the bank doesn‘t have individual recovery unit.

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8.2 Recommendations of the Study: NCC Bank is one of the prospective banks in the banking sectors. Recommendation means to offer some propositions on some specific issues. However, as a student of MBA, it is very complicated to for me to give any suggestion or recommendation about NCC Bank. That‘s why the following precautions and suggestions can be adopted to smooth the function of NCC Bank.  NCC Bank Ltd should increase their investment in Trade Services and branches into the major areas so that they can lead the highest position among banks in Bangladesh.  Online banking must need to be fast enough for quick service to the client. Banks need to modify and develop the Flora Software Service for avoiding further blunder in service.  NCCBL can provide an effective training program for the junior level officer as though they can perform their task efficiently.  Continuous advertisement need to be circulated in electronic and print media to inform and make popular of the National Credit and Commerce Bank Limited (NCCBL).  National Credit and Commerce Bank Limited (NCCBL) is a reputed bank in Bangladesh so they should be up dated their website regularly.  National Credit and Commerce Bank Limited (NCCBL) has to create a new marketing strategy which will attract more client, as a result number import and export business increase.  National Credit and Commerce Bank Limited (NCCBL) can introduce debit card facilities.  National Credit and Commerce Bank Limited (NCCBL) need to launch their own ATM booth, so that their customers can withdraw cash at a low commission.

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Conclusion: Foreign trade is of vital importance to the economic development of Bangladesh. The country's import needs are large and the imperative to increase exports is immediate. In order to finance those imports and also to reduce the country's dependence on foreign aid grants, the government, since liberation, has been trying to enhance foreign exchange earnings through planned and increased exports. The banking sector plays an important role in modern society and private banks are more competitive, diversified and dynamic compare to traditional banking system. Every day new competitors are entering into the industry with better innovative ideas, products and services. In banking sector National Credit and Commerce Bank Limited is a name of trust, now it is an icon of best services. Foreign Exchange section is the busiest section in this branch. This department is increasing their business and earning profit every year for well communication of V.P. and Foreign Exchange In-charge with their clients. The bank has to introduce new services for the clients so that they may achieve competitive advantage over other commercial banks. The adjustment of Loans against L/C is satisfactory enough. The consistent performance of the bank over the last few years is the evidence of the strengths of the bank, efficiency of management team, and uphill struggle of employees. Despite the existence of deficiencies in some areas, the overall performance of NCCBL was outstanding among the banking industry in Bangladesh. The bank has to overcome the shortcomings in the near future and offer new innovative services in order to retain its position as a leader amongst banks year after year.

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References Books & Guidelines  Chowdhury, L.R. (2000), A Text Book on Foreign Exchange, Fair Corporation, Dhaka.  Foreign Exchange Guideline - NCC Bank Ltd.  Guideline for Foreign Exchange Transaction.  NCC Bank Training Book - NCC Bank Ltd.  Various Articles and Report.

Publications  Annual Reports of NCC Bank Ltd.  Financial Statements of NCC Bank Ltd.  Import & Export Policy Act.

Websites  www.bangladesh-bank.org  www.nccbank.com.bd  www.scribd.com

Observed Documents  Accounts opening form  Bill of Lading  Certificate of Origin  Credit Advice Issue Register  Invoice  L/C File  Letter of Credit Application Form

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Appendix Five Years Financial Highlights:

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Acronyms used in this report AD ABP B/L BB B/E B/C C&F CAD CRF CCI&E CFR CIB CIF DD DP Note DLC EPB EXP ERC FC FDD FOB FDBP HS Code HO IBC ICC IMP IRC L/C LCAF LIBOR MTDR MPI OBC OFDBC PO PAD PSI SWIFT TC TIN TR TT TM UCPDC

Authorized Dealer Accepted Bill for Payment Bill of Lading Bangladesh Bank Bill of Exchange Bill of Collection Clearing & Forwarding Cash Against Documents Clean Report Findings Chief Controller of Import & Export Cost & Freight Credit Information Bureau Cost Insurance & Freight Demand Draft Demand Promissory Note Documentary Letter of Credit Export Promotion Bureau Export Form Export Registration Certificate Foreign Currency Foreign Demand Draft Free On Board Foreign Documentary Bill Purchase Harmonized Commodity Description & Coding system No Obligation Certificate Inward Bills for Collection International Chamber of Commerce Import Form Import Registration Certificate Letter of Credit Letter of Credit Authorization London Inter-Bank Offer Rate Mudaraba Term Deposit Receipt Murabaha Post Import Outward Bills for Collection Outward Foreign Documentary Bill for Collection Payment Order Payment Against Document Pre Shipment Inspection Society for Worldwide Inter-Bank Financial Telecommunication Travelers Cheque Tax Identification Number Trust Receipt Telegraphic Transfer Travel & Miscellaneous Form Uniform Custom & Practice for Documentary Credit

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