6. Chapter--1 to 8 (Report)

8/2/2019 6. Chapter--1 to 8 (Report)

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Our Interest Is In You!

Chapter -01

Introduction

1.0 Introduction:

Internship report has been prepared for the fulfillment of the Degree as per

curriculum structure of IIUC, Department of Business Administration.

Internship program is the systematic process for gathering, recording and

analyzing data about the subject that a student goes to learn on the

program. The aim of this internship program is to connect practical

knowledge with theoretical knowledge. Every one must be expert in both

theoretical and practical knowledge for the competitive world.

No knowledge is fully complete unless it is fully supported by evens on

ground. Whatever may be the quality of theoretical knowledge, it is not

complete without practical implications on ground. This realization is more

pronounce in the study of Business Administration where experience on

ground plays a dominant role.

Bachelor of Business Administration (B.B.A.) is a program of all business

students for gathering knowledge about business world. The Internship

programmed is very important for B.B.A. students for gathering practical

experience.

This internship report has been prepared best on information collected during

internship in, Commercial Bank of Ceylon Limited. Agrabad Branch,

SAIDA KHANAM [B041109] [BBA, IIUC]


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Chittagong. The internship report has best opportunity for earning knowledge

on foreign exchange banking. After working and completing internship

duration, this report is prepared on the basis of some findings andobservation relating to the topic with some recommendations.

1.1 Objectives of the study:

The main objective of this studys to know about the Foreign Exchange

Banking System ofCommercial Bank of Ceylon Limited.

The Specific objectives may be exposed as under:

To know the historical background of CBCL.

To know the management of CBCL.

To observe the general activities of the bank;

To know about different activities of the foreign exchange banking

system;

To know about the documentation of Later of Credit;

To understand about measuring and calculation of Interest against

L/C; To focus on the overall performance of the bank and branch;

To identify the problems of its financing;

To identify the problems, if any faced by the officials dealing in foreign

exchange business and to examine their views to solve them.

To suggest necessary measures.

1.2 Methodology of the study:

The present study is based on empirical as well as theoretical analysis.

Collected data and information were tabulated, processed and analyzed

critically in order to make the report informative.



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Data collection: - Data is collected from various sources though

formally or casually about banks activity and its foreign exchange

transactions. The two ways of collecting data are shown bellow:

A. Primary Sources:-

Primary sources are data gathered and assembled specially

for the report in hand and by following ways:

Practical Deskwork: Report is prepared on the basis of three

month practical desk work in various divisions.

Opinion Survey: Data is collected though various opinion of the

officers and clients of the Banks

Observation in the organization: Data collected though

observation of organizations various activity.

In Depth Interview: A relatively unstructured, collective

interview used in the primary stages of the internship period.

Face to face contact with the officials: Some Data has been

collected through face to face contact with officials.

Face to face conversation with the clients: In three monthsduration of the internship data have been collected through

contact with various clients of the bank and get informal

information about the bank.

B. Secondary Sources:-

Secondarydata have been collected inside the company, in the library,

and on the internet, specialized in providing information. The following

sources of secondary data are given bellow:

Prospectus/ Annuals of CBCL.

Different publications on banks.

Annual Report of the bank.

Past research books & journals.



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Documents of General banking & Foreign Exchange Department

of the branch.

Data Analysis & Presentation :- Data Analysis with different statistical

tools and presented though different graph, chart etc.

1.3 Scope of Study:

The Internship report is focused on Commercial Bank of Ceylon Limited.

Although Foreign Exchange banking is similar in all branch of CBCL.Thisreport will give a clear idea about the Foreign Exchange and quite a few

concepts over general banking of the bank i.e. how the A/C is opened & how

the deposit & credit operations are done. Areas & issues covered by this

report include meaning of foreign exchange, functions of foreign exchange in

CBCL documents required in later of credit, various stages in import and

export, different types of L/C & different types of loans against L/C &

understanding necessities of remittance in F. Ex., rules and regulation of

Bangladesh

Bank and Ministry of Govt. for Foreign Exchange and lastly performance of

CBCL in general banking & import export business.

1.4 Limitations of the study:

During the internship program, numerous difficulties caused for the

accomplishment of the study. This difficulty may be termed as limitations of

the study, enumerated as follows:

1. Lake of depth of knowledge and analytical ability for writing such

report.



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2. Inadequate time to make an in-depth and full fledged report on foreign

exchange operation of CBCL.

3. Unavailability of sufficient written documents as required for making acomprehensive study.

At least limitation in internship program will make disagree mind

about making internship report.

Chapter -02

COMMERCIAL BANK AN OVERVIEW2.0 About the CBCL:

A. Name of Company:

Commercial Bank of Ceylon Limited.

B. Legal Status:

Commercial Bank Of Ceylon Limited is a public limited liability

Company incorporated in Sri Lanka on June 25, 1969 under the

Companies Ordinance and quoted in the Colombo Stock exchange in

March 1970. A licensed Commercial Bank under the Banking Act No.

30 of 1988.



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C. Registered Office:

Commercial HouseNo.21, Bristol Street

P.O. Box 856

Colombo

Sri Lanka.

D. Country Office:

47, Motijheel Commercial Area

Dhaka, Bangladesh.

E. Brief History:

Though Commercial Bank was established in 1969, it traces its Origin

back to 1920 to British owned Eastern Bank, which was subsequently

acquired by Standard Chartered Bank. SCB had a 40% stake in

Commercial Bank until its exit in 1997 due to change in Local

regulatory requirements. Presently, DFFC Bank has a stake of 29.77%

in Commercial Bank and the International Finance Corporation (the

private sector investment arm of the World Bank) has a 15% stake,

while the Srilanka Insurance Corporation (the premier insurance

Company in Sri Lanka) holds a 9.91% stake. In 2003 CBC acquired

the operations of Credit Agricole Indosuez (CAI) in Bangladesh. The

acquisition consisted of the main office in Dhaka, its branch in

Chittagong and two booths. CAI is now the largest bank in France. It

was the second largest foreign bank in Bangladesh. When CAI decided

to exit because of a shift in their global strategy. CBC Seized this

opportunity to grave a slice of the rich Bengali market. Our acquisition



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of CAI gives us instant access to their large Corporate Client base and

banking infrastructure.

F. Branch Network:

CBC provides a world class financial service through its well spread

network of 130 branches and 187 ATMs network in SriLanka.In

Bangladesh we already have two fully- fledged branches and two

booths. We are planning to open two more branches in 2006.

2.1 Objective:

Building Customer Base.

Giving satisfaction to the Client

To give optimum value to our customers, employees, shareholders and

the nation.

We serve our customers with respect and provide the best solution for

their needs.

2.2 Goal:

To be the Leader in the Financial Industry & having a visible presence

in the region by the year 2010.

Emphasis on good corporate governance. The bank upholds and

strictly abides by good corporate governance practices .

Commercial Bank is over of its responsibility towards its employees,

the Wider public and the physical environment.



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Our aim to generate profits for our shareholders and to constantly add

Value to their share, we know that we must do this in a way that is

socially Acceptable. Sustainability as Solid as our history.

2.3 Achievement and Awards:

BANGLADESH :

AA rating from the Credit Rating Information Service Ltd. This is by far

the highest rating to any bank by rating agency.

Best Foreign Bank in Bangladesh---2004, rated by industry Magazine

Arthakantha Business Award.

SRI LANKA :

Best Bank in Silence for the 7th Consecutive year by the Global Finance

Magazine (U.S.A)

Best Bank of the yearSrilanka (2001, 2002, 2003, 2004) by The

Banker magazine based in UK.

AA + Rating by Fitch Rating Sri Lanka.

National HRM Award 2002, 2003,

Best Presented Accounts 2001 (Financial Sector) Presented by south

Asian Federation of Accountants (SAFA)

Performance of CBC: Today Commercial Bank is undoubtedly regarded as the best bank as

well as the best corporate in the country. Its cost efficient operation as evidenced by the low

Cost/Income Ratio. Financial stability as measured by the highest capital Adequacy ratios and

highest profitability as measured by the best return on assets and return on equity.

2.4 ORGANIZATIONAL STRUCTURE OF THE CBCLBANKLIMITED



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2.5 Brief View of Commercial Bank Limited:


Country Manager

Senior General Manager

Chief Operating Officer

Deputy General Manager

General Manager

Manager

Assistant General Manager

Deputy Manager

Assistant Manager

Banking Trainee

Executive

Graduate Trainee

Officer Grade-1

Officer Grade-1

Senior Officer


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Figure (in Million)

(Source: Annual Report)


Particulars 2006 2007 Change

%

Total Assets (RS Mn) 223,974.25 267939.63 19.63

Shareholders Funds (US$Mn)

15842.84 23936.03 51.08

Turnover (US$ Mn)

Profit After Tax (US$ Mn) 2012.628 4103565 103.89

Return on Assets (%) 1.00 1.67 67.00

Return on Equity (%) 12.73 20.63

Cost / Income Ratio (%) 51.99 43.95

Capital Adequacy Ratio (%)

Non-Performing AssetsRation (%)

Market Capitalization (US$Mn)


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Chapter -03

Foreign Exchange Operations

3.0Introduction:

Foreign Exchange may be defined as the system of process of converting one

national currency with another and by transferring money from one country

to another country through International Business Transactions.

A business transaction that includes two or more parties from at least two

different countries can be terms as Foreign Trade.Through there is a general concept of foreign exchange which means the

exchange of currencies but the term foreign exchange has various meanings

Something or it in a more access abstract sense as process of setting

obligation between individuals and firms residing in different countries. Other

things of it comprising the facilities available for the settlement of such

obligation and still others regard it as a synonym for transaction in Foreign

Money.

3.1 Foreign Exchange Regulation Act:-

Foreign Exchange Regulation Act 1947 was adopted in Bangladesh

immediately after independence. A few provisions have been added under

the foreign exchange regulation ordinance, 1947. Actually this Act

empowered Bangladesh Bank to regulate certain payments, dealing in foreign

exchange and securities and the import and export of currency and bullion.

After 1947, the Act was adopted by Pakistan and after 1971 by Bangladesh.

The Act has 27 section and a number of sub sections. The main objective of

the Act are to conserve the limited foreign exchange resources and to ensure

that the available foreign exchange is utilized only for priority requirements

in the economy and financial interest of Bangladesh and the maintenance of



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the proper accounting of foreign exchange receipts and payments.

Bangladesh Bank issues license to deal in foreign exchange empowered by

the Foreign Exchange Regulation Act 1947. Central Bank may issue generallicense or license with authority to perform limited functions only.

3.2 REGULATIONS FOR FOREIGN EXCHANGE:

A. LOCAL REGULATIONS:

Foreign exchange transactions are being controlled by the following rules &

regulation.

Foreign Exchange Regulation Act 1947. Bangladesh Bank issues foreign exchange circular from time to time to

control the export, import & remittance business.

Ministries of commerce issues export & import policy giving basic

formalities for import & export business.

Sometime CCI&E issues public notice for any kind of change in foreign

exchange transaction.

Bangladesh bank published two volumes in 1996. This is compilation of

the instructions to be followed by the authorized dealers in transitions

relation to foreign exchange.

B. INTERNATIONAL REGULATIONS OF FOREIGN

EXCHANGE:

There are also some international organizations, influencing our foreign

exchange transactions. Few of them are discussed bellow:



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International Chamber of Commerce (ICC) is a world wide non-governmental

organization of thousands of companies. It was founded in 1919. ICC has

issued some publications like UCPDC, URC, & URR etc, which are beingfollowed 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.

3.3 Importance of Foreign Exchange Business in

Economy:

International trade helps to produce domestic production as well as global

production.

International trade gives exchange opportunity of goods

Natural assets of countries are to be utilizing property

Consumers get privilege through international trade.

Authorized Dealers

The bank which has License by Bangladesh Bank for dealing foreign

exchange business or transaction under the FER Act, 1947; is called

Authorized Dealership. The dealer must have adequate manpower trained in

foreign exchange. The authorized dealers must maintain adequate and

proper records of all Foreign Exchange transactions and furnished such

particular in the prescribed returns of submission to the Bangladesh Bank.

CBCL Agrabad Branch is one of the Authorized dealer Branch of CBCL Foreign



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Trade operation play a vital role in the over all business development of the

Bank. For expansion and smooth functioning of foreign trade the bank has

already established a large network of foreign communication companioncovering most of the important business centers in 100 countries around the

world.

3.4 Types of Foreign Exchange Business:

There are some types of foreign exchange business in this bank

Import Business.

Export Business.

Remittances.

Import Business:

Opening letter of credit.

Collection of Bills.

Import loan and guarantees.

Advance bills.

Export Business:

Advance for different payment.

Negotiating of foreign bills.

Advance against bills or collection.

Purchase of foreign Bills.

Export guaranties.

Advising / confirming letter of credit.

Pre shipment Advantage.

Remittances:



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Issuance and enhancement of credit cards.

Issuance and enhancement of travelers Cheques.

Sales and enhancement of foreign currency notes. Payment of DD, Money Gram, Fardin Express, Express Money Etc.

Issuance of DD, Money Gram, Fardin Express, Express Money Etc.

Maintains of non relevant accounts.

Chapter -04

Import Procedures and Financing

4.0. Import Policy:

Under the Import & Export Control Act, 1950 the Government of Bangladesh

formulates the Import Policy through Ministry of Commerce. The existing

Import Policy (2003-2005) as come into effect from March 13, 2004 to June

30, 2006. It can review every year if needed.

Who Can Import:

The person or the institution that have got valid import registration certificate

issued by the Chief Controller of Imports and Exports can Import and they

are known as Importer. In terms of the imports, export and indenters order

1981 no person can import in Bangladesh unless he registered with the Chief

Controller of import and export and exempted from the provision of the same

order. The L/C Issuing Bank (AD) must ensure that they deal only with

Known customer having a place of Business and can be traced easily should

any occasion arise for this purpose.

Category Of Importers:



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There are two categories of Importers now existing in our country:

A) Commercial Importers: The importers are imports are commercial

items are called commercial Importers.

B) Industrial Importers: The imports that import Industrial items

that are raw materials of the industrial capital machine and spare parts for

setting up industry etc are called industrial importers.

C) Personal importer: If an importer intends to import goods from

abroad to meet his personal needs, the importer is called a

personal importer.

Excepting the above three categories there may be some other importers

such as import by actual users, public sector corporation, Govt. and semi

Govt. organization and Govt. department. They need not to process IRC

from CCIE but they require specific recommendation from the concern

Ministry/Authority before opening of L/C that is Directorate of food, TCB,

Wapda and other may be cited as example.

Import Operation:

Import is foreign goods and utilities purchased by customers, firms and

Governments in Bangladesh. The Importer must have Import Registration

Certificate (IRC) issued by Chief Controller of Import and Export (CCI & E)

to import goods from other countries.

Import Procedure:

As per Import Export control Act, 1950 no person can indent or export any

goods in to Bangladesh to be incase of exemption issued by the government

of the People Republic Of Bangladesh. So for doing import business at first

every importer must obtain Import Registration Certificate (IRC)



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Foundation of Import :

Performa invoice

Indent

TIN &VAT Certificate

Special trade agreement

Sales Contract

Barter System

Clean Report Finding (CRF)

Process of Acquiring IRC:

The chief controller of the Import invites application usually for registration of

import to importer by public notice or import policy. For the registration

importers need some paper to submit. The following papers/ documents are

requires for submission to C.C.I.E. for Import Registration Certificate.

Application Form

Nationality certificate

Income tax registration certificate with GIR

Trade license

Membership Certificate

Partnership Deed (if necessary for Partnership

business)

Certificate Of Registration with the Register of

joint Co. and Articles and memorandum of

Association (in Limited Company)

Bank Certificate

The nominated of the applicant will examine the papers/ documents and

verify the signature of the applicant and forward the same of the concerned

office of the C.C.I.E. with a forwarding schedule



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in duplicate through bank representative. The duplicate copy of the same

acknowledgement of CCI&E office of the receipt of the document is received

by the bank and is preserved.

4.1. What is Letter of Credit?

A letter of credit may be defined as an open letter of request where by one

person (usually a merchant or a banker) request some other person or

persons named therein, for a certain amount and promise that he will repay

the same to the person advancing the same or accept bills of exchange

drawn upon himself for the like amount.

Letters of credit are an outcome of great increase in world trade the more

repaid means of communication and transport, the embarking upon

commercial adventures by men of doubtful honesty and fluctuation in the

foreign exchange rates etc.

The documentary Credit is an undertaking issued by a Bank for the account

of the buyer (the applicant) or for its own account, to pay the beneficiary thevalue of the Draft and or documentary Credit are complied with

Letters of Credit are now being increasingly issued by commercial banks in

favors of their constituents or persons named them to facilitate remittance of

funds.

Classification of Letter Of Credit :

These letters can be divided into two categories

1. Travelers Letter of Credit.

Or

Non-Commercial Letter of Credit



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2. Commercial Letter of Credit.

1) Travelers Letter of Credit:Travelers Letter of Credit is being issuedby the banks for the convenience of the travelers. They are saved from the

inconvenience and risk of traveling with the heavy cask balance. Ex: Credit

card, Travelers Cheques, Circular Notes etc

2) Commercial Letter of Credit: Commercial letter of credit is the most

common method used for financing foreign trade. Its a sort guarantee to the

exporter that his draft will be honored by as specified bank up to a certain

amount as per the specified terms.

The main element which as to be guarded against both A and B is the

integrity and solvent of the other.

4.2 Mechanism of Letter of Credit:

The following diagram bring out clearly the operation of letter of Credit,



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The process of a letter of credit summarized in the above diagram is detailed

below:

Definition Of Contract Sale :

The transaction originates when the exporter in foreign country and the

importer in own country enter in to a contact sale. The contact covers all

important particulars like the description, value and quantity

of goods, the due date for shipment; methods of payments etc. one of the

stipulations may be that a letter of credit should be opened in favor of the

exporter.


Contract of Sale

Shipment of

Goods

Exporter{Beneficiary}

Importer

{Applicant of L/C}

Forwards

L/C to

PresentsDoes and

Obtain

paymentfrom

Recovers

amount

from

Advising,Negotiating Bank

{Foreign Bank}

ObtainsReimbursement

From

Issuing Bank

{Country Bank}

Appliesfor

opening

of L/C

Opens L/C and Sends it to


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Advising/ Notifying Bank :

The advising/Notifying bank is the bank through which the L/C is

advised to the exporting country & it may be a branch of the opening

bank or a correspondent bank. It may also assume the role of

confirming and negotiating bank depending upon the conditions of the

credit.

Paying / Accepting Bank :

This is the bank on which the bill will be drawn (as per condition of the

credit). Usually it is the issuing bank.

Negotiating Bank :

Negotiating bank is the bank that negotiates the bill and pays the

amount to the beneficiary. It has to carefully scrutinize the documentary

credit before negotiation in order to see whether the documents

apparently are in order or not. They are the authorized to claim and get

reimbursement of the amount paid by them on negotiation of

documents.

Reimbursing/Confirming Bank :

The issuing bank may indicate in the credit the name of a bank from

whom the paying/negotiating bank can obtain reimbursement.

The documents are sent to the issuing bank; the negotiating/paying

bank simultaneously makes a claim with the reimbursing bank for the

paying affected. Normally the reimbursement bank would be the bank

with which the issuing bank maintains an account. A copy of the letter



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Issuing Bank

(Bangladesh)

AdvisingBank(India)

Negotiating Bank(India)

Reimbursing

Bank

(Japan)


of credit would also be sent to the reimbursing bank so that it may

know the arrangement.

Often the beneficiary of the credit stipulates that the credit must be

confirmed by a bank in his own country; so that he is assured of

payment as soon as the documents are presented to it at his own

centre.

4.3 Opening of a Import Letter of Credit:

For import transaction or trade the importer has to open a letter

of credit. The following steps involved in opening the letter of credit can

be put in bellow:

Application for the L/C limit :



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An importer submits an application to CBCL for the getting an import

L/C limits. The importer called as opener or applicant will approach his

own bank or some other bank, who is engaged in financing of foreign

trade transactions, with a request that it issues a letter of credit in favor

of the exporter/beneficiary. At that application he/she gives full detail of

the followings:

Nature of Business.

Details of the applicant account.

Required amount of Limit.

Payment terms and condition.

Goods to be imported.

Offered Security.

Repayment schedule.

A credit scrutinizes that application & according prepares a proposal &

forwards to the Head Office Credit Committee. The committee, if

satisfied, sanctions the limit & returns back to the branch. In this

manner the importer is entitled for the limit.

Particular For the L/C Application Form :

CBCL provides a printed form for opining of L/C to the importer. A

special stamps is attached on the form. While opening the stamp is to

be cancelled. The importer gives the following information is that form:

Full name & address of importer.

The mode of transmission of document (Courier/ mail/ Telex/

SWIFT)

Name and address of the beneficiary.



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Details of the shipment- port of shipment, and destination, time

and the last date of shipment etc.

Date and place of expiry of the credit.

Whether the confirmation of the credit is requested by the

beneficiary or not.

Whether the partial shipment is allowed or not.

The type of loading (loading on boarding)

Brief description of the goods to be imported.

Performa Invoice.

Availability of the credit by sight payment/ Acceptance/ Deferred

payment.

The time bar within which the document should be presented.

Sales terms (FOB/CIF/C&F/CFR)

Account number

L/C Amount

Shipping Mark.

Type of delivery Sea/Air/Road.

H.S. code number of the Goods imported.

IRC number

LCA number

Insurance Company name

Insurance Cover note

Country of Origin

The above informations are given along with the following documents:



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Performa Invoice which gives all description of the goods including

details of quantity, unit price, beneficiary address, H.S. code

number Etc.

I.M.P. Form

Insurance company name and cover notes of the insurance and

insurance number.

The date by which the document should be presented by the

beneficiary for payment, acceptance or negotiation.

Scrutiny of the Application :

The application made shall be scrutinized by the bank in order to

ascertain the following:

. The application is of good financial standing and high integrity.. The importer possesses the Import license granted by the Import

Control Authorities. The banker should verify from the import

license the following:

1. The import license is in the name of the applicant. In

case it is not in his name, he should have been duly

authorized by the Import Control Authorities to use it;

2. The amount or the balance available under the license

covers the letter of credit applied for,

3. The license is valid, the validity period of a license is

one year. However 45 days of grace are allowed, 30 days for

the dispatch of goods and 15 days for negotiation of

documents,



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4.The details of goods given in the application conform to the

goods mentioned in the import license.

5. The country of origin of the goods given in the license

is the same as given in the application.

6. The goods to be imported are readily marketable and

their value is not subject to violent fluctuation

Margin: The importer should be asked to deposit with bank in the form

of cash or securities proper margin depending upon his credit

worthiness. The bank may allow him interest on such margin money.

Insurance: The applicant should also be asked to take an insurance

policy on the C.I.F. value of the goods plus certain percentage to cover

profit. The policy should be in the joint name of the bank and the

importer.

The application form should be complete in all respects and duly

stamped and signed by the applicant.

Securitization of L/C Application :

The officials of CBCL securitize the application for the following reasons:

The terms and conditions of the L/C must be complied with

Exchange Control & Import Regulation

Indenting registration number.

Officers examine whether the goods to be imported are legal.



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Certificate declaring that the items are in operation not more than

four years in case of vehicles.

Whether IRC updated or not.

The L/C must not be opened in favor of the importer.

Radioactivity report (in food items).

Survey report or certificate (in old machinery items).

Whether IMP from dully signed or not.

Goods & carrying vessel from all the countries in the world except

Israel.

Insurance caver note with date of shipment.

To see whether the application is signed by the importer.

Officers of Import must have to focus in the security of L/C by favoring

Rules and terms of Ministry and Bangladesh bank are followed.

Bank will supply the following papers/documents for opening

a L/C

L/C application form.

LCA form.

IMP form.

4.4 LCA Form:

There are six (5) copies of LCA form.

i. Original copy for exchange control purpose.

ii. Duplicate for custom purpose.

iii. Triplicate & Quadruplicate for licensing authority.

iv. Quintuplicate for the registration unit of Bangladesh Bank.



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v. Remaining copy for the issuing bank.

The Clauses contained In A L/C:-

1. A clause authorizes the beneficiary to draw bills of Exchange up to

a certain on the opener

2. Description of the goods to be shipped

3. An undertaking by the issuing bank that bills drawn in accordance

with the condition will be duly honored.

4. Instructions to the negotiating bank for obtaining reimbursement

of payments under the credit.

5. List of shipping document which are to accompany the bills.

4.5 Amendment of Letter of Credit:-

Parties involved in a L/C particularly the exporter cannot always satisfy

the terms & condition in full as expected due to some unexpected

reason. In such a situation the /C should need to be amended. CBCL

transmit the amendment by SWIFT to the advising bank. Is case of

revocable credit it can be amended or cancelled by the issuing bank at

any moment & without prior notice to the beneficiary? But in case of

irrevocable L/C it can neither be amended nor cancelled without the

agreement of the issuing bank, the advising bank & the beneficiary. If

the L/C is amended, service & SWIFT charge are debited from the

parties account.



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Transmission of L/C :

The way of transmission of L/C is as follows:

Though SWIFT.

Though Mail.

Though Couriers.

Though Emergency Mail Service.

Though Telex.

Some Task before Advising Amendments:

The issuing bank has to obtain written application from the

application of the credit duly signed and verify by the bank.

In case of increase of Value, application for amendment is to be

supported by revised Indent/ Pro-forma Invoice evidencing

consent of the beneficiary.

Incase of extension of shipment period it should be ensured that

relative LCA is valid/revalidated/increased up to the period of

proposed extension.

For amendment of an increase of credit amount and extension of

shipment period, amendment of Insurance Cover Note has to be

submitted in both the cases.

Proper recording and filing of amendment is to be maintained.

Amendment charge will be recovered and necessary voucher is to

be passed.

Clauses if Generally Amended :



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Increase/Decrease in value of L/C and charge in quality of

goods.

Extension of shipment/Negotiated period.

Terms of delivery i.e. FOB,CFR and CIF etc

Mode of shipment.

Inspection clause.

Name and address of the supplier.

Name of the reimbursing bank.

Name of the shipping line etc.

4.6 Proposal of Processing L/C:

When branch gets the L/C application form clients then branch

send a proposal to the Head Office or Area office of CBCL for getting

permission to the L/C of the client. The proposal form is very important

for the bank because H.O. or Area Office have no idea about the client

to taking risks. In the proposal form the following information are given

by the branch:

Name & address of the party,

Name and address of the Guarantor,

TIN and IRC Number and its validity period,

Date of opening of Account,

Turnover in CD account,

Amount of L/C applied,

Commodity to be imported,

Branchs total exposure (Total outstanding on account of the

party)



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Name and address of the beneficiary,

Status report on the beneficiary

County of Origin,

Mode of shipment

Shipment validity

Margin proposed by the party

Margin recommended by the branch manager

Past performance of the party (if hes earlier client)

Present liability position of the party in its own name and on

account of sister concerns: (1) L/C Liability (2) PAD Liability (3)

LIM Liability (4) Limit Loan Facility,

Landed cost (Imported Items) & Landed Cost per Unit,

Market price per Unit,

Number of Retirement of documents and last date of shipment,

Business worth/ability of the applicant

Branch manager and Foreign Exchange In charges

recommendation.

After opening of the L/C, issuing bank telex or transmits the L/C by

mail/Swift, to the advising bank and request the advising bank located

in the sellers/exporters country to advise the L/C to the beneficiary.

The issuing bank may also request the advising bank to confirm the

credit if necessary.

4.7 Approval/Sanction of L/C Proposal:



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The branch gets permission to open L/C when proposal can make

satisfy to Head Office or Area Office as per requirement of Import

Export Policy. If any information wants to know about Client, H.O. or

A.O. asks to Foreign Exchange In charge or to Manager of Branch. In

the approvals letter the following information are integrated:

Name of Importer/Company & Address.

Name of Guarantor & Address

Amount of L/C approved

Margin to be retained in cash

Import Finance (Amount)

Items to be importing

Commission & Interest rate

Some term and condition

Security that is B/L & charge documents to be

obtained

Interest on PAD/LTR/LIM @ ________% per year.

15% VAT to be realized on L/C commission.

An approval of L/C opening is valid for one mounts.

Precaution of Proforma Invoice to Open L/C:

1. As certain genuineness of proforma invoice whether duly

signed mentioning full addresses and name of their Banker.

Term of shipment.

Validity of L/C.

Payment of instruction.



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2. Confidential opinion if the amount exceeds Tk. 5.00 lac.

Precaution while considering Indent to open a L/C:

1. Regarding genuineness of indent and issuing party must be

valued before honoring an indent.

2. Indenters identification

3. Indenters registration certificate. Agency agreement but

Exporter and Importer.

4. Submission of quarterly return to Bangladesh Bank.

5. Whether black listed or not.

6. Confidential opinion is the indents amount exceeds Tk. 2.00 lac

or above.

L/C Opening Vouchers :

After scrutinized the application of the officers agrees to open a

Letter of Credit and at the time of opening L/C, following entries are

given to realize the Liability

Voucher and Banks charge & Margin Voucher:

(a) Liability Vouchers:

Clients Liability ---------------------Dr.

(Liability of Constituents for Acceptance)

Bankers Liability ---------------------- Cr.

(Acceptance of Constituents A/C)



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This entry constitutes contra (assets and liability simultaneously) in

the bank balance sheet.

(b) Banks charger & margin voucher:

Partys A/c ------------------------- Dr.

S/d A/c margin on L/C --------------- Cr.

I/A commission on L/C -------------- Cr.

VAT on L/C Commission ----------- Cr.

I/A SWIFT Charge ---------------- Cr.

Postage Charge ---------------- Cr.

Stumps in Hands ---------------- Cr.

I/A Miscellaneous ---------------- Cr.

Pre Shipment Inspection:

The Pre-Shipment Inspection is conducting by the government-approved

person or company (Cotecna, Vivak) who are inspecting the goods after

shipment of goods and the goods are verified under the Regulation of

PSI. The inspectors take 2% commission of total value of imported

goods from the customer.

4.8 Presentation of the Documents:

The exporter being satisfied with the terms & condition with the export

proceeds to dispatch the required goods to the importer, and after that,

has to present the documents evidencing dispatching of goods to the

negotiating bank on or before stipulated expiry date of the credit. After

receiving all documents is found in order the bank will pay accept and

negotiate with the issuing bank. Upon receipt of the import documents



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issuing bank will examine the documents carefully. If there is any

discrepancy in the documents, Bank will decide within seven (7) banking

days, following the day of receipt of the documents the issuing bank will

also check the documents and they are found as per credit requirement.

The usual documents in a letter of Credit are the following:

Bill of Exchange

Commercial Invoice

Packing List

Bill of lading

Certificate of Origin

Pre-shipment Inspection report

Insurance Cover Note

Shipment Certificate

Examination of Documents:

The Document generally includes the following and the main point of

checking by CBCL is:

Letter of Credit: Whether the document have been negotiated or

presented before expiry of the credit. Whether the amount drawn

exceeded the amount the amount available under the credit.

Bill of Exchange: Whether the draft dears the correct reference

number or not. Whether the signature and the name of the

Drawer corresponds with the name of the Drawer Corresponds

with the name of Beneficiary. Whether it is drawn on the correct

Drawer. Whether the amount in figure corresponded exactly with

the amount in word. To see whether the Draft properly prepared



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according to the credit conditions (on a sight or time basis) and

drawn on the specific bank. Whether it is properly dated or not.

Whether the amount in the draft is same as that of the Invoice

amount.

Commercial Invoice: Is the beneficiary of the credit assumed it.

To ensure it is not titled proforma or provisional invoice. Whether

it is made out in the name of the buyer with the same address

specified in the credit or not. To see other information supplied in

the invoice, such as marks, numbers, transportation information

etc. is consistent with that of the other documents. Whether the

currency of the invoice correspondent with that of

the Draft. To see whether the value of the invoice has exceed that

available balance of the L/C or not. Whether the invoice

covers the complete shipment as required by the L/C. to ensure

the accurate number of original & copy is presented.

Certificate Of Origin: To ensure it is a unique document & not

combined with any other document. To ensure whether it is

signed and notarized as required by the L/C or not. To ensure the

country of origin is specified and it meets the requirements of the

Letter of Credit. Checking whether the data on its is consistent

with of the other documents or not.

Packing List: To ensure that it is a unique document and not

combined with any other documents. Whether it corresponds with

the requirements of the L/C. a detailed packing list required a

listing of the contents of each package, carton etc. and other



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relevant information. To check whether the data on it is consistent

with that of the other document.

Bill of Lading: Whether the provision of the UPCDC been

observed. To ensure the Bill of Lading had been made out in the

prescribed form. Whether it is endorsed. Whether the detail of the

package units (B/L number, marks and weight) are consistent

with the other documents. Whether the B/L is properly signed. To

ensure there is no contradiction between the notation on freight

payment and the payment terms (freight

prepaid, CFR, CIF etc). To ensure the shipped on Board notation is

present on the B/L.

Insurance Cover Note: Whether the insurance document

specified in the credit submitted. Does the insurance cover the

risk mentioned in the credit the currency of the credit & of the

prescribed amount not less than CIF value. To ensure that the

insurance documents dated not later than the shipping

documents. To check whether the insurance policy agree with

other document as regards description, weight and marks of the

foods, mood of transport and the route.

4.9 Lodgment of Documents:

If import documents found in order, it to be made entry in the bill

register and necessary voucher to be passed, putting bill number on the

documents, these processes is called lodgment of the bill. Since the



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documents stay at this stage for a temporary period i.e. up to

retirement of the documents, the process is called lodgment. Bank must

lodge the documents immediate after receipt of the dame, not

exceeding Banking seven (7) days, following the day of receipt of the

documents. (Article fourteen (14) UCPDC-500)

Refusal Notice :

After examination, if the documents become discrepant, issuing bank

will through the refusal notice to the negotiating bank with seven (7)

banking days.

Lodgment of PAD:

Generally PAD is lodge by the issuing bank. When issuing bank gets the

original shipping documents from negotiating bank against L/C then

issuing bank goes through that shipping documents, if the issuing bank

finds the shipping documents in order that is as per /C terms, then

issuing bank open a loan account on account of Importer.

PAD Logement Voucher:

Contra Voucher:

Bankers Liability on L/C ------------------ Dr.

Customers Liability on L/C ------------------ Cr.

(When PAD is creating)

Then following Voucher have to pass in for creating PAD:

PAD A/C no --/-- Party Name ------------ Dr.

IBAT H.O. ID Beneficiary Bank -------- Cr.

S/D A/C Discrepancy Charge ------------ Cr.



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(if any charge create at documents)

Sundry Deposit Margin on L/C ------------------- Dr.

PAD A/C no --/-- ------------------------------ Cr.

Retirement of PAD:

When importer receives the original shipping documents from issuing

bank after adjusting PAD A/C partially or fully as well as pay the total up

to date interest for the PAD amount , this is called Retirement of PAD.

Retirement Vouchers:

PAD A/C ----------------- Dr.

Income A/C ------------- Cr.

Party A/C ---------------- Dr.

PAD A/C ----------------- Cr.

4.10 Payment of Import Documents:

Payment procedures of CBCL involved the following tasks.

Date of Payment: Payment is made within 7 days after the documents

have been received. If the payment is on deferred L/C, then the

negotiating bank may claim interest for making delay.

Preparing Sale Memo: As sale memo is made at B.C. rate to the

customer. As the TT and O.D. rate is paid to the ID, the difference

between these two rates is known as Exchange Trading. Then an Inter

Branch Exchange Trading Credit advice is sent to International Division.



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Requisition for the foreign currency: For arranging necessary fund for

payment a requisition is sent to the ID.

Transmission of Telex: A telex is transmitted to the correspondent bank

ensuring that payment is being made.

4.11 Deferred L/C Payment:

CBCL follows the following measures in case of deferred L/C:

Such L/C should only be entertained for trusted and tested party.

Some cash margin must be taken at the opening stage and for

balance amount payment schedule towards building up 100%

margin.

Constant supervision and monitoring.

Collaterals including hypothecation/Mortgage of imported goods.

Charge document including TR.

Clearance of the Import Through own nominated CNF agencies.

Import Financing:

CBCL generally follows two types of Import Financing. The diagram

shows the type of scheme:


L/C on Cash


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Import

Finance

Post-Import Finance


LIM (Loan Against Imported Merchandize)

CBCL follows some requisites for LIM facility:

1. Margin on the landed cost to be ascertain

first and then LIM facility will be allowed.

2. After clearance the goods shall be kept in

partys godown/Banks go down under banks effective control.

3. Goods are kept in go down item wise/price

wise separately.

4. Goods are delivered against proportionate

payment and to be adjusted within validity.

5. Validity far commercial items for 30-45 days

and for industrial items for 90 days.

PROCIDURE:

After arrival of consignment at the port importer may request the bank

on Banks prescribed form for clearance of goods from the port. Upon

satisfied with the request Bank gets the goods cleared and arranged

for its warehousing. Bank pays the C&F agents bills on receipt of it after

proper scrutiny. For all expenses incurred during clearance of the

consignment. Bank opens a loan account in the name of the importer

and also converts the liability under PAD into that account. This account

is called loan against imported merchandize (LIM).


LTRPADLIM


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Account Procedure:

LIM on Party Name ------------- Dr.

PAD -------------------------------- Cr.

Interest, Commission (if any) --- Cr.

(For converting PAD into LIM)

LIM -------------------------------- Dr.

Charges (other expense) -------- Cr.

(For transferring incurred expenses into LIM)

LTR (Loan Trust Received):

CBCL follows some requisites for LIM facility:

1. Generally this type of facility is allowed to the important, trust

worth client.

2. LTR be allowed generally up to net document value(after

deduction of margin), duty, VAT etc. be borne by the importer

3. LTR be allowed for 30-90 days.

4. LTR amount be covered by the post dated Cheques.

5. Banks want to cover the LTR facility by collateral security.

Procedure:When a bill is received covering import of raw materials or

other items, it is released by payment of the importer out of his own

resources. If the importer has arrangement of cash credit facilities, it is

essential that the goods are in the possession of ht bank and not



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delivered to the importer. The importer goods thus stand as security for

the cash credit allowed. In the trust letter the importer acknowledges

that the goods are held by him in trust for the bank and agrees to make

over the sale proceeds to the bank. He further undertakes to keep the

goods and transaction arise out of these goods separate from other

transaction. In case of insolvency of the importer the bank can

repossess the goods; the official receiver cannot claim this goods. The

banker appropriates the sale proceeds, if the goods were already sold

by the borrower.

Accounting Procedure:

LTR Account ------------------ Dr.

PAD Account ------------------ Cr.

Interest Account --------------- Cr.

PAD (Payment Against Documents):

PAD loan is created upon lodgment of import documents. This

loan is created for 21 days -the time being the tolerance for taking

documents for the importer. After scrutiny of the shipping documents if

the issuing bank find that the shipping documents are in order i.e. as

per L/C terms then issuing bank open a loan account on account of

importer. This total process may be defined as Payment against

Document (PAD). In this branch total out standing of PAD is

9,13,85,787/- during OCT, 2007 from its clients.



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Chapter -05

Export Operation

5.0 Export Operation

Export Policy:

Export Policy, formulated by the Ministry of Commerce, GGOB provides

the overall guideline & incentives for promotion of export in Bangladesh.

Export Policy also set out commodity wise annual target.

It has been decided to formulate these policies to cover a five year

period to make them contemporaneous wit the five year plans & to

provide continuity to provide the policy regime. Effective period of

Export Policy (1997020020; from July1, 1998 to June 30, 2002.)

Meanings of Export :

Practically by the term Export we mean carrying anything from one

country to another. Banker defines Export as sending of visible things

outside the country for sale. Export Trade plays a vital role in the

development process of an economy. With the earning economy meet

out import bills.

5.1 Export Procedure of CBCL:

An Exporter is one who exports the goods to another customer whether

in domestic country or in abroad. Export is one of the most



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important activities that can increase economic and social well being

through transaction of goods an services from domestic economic agent

to foreign economic agent for which domestic economic agents receive

payments, profitability in valuable foreign currency. The important an

export trade in our country is regulated by the Imports & Exports

(control) Act, 1950. There are some formalities, which an exporter has

to fulfill before & after shipment of goods.

Registration from Chief Controller of Import & Export (CCI &

E):

The persons without registration granted by the chief controller of

imports and exports shall anything into or out of Bangladesh except in

case of exemption issued by the government. Under the export policy of

Bangladesh the exporter has to get the valid Export registration

Certificate (ERC) from Chief Controller of Import and Export (CCI &

E). The ERC is required to renew every year. The ERC number is to be

incorporated in EXP forms and other papers connected with exports.

Documents required to obtaining ERC :

For obtaining export Registration Certificate Bangladesh exporters are

required to apply to the controller of Important & Export in prescribe

from along with the following documents:

Nationality and assets Certificates.



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Memorandum and Articles of Associated and Certificate of

incorporation in case of limited company.

Bank Certificate.

Trade license etc.

Securing the Order:

After getting the ERC the exporter may proceed to secure the export

order. He can do this by contracting the buyers directly through

correspondence. In this purpose exporter can get help from:

Liaison Offices.

Buyers Local Agent.

Export Promoting Organization.

Bangladesh Mission Abroad.

Chamber of Commerce (Local & Foreign)

Trade fair etc.

Signing the Contract:

While making a contract. The following points are to be motioned:

Price of the goods.

Describe of the goods.

Quantity of the goods.

Receiving the Letter of Credit:



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After getting contract for sale, exporter should ask the buyer for the

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, preferable confirmed by the bank.

The L/C allows sufficient time.

EXP (Export Permission):

EXP means Export Permission. Authorized Dealer give the EXP from

to exporter at the time of the Foreign Export. And attach with L/C

(Letter of Credit). Commercial invoice & packing list to get permission

from customs Authority.

Obtaining EXP:

After getting ERC the exporter applies to CBCL (or any other commercial

bank) with trade license & if the bank is satisfied, an EXP issued the

exporter.

Certified of EXP by Customs Authorized:

At the time of shipment, disposal of EXP from is essential. The EXP

forms are to be in quadruplicate. In all cases the forms will be



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completed and signed by exporter or his authorized agent. After

completing the EXP forms, the exporter should submit to the Authorized

Dealer, these should be submitted to the Customs Authorities along with

shipping bill at the time of shipment. The

Customs authorities after filling in the portion relating to them and

affixing their seal and signature their on will return the duplicate.

Triplicate and quadruplicate copies with commercial invoice & packing

list to the exporter / his authorized agent. The original copy will be

forwarded by the Customs to the Bangladesh Bank in the 7 days. The

exporter must submit all the remaining copies of the EXP Forms along

with the invoice & packing list etc. to the Authorized Dealers through

whom payments for the foods exported is to be received. And duplicate

copy will be forwarded by the Exporters Bank to the Bangladesh Bank.

An extra copy of the shippers invoice must be attached to the duplicate

copy of the EXP Form for submission to the Bangladesh Bank.

All shipping documents covering goods exported from Bangladesh and

declared on EXP Form must be passed through the medium of an

Authorized Dealer within 14 days from the date of shipment of the

goods covered by the form.

Procuring or Manufacturing the materials / Goods:

After making the deal and on having the L/C opened in his favor. The

nest stop for the exporters is to ser about the task of procuring or

manufacturing the contracted merchandise.



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Shipment of Goods:

The following documents are normally involved at the stage of

shipment:

EXP Form.

ERC (valid).

L/C copy.

Customs duty certificate.

Shipping instruction.

Transport Documents.

Insurance Documents.

Invoice.

Bill of exchange (if required).

Certificate of origin.

Inspection Certificate.

Quality Control Certificate.

5.2 Important Documents Associates with Export:

While negotiating export bills under the letter credit, the officials of

National Credit & Commerce Bank check the following documents to

ensure.

A. Letter of Credit:

If it is revocable or irrevocable and, if necessary, amendment

to the clauses difficult to fulfill have obtained.

If it has been authenticated and if it is valid (not expired).



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If it is subject to uniform customs and practices for

Documentary credit of the International Chamber of

Commerce.

If the opening bank is of good means and standing. If not,

confirmation from a third bank should be obtained.

B. Bill of Exchange:

The draft has been drawn to the order of the ban

If the date, amount in words and figures, drawers name,

drawers signature, endorsement, tenor etc. are strictly in

terms of the credit.

If stamp of requisite value has been properly affixed. If so it

should be recovered from the shipper.

C. Invoice:

The invoice contains quality, unit price and total value with

deduction, if any as stipulated in the relative credit.

The number of copies meets the requirement of the credit.

Charges such as postage-telex etc. should be included unless

specifically authorized under the credit.

The description of the foods should be in conformity with the

description in the bill of leading and should relate to the vessel

and voyage mentioned therein.



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Marks on the packages and the quantity of the goods must

agree with those mentioned in the invoice and the bill of

leading.

D. Bill of leading:

The bill of leading must state the number of originals and all

the negotiable copies as stated in the bill of leading must be

presented.

The bill of lading must state that the goods have been

Shipped in Board.

The port of loading, the port of destination and name of the

carrying vessel must appear on the bill lading.

It must be duly signed and endorsed.

It must state payment of freight.

E. Certificate of Origin:

It should provided evidence of the origin of the goods as

specified in the credit. It is usually issued by and independent

office or organization e.g., a Chamber of Commerce.

5.3 Common Discrepancies:

CBCL officials usually find the following discrepancies while checking the

above-mentioned documents:

On board nation of Bill of Leading undated/

unauthenticated.



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Shipment effected from port other than that stipulated in

the credit.

Full set of bill of lading not presented.

Certificate of country of origin not presented.

Wightman certificate not presented.

Cuttings / alternations in documents not authenticated.

Documents inconsistent with each other.

Description of goods on invoice differs from that in the

credit.

Credit (L/C) amount exceeded.

Credit (L/C) expired.

Documents not presented in timed / State bill if lading.

Late shipment.

Absence of signature, where required, on documents

presented.

Bill of Lading does not evidence whether freight is paid or

not.

Packing list not submitted.

Notify party differs / not as per L/C stipulation.

Inspection certificates not submitted.

Unit price not mentioned in invoice.

Health certificate (fit for human consumption) not

submitted.

5.4 Negotiation of Documents:



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Soon after the shipment, the exporter should make arrangement for

early submission of the documents to the bank, correctly prepared in

conformity with the terms of the credit; exporter should remain in

constant touch with the negotiating bank early negotiation of export

bills. If any minor mistake is detected or any document is found

missing, the same should immediately be corrected or supplied for early

settlement of the matter.

5.5 Foreign Documents Bill Purchase:

After submission of all required documents to the bank for negotiation

and officer scrutinizes all documents. If the documents are satisfactory,

bank purchase the documents on the basis of the bank

customer relationship. This is known as foreign documentary bill

purchase (FDBP). Now total outstanding o FDBP is $18,20,000/- .

After purchasing the documents, National Credit & Commerce Bank

Limited gives the following entries:

FDBP A/c---------------------------Dr.

Customer A/c---------------------------Cr.

(Before realization of proceeds)

Head Office A/c---------------------------Dr.

FDBP A/c--------------------------------------Cr.

(Adjustment after realization of proceeds)

A FDBP Registered is maintained for recording all the particulars.



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5.6 Foreign Documentary Bills for Collection:

When bank feels any doubt regarding the documents, the bank sends

documents to the L/C issuing bank for collection instead of purchasing

those bills. This process is an Foreign Documentary Bills for Collection

(FDBC).

Commercial Bank Of Ceylon Ltd. forward documents for collection due

to the following reasons-

If the documents have discrepancies.

If the exporter is a client.

The banker is in doubt.

Foreign documentary bills for collection signify that the

exporter will receive payment only when the issuing bank gives

payment.

The exporter submits duplicate EXP Form & Commercial Invoice &

Packing List. Subsequently, the value of the bill is calculated and the

following accounting entries are given

Head Office A/C -----------------------Dr.

Clients A/C ---------------------------------Cr.

Govt. Tax A/C ------------------------------Cr.

Postage A/C ---------------------------------Cr.

Income A/C profit on Exchange ----------Cr.

After passing the above vouchers, an Inter Branch exchange Trading

Debit Advice is sent for debiting the NOSTRO account. Commercial Bank

Of Ceylon Ltd. has NOSTRO account with its reimbursing bank. An FDBP



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register is maintained, where first entry is given when the documents

are forwarded to the issuing bank for collection and the second one is

done after realization of the proceeds.

Receiving of Export Proceeds:

After getting the shipping document from negotiating bank the L/C

issuing bank scrutiny the documents. If the documents are as per L/C

terms the opining bank inform to the L/C opener and after getting

acceptance / fund the bank will make payment to the negotiating bank.

5.7 Export Financing :-

Meanings of Export Financing:

There are two types of export financing. These are:-

Pre-shipment Finance:

Pre-shipment Finance covers the credits extended by banks to exporter

prior to the shipment of the goods. Such credit is granted to the


Export Financing

Post-shipment

Financing

Pre-shipment

Financing


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exporter for procurement and processing of raw materials, manufacture

of finished products, packing and transporting goods for export.

The exporters may avail of facility during pre-shipment stage in the

following ways:

1. Back to Back Credit

2. Packing Credit

1. Back to Back Credit:

Under this agreement the bank finances exporters by opening a letter of

credit on behalf of the exporters who has received a letter of credit from

the overseas buyer but is not the actual manufacturers or producers of

the exportable goods. The letter of credit is opened in favor of the

actual producer or supplier within or outside the country.

Since the second letter of credit is opened on the strength of and

backed by another letter of credit it is called Back to Back L/C. The need

for a back to back credit arises because the beneficiary of the master

(export) letter of credit may have to procure the goods from the actual

producer who may not supply the goods unless its payment is

guaranteed by the bank in the form of a letter of credit. On the strength

of this letter of credit, the actual supplier of the goods submits the

documents of titles to the goods and other documents for payment to

the bank which has established the inland letter of credit. The supplier is

generally paid after negotiation of the documents.

Since this type of financing is somewhat risky, the bank may ask for

collateral security before opening the letter of credit.



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2. Packing Credit:

The credit extended by banks to the exporters prior to the shipment of

the goods. Such credit is granted to the exporter for procurement and

processing of raw materials, manufacture of finished products, packing

and transporting goods meant for export. In other word, it is facility

extended to the exporter before and till the goods are shipped for

export to foreign countries. When the order is executed the packing

credit gets paid out of the proceeds of the bill drawn on the foreign

buyer.

The packing credit facility may be extended in the form of

A. Hypothecation of goods

B. Pledge or

C. Export Trust Receipt

The salient points of different methods of advance are discussed below.

A. Hypothecation of goods: When credit is intended for procuring and

processing of raw materials into finished product for export,

hypothecation facility is extended. In this case neither the ownership

nor possession is passed on to the bank, only equitable charge is

created in favor of the bank through execution of a deed of

hypothecation agreement in favor of the bank.

B. Pledge: Under this form of credit, the goods to be exported remain

in the possession of bank or its approved clearing agents. In other



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Words, the exporter surrenders the physical possession of the goods

under Banks effective control as security for payment of banks dues.

The pledge of goods creates an implied lien in favor of the bank and

bank can sell the goods for adjustment of the advance by giving

notice to the exporter on his failure to honor commitment. Normally,

the exporter will arrange for shipment of goods under the control of

the bank and will cover transit as well as marine insurance. After

shipment, the exporter will prepare shipping documents and deliver

them to the bank. The bank will either negotiate the export

documentary bill drawn under the letter of credit already lodged with

it or purchase the bill as the case may be and the advance against

pledge will be liquidated.

C. Export Trust Receipt: Under the arrangement, credit is allowed

against trust receipt and the exportable goods remain in the custody

of the exporter but he is required to execute a stamped trust receipt

in favor of the bank, where a declaration is made that goods

purchased with financial assistance of the bank are held; by him in

order to utilized the credit for processing, packing and rendering the

goods in expectable condition. The advance is liquidated by the

negotiation or purchase of export bills covering shipment of the

goods.



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Procedure of Sanction of Pre-shipment Finance:

For sanction and management of all types of pre-shipment credit,

certain measures and procedures to be taken.

The following are some of the point that must be borne in mind for this

purpose:-

(i) The experience of the customers in the line of export.

The credit worthiness of the exporters or his export

performance is to be ascertained after verification of financial

statement. Similarly the credit worthiness and solvency of the

buyer also to be enquired through foreign correspondent.

(ii) The export letter of credit should be from a reputable

bank abroad whose status has to be ascertained. The letter of

credit should be irrevocable, unrestricted, valid and

preferably confirmed.

(iii) Expiry date of letter of credit should be allowed

against an expiry letter of credit.

(iv) The period for which the credit is sanctioned should

be clearly mentioned. It should normally cover only the

period for procuring, processing and sipping the goods.

(v) The bank officers should periodically inspect the

goods and verify that they conform to the quantity and

quality as mentioned in the particular letter of credit.

(vi) The export documents should be carefully scrutinized

at the time of negotiation to ensure that they are in

accordance with the terms of the letter of credit.



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(vii) It is desirable that the exporter should be asked to

obtain cover of export credit guarantee scheme launched.

Post-shipment Finance:

Post shipment credit is given to the exporters by the banks after the

actual shipment of the goods. The need for post-shipment finance

arise because exporters who sell goods abroad have to wait for a long

time before payment is received from overseas buyers. The actual

period of waiting depends on the payment terms. In the meantime, the

exporter needs funds to carry on his normal export activities. Banks are

the main source for the exporters to seek the finance.

Banks generally finance the exporters at post-shipment stage on

verification of the credit-worthiness and financial soundness of both the

buyers and sellers.

Post-shipment credit ordinary takes the following shape.

I. Negotiation of documents under L/Cs.

II. Purchase of Foreign Bill under D.P and D.P Bills.

III. Advance against Foreign Bill under collection.

Chapter -06

Foreign Exchange Remittance

5.0 Foreign Exchange Remittance:



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Remittance means sending of fund one place to another place, When

fund in transferred to or received from foreign country it is called

remittance. The word Foreign Remittance means that sending/

transferring of fund through a bank from one place to another place

which may be within the country or between two countries, one in

abroad is called Foreign Remittance.

Foreign Remittance means purchase and sale of freely convertible

foreign currencies as admissible Foreign Exchange Regulations Act-

1947 and Guidelines for Foreign Exchange Transaction VOL. 1&2 of

the country. Purchase of foreign currencies constitutes inward foreign

remittance and sale of foreign currencies constitutes out ward foreign

remittance.

5.1 There are two types of Foreign Remittance:

Foreign Inward remittance.

Foreign Outward remittance.

1. Inward Remittance:

The remittances which are received from abroad are called inward

remittance.

A. Purpose of inward remittance:



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Family maintenance.

Indenting commission.

Donation.

Gift.

Foreign investment.

Export proceeds.

Others.

B. Mode of Inward Remittance:

Telegraphic Transfer (TT)

Mail transfer (MT)

Foreign Demand Draft (FDD)

Payment order (PO)

Travelers cheque (TC)

Foreign Currency Notes.

2. Outward Remittance:

Remittances which are made from our country to abroad are

called outward remittance.

Mode of outward remittance:

Foreign Telegraphic Transfer (FTT)

Foreign Mail Transfer (FMT)



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2005 2006 2007

Total Income6877053

5

Total Expenditure5334762

2

Net Profit/Loss1542291

3

Total Deposit:-

Current Deposit3150002

8

Sundry Deposit4906746

5

Savings Bank Deposit5569977

3

Fixed Deposit3910977

79

Short Terms Deposit1926446

1

Special Saving Scheme6093594

2

Special Deposit Scheme3294229

0

TotalDeposit Tk

640507740

Total Loans & Advances5623007

79

Cash In Hand 3540677Bills Payable 3570354

Interest In Deposits1933192

3

Interest Suspense 1341367


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A. The office space of CBCL, Agrabad branch is not sufficient enough.

B. Foreign Exchange Section is one of the busiest sections in Bank.

Sometimes it is found all works are not performed efficiently due to

lack of sufficient officials.

C. Training facility isnt sufficient especially of the lower officers. The

advertisement of CBCL in TV, Newspaper or in any mass media is not

available.

D. Application of modern technology such as computerization is not

sufficient.

E. It is uncomfortable weather when electricity has not here, and Air

conditions are off.

F. CBL, Agrabad branch has no reception section and desk.

G. In this branch there is lack of sufficient equipment.

H. Since has two floor, overseeing the job of others is very difficult.



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Chapter -8

Recommendation & Conclusion

8.0 Recommendations:

On the basis of the problems the followings suggestion are given bellow:

A. CBCL has to pursue a new marketing strategy which will attract more

clients and thereby increase the Deposit.

B. CBCL should provide an effective training program for the junior level

officer as though they can perform their task efficiently.

C. CBCL should use modern banking system ie, designing a good physical

lay out of the branch so that they can improve their customer satisfaction.

D. Sometimes General banking department is found so busy that they cant

perform the entire task more efficiently (preparing voucher, various entry

in registration book etc.) due to lacking of officers/staff. CBCL should

recruit more people for his section.

E. A portion of customers suggested that at least in the busy branches there

should be a separate counter for woman.

F. The reduced lending interest rate and long term tenure policy might

attract more customers to expand the business of consumer banking.



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G. Proper marketing policy is essential for establishing the idea of CBCL &

tries to develop projects, which ensure the increase of public relation.

8.1 Conclusion:

The banking sector plays an important role in modern society and Foreign banks

have made more competitive, diversified and dynamic compare to traditional

banking system. Every day new competitors appear into the industry with better

innovative ideas, products and services. In banking sectorCommercial Bank

of Ceylon Limited is a name of trust, now it is an icon of best services.

Despite stiff competition among banks operating in Bangladesh, both foreign and

local and CBCL has achieved satisfactory progress in areas of its operations and

earned an impressive operating over the previous years. The bank hopes toachieve a satisfactory level of progress in all areas of its operations including

target of profitability during the year 2005. Certainly CBCL is mobilizing its all

resources on this same track to achieve maximum possible contribution to the

nation.

During the three month internship program at CBCL, Agrabad branch in first, has

been arranged for gaining knowledge of practical banking and to compare this

practical knowledge with theoretical knowledge. Comparing practical knowledge

with theoretical involves identification of weakness in the branch activities and

making recommendations for solving the weakness identified. However, highest

effort has been given to achieve the objectives the internship program.



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Day by day its idea of serving is increased all over the country through setting up

new branches at new places.

Wishing total success ofCommercial Bank of Ceylon Limited, Agrabad

Branch, Chittagong.

Appendix

Bibliography

A Text Book on Foreign Exchange Chowdhury L. R.

Annual Report- 2005, 2006 of CBCL.

ICC Guide to Documentary Credit Operation for the UCP 500

CBCL, Training Book on Foreign Exchange

Statement of Affairs of CBCL, Agrabad Branch, Ctg-2005.

Internet searching on CBCL official web page.



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6. Chapter--1 to 8 (Report)

Documents

Transcript of 6. Chapter--1 to 8 (Report)