MOHAMMAD RAYHAN UDDIN
LL.B (HONOURS), LL.M. MBA
CELL NO: +88 01914 676110
LL.B (HONOURS), LL.M. MBA
CELL NO: +88 01914 676110
Foreign Exchange
Definition Of Foreign Exchange :
All claims to foreign currency payable abroad, whether in the form of balances held with banks abroad, or bills of exchange, cheques drafts, securities and similar instruments payable abroad in foreign currency are termed foreign exchange.
Service Of Foreign Exchange Department :
EXIM Bank plays an important role in international payments. For this purpose EXIM Bank deals in foreign exchange and maintains a foreign exchange department. The basic function of foreign exchange department is to convert foreign currency into local currency for customers. Who have received remittances from abroad and convert local currency into foreign currency for those who have to remit money abroad so banks with foreign exchange departments have branches and other countries. Wherever it has no branches of their own, they maintain accounts with such banks which have branches and which agree to act as their agents in those centers. Banks acting as agents of other banks are called ‘correspondents’. The foreign exchange department in located at the head office of the bank.
EXIM Bank Khatungonj branch are allowed to do foreign exchange business under the supervision and direction of the foreign exchange department at the head office. Instructions regarding buying and selling rates are given to the branches by the head office daily by foreign exchange transactions of the day.
Activities Of Foreign Exchange :
There are three kinds of foreign exchange transactions :
1. Import.
2. Export.
3. Remittance.
Documentary Credit :
A documentary letter of credit is one, which is undertaken by the issuing Bank to honor the documentary bills. Documentary bills may be bill of lading, bill exchange, insurance cover note and document, consular invoice, certificate of origin, Performa invoice etc.
The following five major steps are involved in the operation of documentary credit:
1. Issuing.
2. Advising.
3. Amendment.
4. Presentation.
5. Settlement.
Foreign Remittance :
Foreign Remittance refers that the exchange of money between two countries or among several countries. This is mainly occurred through banking institution. It performs the remittance function with different countries.
It maintains the foreign remittance in the following form :
§ Foreign Demand Draft.
§ Inward.
§ Outward.
Telegraphic Or Telephonic Transfer (T.T.) :
Telegraphic or Telephonic Transfer (T.T.) is the most common form of remittance of money between countries. A T.T. is an order for payment on money sent by telegraph or telephone.
Demand Draft :
It is same as T.T. of transferring funds from one country to another a bankers draft is drawn by the bank or its foreign branch or correspondent and is sent by the buyer to the payee who collects the money directly or through his own bank.
The bankers draft has two weaknesses :
a) It involves delay.
b) It may fall into wrong hands and hence it is necessary to take precautions.
Issue Of Travelers Cheques :
Bank issues travelers cheques denominated in foreign currencies and will capable or wire funds anywhere a customer designates.
Import
Under the import policy of Bangladesh the importer must have valid Import Registration Certificate (IRC) from the Chief Control of Import & Export (CCI&E).
Import Procedures Including Registration :
To carry on the business of import, the first thing one needs registration with the licensing authority of the area. To get this registration the interested person/institution submits the application along with the following papers/documents directly to the Chief Controller of Imports and Exports or respective zonal office of CCI&E :
1. Income tax registration certificates.
2. Nationality certificate.
3. Certificates from Chamber of Commerce and Industry or Registered Trade Association.
4. Bank solvency certificate.
5. Copy of trade license.
6. Any other document if required by CCI&E.
Opening of Letter of Credit :
Letter of Credit is an undertaking issued by a bank on behalf of to the buyer, to pay the beneficiary the value of the draft and/or documents provided that the terms and conditions of the credit are complied with. The bank, which opens or issues L/C, is called L/C opening bank or Issuing Bank.
On receipt of the Importer’s L/C Application supported by the firm contact (indent / Pro forma Invoice) and Insurance Cover Note, the Bank scrutinizes the same thoroughly and fix up a margin on the basis of banker-customer relationship.
Letter of Credit (L/C) Opening Formalities :
1. Application
2. Original IRC (to be retained by the L/C opening Bank)
3. Photocopy of Trade License
4. Photocopy of T.I.N. Certificate.
5. Photocopy of Membership Certificate of Chamber of Commerce & Industry
6. Photograph of the applicant.
7. Minimum three copies of Pro forma Invoice/Indent/Sale Contract (duly accepting the rate of goods offered)
Upon satisfaction of the bank authority and after setting down the official bargaining regarding fixation of Margin, L/C opening formalities follows by obtaining :
a) L/C Application form duly signed with a Tk.150 adhesive stamp affixed.
b) LCA (Letter of Credit Authorization) Form duly signed
c) IMP Form duly signed (along with VAT registration & IRC number)
d) Insurance Cover Note with Premium Paid Money Receipt, &
e) A Set of Charge Documents consisting of :
i. Demand Promissory Note (DP Note),
ii. Letter of Arrangement,
iii. Letter of Continuity, &
iv. Letter of Guarantee.
Having followed all the formalities above, the L/C will now get typed, thoroughly checked and signed by (two) Authorized Signatories and thereafter be mailed or transmitted.
LCA Copies :
q 1st Copy to retain by the Branch (for the purpose of reporting to Bangladesh Bank).
q 2nd Copy to send to Custom for goods clearance purpose.
q 3rd & 4th Copy to send to CCI &E office. CCI&E office to send the 4th copy to Custom for verification.
q 5th & 6ht Copy to retain by the Branch. Later 5th copy to send to Exchange Control Department of Bangladesh Bank.
Vouching :
1. Dr. Party Account ……………………………(Margin Amount)
Cr. S/Deposit A/C Margin on L/C (Cash)
Contra Voucher :
2. Dr. Customers Liability on L/C (Cash)
Cr. Bankers Liability on L/C (Cash)
Lodgment :
Bank receives the Documents which includes :
a) Bill of Lading (B/L) Truck Receipt (T/R)/Railway Receipt (RR)/Airway Bill (with shipping mark, if any)
b) Bill of Exchange.
c) Packing List.
d) Inspection Certificate.
e) Certificate of Origin of Goods.
f) Photo sanitary Certificate (in case of edible goods)
g) Consular Certificate (as substitute of Certificate of Origin and Inspection).
To scrutinize correctness of the documents whether or not as per the terms and conditions of the L/C:
q If found O.K. bills lodged.
q If found discrepant, for rectification immediately inform :
i. The Negotiation Bank.
ii. The Importer.
Bills Lodged upon rectification of the discrepancy(s).
Lodgment Vouching :
A. Dr. PAD ……………………(Full invoice value)
Cr. I.D.H.O. A/C Re-imbursing Bank.
B. Dr. S/Deposit A/C margin on L/C (Cash)
Cr. PAD
C. Dr. Bankers Liability on L/C (Cash)
Cr. Customers Liability on L/C (Cash)
D. Dr. Adjustment of PAD A/C.
Cr. PAD Amount with interest A/C.
Financing In Import Of EXIM Bank:
The post import finance extends the import credit in the following forms :
§ PAD (Payment against document).
§ LTR (Loan against trust receipt).
Payment Against Document :
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. If after 21 days the importer does not take the documents, the Bank may sell the imported goods to recover the given amount.
Export
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 exporters.
Financing In Export Of EXIM Bank :
An exporter is one who exports the goods to another customer whether in domestic or in abroad. In exporting the stipulated goods he may require financing. So export financing may be required at two stages :
§ Pre Shipment credit.
§ Post Shipment credit.
Pre Shipment Credit :
Pre shipment credit is the credit, which is given to finance the export activities of an exporter for the actual shipment of goods. The purpose of each credit is to meet the working capital needs from the procuring of raw materials to the transportation of goods for the export in foreign country.
Before sanctioning of the credit the Bank takes into consideration the credit worthiness, export performance of the exporters together with all other information required for sanctioning the credit in accordance with the existing rules & regulation.
Export Cash Credit (Hypothecation) :
Under this arrangement the Bank sanction the Loan to the first class exporter because 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 not the possession is passed to it.
Export Cash Credit (Pledge) :
Under this arrangement the Bank advance Loan to exporter against pledge of raw materials or exportable goods. The exporter surrenders the physical possession of goods under Bank’s effective control till the payment of dues to the Bank as security. If the exporter does not able to pay the Loan the Bank can sell the exportable goods to recover the amount.
Back To Back Letter of Credit :
Under this arrangement the Bank Finance export business by opening a letter of credit on behalf of the exporter who has received a letter of credit from the overseas buyer but not actual manufacturer or producer of these exportable goods. Since the second letter of credit is opened on the strength of & backed by another letter of credit, it is called “Back to back” credit. The need for a back-to-back letter of credit arises because the beneficiary of the original letter of credit may have to procure the goods from actual producer who may not supply the goods unless the Bank guarantees its payment.
Prompt Service For Opening L/C :
After submitting L/C application in EXIM Bank one can get L/C copy with in one hour where as, in Government Bank take time about three days for the same purpose. But time is closely related to export and import. For the prompt service many importer and exporter choose to open L/C in EXIM Bank. EXIM Bank always welcome new importer and encouraged their entrepreneurship. The bank always acts as a consultant and provides necessary suggestions. What types of goods are profitable? Which has demand in various countries of the world? From which country or company can bought goods or products? In which company has goodwill in country? What is the national interest rate? Every information bank provides to the customer. So that, the importer can able to take wise decision. When a customer fell necessity to open L/C, EXIM Bank always ready to give the sincere co-operation to filling the application, collecting credit report of foreign supplier through their correspondent or through Telex. As a result the purpose of import and export serve without fail and loosing time.
Modern Equipments Which are using in Foreign Exchange :
The Modern Equipments are : FAX, TELEX, COMPUTER, SWIFT
§ FAX :
FAX is the most modern instrument used for sending massage in a form of letter from one place to another through out the world. A telephone set is interlinked to the fax machine. At once a message in a form of letter passes through the fax machine with in one or two minutes. Soon the message reaches to the address through the satellite. Through this latest achievement, bank rendered its services very quickly specially in Foreign Exchange Department.
§ Telex :
Telex is also used for transacting message (L/C) from one place to another through out the world. It is also used for mass communication the bank.
§ Computer :
It is used for counting in the field of banks. All printing works are done with the help of Computer. Computer solves much complex works.
§ SWIFT :
SWIFT (Society World Wide Inter Bank Financial Telecommunication) is a modern technology on foreign Exchange Transaction. It is expensive also. It is the quickest method of transmitting message (L/C). L/C transmission and received in quickest possible time. L/C prepared in a specific format, in the worldwide. Through SWIFT, Customer service can be ensured in accordance with western country.
Funded & Non-Funded Credit :
Credit/ Advance Department is an important functional department of EXIM bank of Bangladesh. This department maintain the loan facility for customer. There are various types of loans and advances through which the banker exercises his function of lending. The types of loans and advances mainly depend upon the purpose for which the same are provided. These loans and advances which in short can be called as the “Credit Facility” may either by Funded or Non-Funded as specified below :
Purpose
|
Funded
|
Non-Funded
|
1. Working capital Finance (Trading, Manufacturing & Against work Orders).
2. Local Finance for Specific Deal.
3. Import.
4. Export.
5. For participating in or Performance of Contracts.
|
1. Overdraft
2. Time Loan
3. Term Loan
4. trust Receipt facility (T.R.)
5. LIM
6. Packing Credit (P.C.)
7. Short Term Advance
8. FBP
|
9. L/C
10. Back to Back L/C
11. Letter of Guarantee.
|
Trust Receipt Facility (T.R.) :
This type of loan is also connected with import facility and is only provided to very selective clients only.
Sometimes as per earlier arrangement or under compelling situation EXIM Bank allows its valued clients to retire the L/C documents without adjusting the PAD. The documents are provided to the client after transferring the outstanding liabilities to T.R. account.
The loan is provided for 30/60/90 days and client has to execute Letter of Trust Receipt (LTR) along with other documents. This type of loan is extended purely on the goodwill of the client.
LIM :
Loan against Imported Merchandise (LIM) is also commented with import facility. As per pre-arrangement or under forced situation when the client is unable to retire the L/C documents, Bank may clear the imported goods from customs and store it in Bank’s godown. LIM is given for maximum 30 days within which client has to adjust the liability and take delivery of the imported goods from Bank’s Custody.
The LIM amount consists of the outstanding import liabilities (PAD) and at time also is inclusive of Duty, Sales & Tax etc. the imported consignments pledged to the Bank provide with the primary security, which is sometimes collateralized by equitable mortgage of property.
Packing Credit :
Packing Credit (P.C.) is provided to the client against confirmed export orders (Export L/C) covering maximum 90% of the value of the order. As the name implies this type of loan is provided to procure & process the raw materials for making finished goods to be exported.
This loan is provided at reduced interest rate as per Bangladesh Bank’s instruction. However, Bank can avail refinance subsidy from Bangladesh Bank to compensate the reduced interest rate. The packing credit is adjusted through the export proceeds.
The Export L/C becomes primary security for the loan. The loan is sometimes collateralized by equitable mortgage of property. In any case Export Finance Guarantee from sadharan Bima Corporation has to be obtained before the claim is disbursed.
Bank Guarantee :
Bank Guarantee is also a non-funded facility provided to the client. Bank on behalf of the client undertakes to pay agreed amount of money at certain time if client fails in due performance.
Bank Guarantee is generally provided in Lieu of earnest money for bidding in tender by the client (Bid Bond) or as guarantee for due performance of contracted work (Performance Guarantee).
The Bank generally provides guarantee facility for maximum one year. Usually 10%-25% margin is obtained from the client against the guarantee amount.
Processing & Appraisal of Loan Settlement :
The banker has to take following steps for Loan Settlement :
Step-1 : The first step is ‘Attitude Measurement’ of the client. This step starts when a customer enters into the Bank and ends when he gets Loan amount. This is a disguised and unstructured method.
Step-2 : The bank has to examine proposal, which is in accordance with the banking regulation.
Step-3 : The check-up credit registration schedule of Bangladesh Bank and Head Office current credit policy guidelines. Bank could reject proposal if it conflicts with the existing credit restrictions of Bangladesh Bank Head Office policy guidelines.
Step-4 : To visit the business establishment of the client. The particulars information and figures in the application form with the original documents paper send be sanguine about its genuineness and correctness obtained additional information, particulars and facts and figures if required.
The Bank should talk to the business and important personalities of the locality to ascertain the honesty, integrity and business dealings of the client.
Step-5 : The bank has to obtain report from the credit information bureau ( C1B) of Bangladesh Bank through Head Office credit division as per instruction circular of Head office in this regard.
Step-6 : The bank has to obtain declaration of the client about his liability (both contingent and real) with other bank/financial institution/leasing companies, including any other branches of EXIM Bank.
Step-7 : The bank has to obtain financial statement/ Balance sheet of the client for the last three consecutive years. This is to be furnished by all clients irrespective of their status; individual, proprietorship, partnership, private/ public Limited company, trust body etc. engaged in business.
Step-8 : The bank has to inspect land, buildings, other asset and properties proposed to be mortgaged on Hypothecated. Ascertain prima-facie genuineness and correctness of those in cross-references to documents, title deeds and other relevant papers. As certain primarily the market value and the forced sale value of the proposed collateral.
Step-9 : The bank has to forward documents, Title deeds and other relevant papers to the approved lawyer of the bank for examination and furnishing his opinion.
Step-10 : The bank has to follow carefully the following in the appraisal form against each item:
a) Whether the goods, which the client intends to purchase, are readies reliable and have consultant and effective demand in the market.
b) Whether the price of the goods is subject to frequent and violent changes.
c) Whether the goods are perishable on short or long-term duration.
d) Whether the quality and other specifications of the goods as desired by the client can be ensured.
e) Whether the goods are available “the market and the Bank will be in a position to purchase the goods in time and at negotiable price.
f) Whether sale price of the goods is payable by the client at specified future date in Lump sum or in installments as per proposal.
Note: Market price and cost price should be carefully studied by the credit committee and property recorded, verified and signed.
In course of preparation of the Appraisal Report it is requested to ensure in corporation of all information, particulars, figures and statistics in appraisal form correctly with special attention to the following:
i. Composition of asset of the client, cash, goods investment, buildings, landed property etc.
ii. Extent and nature of liabilities of the client whether the volume is with in the manageable capacity of the client. Opinion in this regard and justification there of must be clearly mentioned.
iii. The Value of liquid asset, cash and book debt of the client.
iv. Respectability and business reputation of the client in the market.
v. Experience of the client in the business.
vi. Where the goods will be stored and the same will be sold. Whether the arrangement is satisfactory and Banks interest will be protected properly.
Additionally the bank is advised to contact primarily with the products/ sellers/ suppliers of the goods in the market, study the market price and work out the purchase and sale prices of the goods as per following guidelines and ascertain whether the purchase of the goods by the client from the bank will be profitable to him and the client shall be able to play pay the price of goods to the bank with in the due date.
Overdraft Facility :
Overdraft facility refers to the opportunity of withdraw money more than deposited money by current account depositors. EXIM Bank gives overdraft facility only the familiar and faithful customers. Of course, for offering such facility order of authority of the bank is needed. Sometimes, the bank provides overdraft facility by receiving documents, despite account is willed. These documents are :
ü Demand promissory Note.
ü Letter of Continuity.
ü Letter of Arrangement.
ü Letter of Disbursement.
But Demand Promising Note and Letter of Continuity are compulsory needed among the four documents. Other documents vary from bank to bank. Letter of Arrangement is also regarded as Letter of Agreement. There is certain duration for overdraft money. Interest has to be paid against overdraft.
Time Loan :
Time loan is generally provide to the client where finance is required for a specific business deal. The loan is disbursed in one or two installments and to the some has to be adjusted within a year in lump sum otherwise installments as per specific repayment dates. Separate time loan account is created depending upon the purpose, time loan is generally secured by mortgage of properties.
Term Loan :
Term loan is only provided in selective cases in the bank. The basic characteristics of the loan is almost the same as loan except that the repayment period is more than one year.
The Purpose Of Bank Credit :
Bank Credit plays an important role to the present hard competition business world. It influences almost all the branches of trade and commerce Bank actually provides credit facility in order to expand trade & commerce. But there are several specific purposes of Bank credit.
They ensure the safety and liquidity of their funds by granting loans for productive purpose only for meeting working capital needs of a business enterprise. Loans are not advances for speculative and unproductive purposes like social functions and ceremonies for the repayment of a prior loan. Loans for capital expenditure for establishing business are of long-term nature and the banks grant such term loans also.
Necessary documents for Loan Settlement :
A. For SOD Against F.D.R./ Saving Scheme/ General Loan :
i. Demand Promissory Note,
ii. Letter of Arrangement,
iii. Letter of Lien,
iv. Letter of Continuity.
B. For SOD General, Cash Credit Hypothecation :
i. Demand Promissory Note,
ii. Letter of Arrangement,
iii. Letter of Hypothecation,
iv. Letter of Continuity,
v. Supplementary Arrangement.
C. For Staff Loan :
i. Demand Promissory Note,
ii. Letter of Undertaking,
iii. Letter of Authority,
iv. Letter of Installment,
v. Letter of Disbursement,
vi. Letter of Arrangement,
vii. Letter of Hypothecation,
viii. Supplementary Letter of Hypothecation/ Pledge.
D. For Public Limited Company :
With the above documents “Personal Guarantee” of all directors is necessary.
Documents are Required For Procuring A Credit Proposal :
1. Balance sheet for last 3 years.
2. Memorandum & Articles of Association signed by Chairman.
3. Bank Statement for last 2 years.
4. Profile of Directors.
5. List of Directors with position of the Company & Owners.
6. Present Liability Position of the company & Owners.
7. Up to date trade License.
8. Export Performance.
9. Import Performance.
10. Previous Performance of work completed for last 3 years.
11. Application for Credit facilities in prescribed format.
Lending Risk Analysis Related :
i.Bio-data of all Director/ Partners.
ii. Name, annual sales & Profit of 5 largest competitions for last 3 years.
iii. Industry turns over of last 3 years.
Security Related :
1. Up to date rent receipt.
2. Copy of chain of documents.
3. Photocopy of Title Deeds.
4. C.S & R.S. Khatian.
5. Mouza Map.
6. Valuation Certificate from concern authority.
7. Layout plan incase of building.
8. Photographs of the mortgagor duly attested by borrower in case of 3rd party mortgage.
9. Photograph of property.
Disbursement Of Loan :
After getting necessary documents, Banker performs all necessary steps for procedures and appraises loan settlement. EXIM Bank needs 7-15 days for sanctioning a industrial finance and other project loan.
Advance of EXIM Bank, Jubilee Road Branch, Chittagong :
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