Opening, Lodgment and Retirement Procedures and Performance of Prime Bank Limited

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An Internship Report On Letter Of Credit Opening, Lodgment And Retirement Procedures And Performance LimitedOf Prime Bank Limited- An Analysis A Report Submitted In Partial Fulfillment Of The Requirements For The Degree Of Bachelor Of Business Administration Supervised By Md. Mehadi Masud Lecturer Faculty of Business Studies Department of Accounting & Information Systems University of Dhaka Prepared By Mohsina Akter Roll-11124 Section-B, Batch-11 Faculty of Business Studies Department of Accounting& Information Systems University of Dhaka November 10, 2009 November 10, 2009 Md.

Mehadi Masud Lecturer Department of Accounting & Information System, University of Dhaka. Subject: Submission of Internship Report. Dear Sir, With due respect, me, Mohsina Akter, would like to inform you that, it is a great pleasure for me to submit the report on “LC Opening, Lodgment, Retirement Procedures and Performance of Prime Bank Ltd: An Analysis”, as a requirement for BBA program. I have tried my best to submit a good report with as much information as could gather during the short time span allotted for preparing the report. There might be some error through oversight in the report.

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I sincerely regret for such unintentional errors. I would be grateful to you if you kindly consider my unintentional mistakes. I acknowledge with thanks the wholehearted support & kind guidance received from you. So I hope that you would be kind enough to accept my Internship Report & oblige thereby. Thank you again for your heartiest co? operation. Yours sincerely, Mohsina Akter Roll-11124 Section-B, Batch-11 Dept. of Accounting and Information System University of Dhaka Acknowledgement I would like to acknowledge with considerable appreciation those who have contributed to complete my internship program and final internship report.

First of all I would like to convey my salutation to Almighty Allah for enabling me to complete the report with sound health. My special gratitude and thanks goes to my respected supervisor who motivated me to choose this topic. He helped me in every step of my internship & report writing by giving proper guidance, advice & inspiration. Thanks to all other respectful & honorable teachers of the Department of Accounting & Information Systems, University of Dhaka. I want to express my special thanks to all employees of SBC Tower Branch, Prime Bank Ltd where I was joined as an internee.

Here again I have to mention some persons who received me as a member of their banking family and provided me continuous guidance, valuable knowledge and suggestions during my Internship program. I would like to extend my gratitude Md. Nazrul Islam (First Assistant Vice President), Syeda Rezwana Begum ( Principal Officer), Arshed Mahmud (Management Trainee) & all other officials of SBC Tower Branch. I did not learn only professional insights, but I learned how to work in pressure, how to have patience in hurdles, how to behave with the seniors and how to help the juniors.

Last but not the least, I express my overall gratitude to my department that provided me the chance to be familiar with the real organizational environment and practically experiencing the procedure practiced at PBL in import transaction. Preface The report is the outcome of the internship program under the Bachelor of Business Administration Course (BBA) of the Department of Accounting and Information System (AIS) of University of Dhaka organized at Prime Bank Ltd, SBC Tower Branch, Dilkusha C/A, Dhaka1000.

During the period of three (3) months objective of the internship program was to familiarize the student with the practical implementation of the knowledge provides the theoretical aspects of the practical life. It is my pleasure to submit my internship report titled “LC Opening, Lodgment, Retirement Procedures and Performance of Prime Bank Ltd: An Analysis”. While preparing this report, I have tried to gather as much information as possible & to gather all the information pertaining the report to enrich it. I believe that it was a fascinating experience to work live in the banking sector & it has enriched both my knowledge & experience.

The present report is not free of limitations. There might have problems regarding lack and limitation in some aspects and also some minor mistakes such as typing mistakes. Regard, Mohsina Akter Roll-11124 Section-B, Batch-11 Dept. of Accounting and Information Systems University of Dhaka Executive Summery From the inception of of the civilization a country the banking sector has been dominating the economic development by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth.

To satisfy the demand as well as to improve the commercial banking service in our country, Prime Bank Limited, a scheduled bank was incorporate to initiate its operation with the aim to play the vital role on the socio economic development of the country. At present Prime Bank Ltd (PBL) is one of the leading private sector banks in our country in terms of quality services to the customers & value addition for the shareholders. Financial Soundness of any financial institution is the prime concern for its survival in the competitive & changing business environment. This is more important in case of the banking nstitutions. Prime Bank Limited is a fast growing bank and several times it occupies the first position in CAMEL rating. I was assigned to PBL, SBC Tower Branch. I have studied “Import Section of Foreign Exchange Department”. While preparing this report I have tried to reveal the insight of the import banking services of the bank. Simultaneously efforts have been made to provide an in-depth analysis on L/C opening, lodgment, retirement procedure and performance of PBL. Finally some recommendations and suggestions were also prescribed based on observations and findings.

The report is mainly divided into two Parts-Organization part & Project part. Organization part reveals an overview of PBL. Details of L/C and a performance analysis of PBL have been described in the project part. No doubt that the yearly growth of import L/C opened in PBL is satisfactory. But I think there are opportunities to earn more profit. PBL should carefully scrutinize the quarterly performance along with estimating the annual gross amount of L/C opened. No research cell is available here to work for this.

I recommend taking some experienced marketing officers and executives in marketing division who has experience regarding bank product specially L/C. I do hope that my study will be helpful for the future operation of the import section of PBL. Abbreviation Abbreviation A/C B/E B/L BTB CIB CAMEL : : : : : : Account Bill of Exchange Bill of Lading Back to Back Credit Information Bureau Capital Adequacy, Asset Quality, Management Quality, Earning & Liability CCI & E CAD CIF D. A FDBP FDBC EXP ERC EPB ETDA ETCA EPS EPB FER FTT HP ID IDBP IDBC ITC IRC : : : : : : : : : : : : : : : : : : : : :

Chief Controller of Import & Export Cash Against Document Cost Insurance And Freight Document Against acceptance Foreign Document Bill Purchase Foreign Document Bill Collection Export Form Export Registration Certificate Export Promotion bureau Export Transaction Debit Advice Export Transaction Credit Advice Earning Per Share Export Promotion Bureau Foreign Exchange Regulation Foreign Telegraphic Transfer Hire Purchase International Division Inland Documentary Bill Purchase Inland Documentary Bill Collection International Trade Control Import Registration Certificate L/C LCAF LIBOR PC PBL PRC PAD PI RMG ROA SWIFT : : : : : : : : : : Letter Of Credit Letter of Credit Authorization Form London Inter bank Offer Rate Packing Credit Prime Bank Ltd Proceed Realizatrion Certificate Payment Against Document Pro forma Invoice Readymade Garments Return On Assets Society For Worldwide Inter Bank Financial Telecommunication. TIN TT TR UCPDC : : : : Tax Identity Number Telegraphic Transfer Trust Receipt Uniform Customs & practice for Documentary Credit Table of Contents TOPICS Letter of Transmittal Acknowledgement Preface Executive summery Abbreviation PAGES (i) (ii) (iii) (iv) (v) Chapter 01-Introduction . 1 Origin of the report 1. 2 Organization of the report 1. 3 Objectives . 1. 1. General Objectives . 1. 2. Project Objectives 1. 4 Literature Review 1. 5 Scope of the Report 1. 6 Methodology 1. 6. 1 Primary Sources 1. 6. 2 Secondary Sources 1. 7 Limitations Chapter 02-Organization Part 2. 1 A brief background- Prime Bank Ltd 2. 2 Details about the bank 2. 3 Corporate Information of PBL 2. 4 Organization Hierarchy of PBL 2. 5 Products and Services 2. 6 Capital Structure of PBL 2. 7 Management of PBL 2. 8 Department of PBL 2. 9Performance of PBL 2. 10 Future Outlook Project Part

Chapter 03- An Overview of SBC Tower Branch 3. 1 Introduction 3. 2Department within SBC Tower Branch 3. 2. 1 General Banking Department 3. 2. 2 Credit & Trade Finance Department 3. 2. 3 Foreign Exchange Department 3. 3 Hierarchy of SBC Tower Branch 3. 4 Job Performed at SBC Tower Branch Chapter 04-Foreign Exchange & L/C 4. 1 Introduction 4. 2 Foreign Accounts 4. 3 Letter of Credit 4. 4 Significance of L/C 4. 5 Parties of L/C 4. 6 Types of L/C 4. 7 Instructions issued by Bangladesh Bank 4. 8 Operations of L/C Chapter 05-Import procedure of PBL 5. 1 Introduction 5. 2 Source of Finance 5. import Procedure Followed by PBL in Flowchart 5. 4 import L/C operation From Opening to Lodgment 5. 5 Lodgment of Import L/C 5. 6Retirement of Documents 5. 7 Post Import Financing Chapter 06- Analysis of the Performance of PBL & SBC Tower Branch Import Section 6. 1 Import Basket of PBL 6. 2 Budget & Actual Position Of import of SBC Tower Branch 6. 3 Quarterly Performance of L/C in SBC Tower Branch 6. 3. 1 Amount of L/C opened 6. 3. 2 Number of L/C Opened 6. 4 SWOT Analysis 6. 5 Findings Chapter 07- Concluding Part Recommendations Conclusion Bibliography Appendices Chapter One: Introduction 1. 1 Origin of the Report:

The BBA program is designed to focus on theoretical and professional development of students who are ready to take up business as a profession as well as service as a career. The course is designed with an excellent combination of theoretical and practical aspects. Classroom discussion can’t alone make a student perfect in handling the real job situation. Therefore it is an opportunity for the student to know about real situation through internship program. The primary goal of internship is to provide a job exposure to the student and an opportunity for translation of theoretical conceptions in real life situation.

In this connection, after completion of four-year academic BBA program I was assigned to Prime Bank Ltd, SBC Tower Branch, import section of foreign Exchange Department under the guidance of my faculty advisor Md. Mehadi Masud, Lecturer, Department of Accounting & Information System. The duration of my organizational attachment was, Three (3) months. As a requirement for the completion of the program I needed to submit this report, which would include an overview of the organization I was attached with and an elaboration of the project I was supposed to conduct during the internship period. . 2 Organization of the report: The report is mainly divided into two major parts: The Organization part: This part includes the company profile, different products and departments of PBL, i. e. an overall idea about the bank The Project part: The project part is based on the Foreign Exchange operations of PBL, SBC Tower Branch. The report dictates about the procedures and methods followed by PBL in handling of Letter of Credit and other foreign exchange transaction . The risk associated with these transactions and the strategies followed by PBL to overcome those, have also been included.

Finally, a performance of Prime Bank Ltd has been analyzed. 1. 3 Objectives: 1. 3. 1 General Objectives: In this report I tried to find out all sorts of practical dealings that are conducted in case of handling various types of commercial banking activities especially the import transactions. Here the theoretical aspects hat is what should be the procedures and requirement maintained from first to last, and actual practice as well as the ultimate gain for the bank in conducting financial activities are mainly discussed. I tried to show various graphs by which data and information has been presented.

General objective of this report is to know about the management system of Prime Bank Ltd as a private commercial bank as well as its formation, and its functional, operational and financial aspects. 1. 3. 2 Project Objectives: To present an overview off Prime Bank Ltd. To make a bridge between the theories and practices on banking operations. To be familiar with day to day functioning and service offered by a commercial bank. To know about the international trade financing activities To acquaint me with the techniques, laws, principles and procedures adopted in financing foreign trade off Bangladesh.

To know about the functions of the Foreign Exchange Department especially the opening of LC & the procedure of lodgment & retirement of import bills. To observe and analyze the performance of the specific branch and the bank as a whole. Finally, to identify problems of PBL and provide subsequent recommendations. 1. 4 Literature Review: Import Policy directs Import Procedure, which administers the whole activity. Due to organized and specific prescribed rules and standards set by the government very few worked with the procedures of L/C opening, lodgment and retirement.

Some works have been done about the performance of PBL’s import section. Kaysar Joseph (2006) finds L/C margin discriminations among the customers is the main constraint of less import L/C customer. He also says e-mail should be used side by side of SWIFT to reduce the cost of taking L/C services. Nowrin Sabrina (2006) in her study describes how manually maintained works hampers the overall operating efficiency of the bank. She finds the signatures; either of the bank officer’s or the importers are verified manually. For this purpose the signature handbooks that are given by the head office are followed.

Sometimes the needed sign are not present then it takes a long time. Again sometimes the officer may be misguided. Ronjon Nihar (2005) says there are intranet facilities available in Prime Bank Limited. The officers have to give extra time to adjust the On-line Transaction. He recommended Intranet should be implemented to make the on–line service smooth and to increase the efficiency of work. 1. 5 Scope of the report: This report covers the details of Prime Bank’s practices about foreign exchange activities emphasizing” LC opening , Lodgment, Retirement Procedures and Performance of Prime Bank Lt- An Analysis”.

This report consists of my observations and on the job experiences during the internship period in the import section, Foreign Exchange Department of SBC Tower branch. This report emphasizes on the activities of Prime Bank Ltd in the Foreign Exchange Department especially details procedures of L/C related activities. 1. 6 Methodology: This report is based on the primary and secondary data. This report also bears the practical knowledge of individual worked during the internship period. So the methodology is the mixing of primary and secondary data with practical knowledge.

Most of the necessary information has been collected by face to face interview with the people working in different departments, personal investigation, several documents, and files in which most of the activities of the bank are recorded. Observational method and experience has been employed to complete this report. 1. 6. 1 Primary Sources: Major source of information were discussions with the officers of Foreign exchange Department Informal conversation with the clients. Practical work exposure from the different desk of Foreign Exchange Department of the Branch. . 6. 2 Secondary Sources: Annual Report of Prime Bank Limited. Foreign Exchange Manual. UCPDC Articles, ICC Articles. Periodicals published by Bangladesh Bank. Training material collected from the bank. Daily diary (containing my activities of practical orientation in PBL) maintained by me. Various books, articles, compilations etc regarding Foreign Exchange Operations. 1. 7 Limitations: There were certain limitations regarding the study that is summarized below: Sometimes I was assigned to do some jobs without explaining why this work was to be done.

This situation has created a lot of problems to understand why a specific function is being performed. Large-scale research was not possible due to constraints and restrictions imposed by the organization. For example, the bank does not care about seasonal fluctuation of the amount of L/C opening of a particular sector rather it cares the total amount of L/C Deficiencies in data in a systematic way (sector wise data of L/C opening) required for the study. Moreover I had to work with two year’s data, which I think is not sufficient for this type of study.

In many cases, up to date information is not published. Large-scale research was not possible due to time constraints. The tenure of the Internship program is only three months. Since Foreign Exchange is a vast area, after doing the regular office works from 9 AM to 7 PM it is not possible to go through in depth within this short span of time. Relevant date and document collection were difficult due to the organization confidentiality. For the restrictions imposed by the bank I could not go for details survey on the customers. SBC Tower Branch is a new branch.

It launch at the end of 2006. So it is not possible for me to go through details research because of lack of details data for a longer period of time. TwoChapter TwoOrganization Part 2. 1 A Brief Background – Prime Bank Limited: To satisfy the demand as well as to improve the commercial banking service in our country, The Prime Bank Limited, a scheduled bank, was incorporated under the Companies Act 1994, initiated its operation on April 17, 19995 with target to play the vital role on the socioeconomic development of the country.

It availed its registration as a banking company under the Banking Company Act, 1993 from the Bangladesh Bank dated February 12, 195. It started to make profit from the inception year. Aiming at offering commercial banking service to the customers’ door around the country, the Prime Bank Limited established 73 branches all over Bangladesh up to this year. It carries out all the banking activities through its branches in Bangladesh. Out of the above, five branches of the bank are run under Islamic Shariah, the modus operandi of which is substantially different from other branches run on commercial conventional basis.

The Bank is listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited as a Publicly Quoted Company for its general class of shares. This organization achieved customers’ confidence immediately after the establishment in domestic and international markets. The bank has been successful in positioning itself as progressive and dynamic financial institution in the country within this short time. It is now widely acclaimed by the businesses community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution.

Thus, within this short period of time, it has been able to create a unique image for itself and earned significant solution in the banking sector of the country as ‘a bank with a difference’. The emergence of Prime Bank Limited is an important event in the country’s financial sector at the inception of financial sector reform. The authorized capital of PBLL is Tk. 10,0000 million and paid up capital of the same bank is Tk. 2,844. 00 million. The present Chairman of the Bank is Ajam J Chowdhury.

The bank has made a reasonable progress due to its visionary management people and its appropriate policy and its implementation. The bank holds the first position in the CAMEL rating conducted by Bangladesh Bank. 2. 2Details about the Bank Salient features of PBL: Prime Bank is engaged in conventional commercial banking s well as Islamic banking based on Islamic Shariah Principles. It is the pioneer in introducing and launching different customer friendly deposit Schemes to tap the savings of the people for economy.

For uplifting the standard of living of the limited income group of the population, the Bank has introduced Retail Credit Scheme by providing financial assistance in the form of loan to the consumers for procuring household durables. The Bank is committed to maintain continuous research and development to keep pace with modern banking. Recently the bank starts internet banking in order to provide prompt and efficient services to the customers. The bank has introduced customer relations management system to assess the needs of various customers and resolve any problem on the spot. hanneling the same to the productive sectors of the Vision: “To be the best Private Commercial Bank in Bangladesh in terms of effiency, capital adequacy, asset quality, sound management and profitability having strong liquidity” Mission To build Prime Bank limited into an efficient, market driven, customer focused institution with good corporate governance structure. Continuous improvement in business policies, procedure and efficiency through integration of technology at all levels. Core Values: For CustomerTo provide the most courteous and efficient service in every aspect of its business.

To be innovative in the development of new banking products and services. For EmployeesBy promoting their well-being through attractive remuneration and fringe benefits. By promoting good staff morale through proper staff training and development, and provision of opportunities for career development. For Shareholders – By forging ahead and consolidating its position as a progressive financial institution. By generating profits and fair return on their investment. For CommunityBy assuming role as a socially responsible corporate entity in a tangible manne.

By adhering closely to national policies and objectives thereby contributing towards the progressive of the nation. Upholding ethical values and practices. 2. 3 Corporate Information of Prime Bank Limited: * Memorandum and Articles off Association signed by the Sponsors * Incorporation of the Company * Certificate of Commencement of Businesses * License issued by Bangladesh Bank * License issued for opening the first Branch, Motijheel Branch * Formal launching of the Bank *Commencement of business from the Motijheel Branch. Initial Public Offering (IPO) * Listed with Dhaka Stock Exchange Limited * Listed with Chittagong Stock Exchange Limited * Trading of Shares on Dhaka Stock Exchange Limited * Trading of Shares on Chittagong Stock Exchange Limited * Dividend declared in the 5th AAGM (First after the IPO) * Registered as Merchant Banker with Securities & Exchange Commission * License issued from Bangladesh Bank as Primary Dealer * Registered as Depository Participant of CDBL * Trading of Shares started in Demat from in Stock Exchange * Completion of 10 years of service *Agreement with Temenos for Core Banking Software T24 * Incorporation of Prime Exchange Co.

Pte. Ltd. a subsidiary of PBL * Opening of off-shore Banking Unit at DEPZ, Saver, Dhaka February 05, 1995 February 12, 1995 February 12, 1995 February 20, 1995 April 08, 1995 April 17, 1995 December 18, 1995 August 29, 1999 March 27,2000 November 15, 1999 March 29, 2000 March 29, 2000 March 14, 2000 March 29, 2001 December 11, 2003 March 29, 2004 June 30, 2005 April 17, 2005 June 30, 2005 January 06, 2006 July 08, 2006 2. 4Organizational Hierarchy of Prime Bank Limited:

Managing Director (MD) Deputy Managing Director (DMD) Senior Executive Vice President (SEVP) Executive Vice President (EVP) Senior Vice President (SVP) Vice President (VP) Senior Assistant Vice President (SAVP) Assistant Vice President (AVP) First Assistant Vice President (FAVP) Senior Executive Officer (SEO) Executive Officer (EO) Principal Officer (PO) Senior Officer (SO) Management Trainee Officer (MTO) Trainee Assistant (TA) Officer (O) Junior Officer (JO) Organizational Hierarchy of PBL 2. 5 products and Services:

Based on customer satisfaction and popularity, Prime Bank Limited offers a large pull of Products and services to the customers. The Retail Products are divided into two main Categories a. Deposit Products b. Advance and Loan Products c. Other Products & Services d. a. Deposit Products Accounts 1. Savings Account 2. current Account 3. short Term Deposit Savings Scheme Fixed Deposit 1. Lakhopoti Deposit 1. General FDR Scheme 2. Contributory Savings 2. Monthly Benefit Scheme Deposit Scheme 3. Prime Millionaire 3. Double Benefit Deposit Scheme Scheme 4. Education Savings Scheme Table- 1: Depository products . Advance and Loan Products: Different Advance and Loan Products 1. Car Loan 2. Lease Finance 3. Hire Purchase 4. Marriage Loan 5. Any Purpose Loan 6. Education Loan 7. Working Capital Finance Table-2: Advance and Loan Products 8. Hospitalization Loan 9. Swapna Neer (Home Loan) Scheme 10. Loan against Salary 10. Travel Loan 12. Household durables Loan 13. CNG Conversion Loan c. Other Products & Services: 1. On Line banking 3. SWIFT 2. L/C Delivery Services 4. Locker Facility Table – 3: Other Products & Services 2. 6 Capital Structure of Prime Bank LTD: The Bank Capital fund is divided into two parts.

Tire-I and Tire-II capital. Tier-I includes the equity (paid-up capital, reserve and retained earnings) and Tier-II includes General Provision on unclassified loans and advances and exchange equalization account. Total capital fund increased by Tk 1,476 million during 2008. Tier I capital i. e Shareholders’ equity grew by Tk 1004 million and stood at Tk 6,265 million during the year under review. Total capital fund is equivalent to10. 88 percent of Risk Weighted Asset. The details of Capital Fund are given below: Tier-I Capital: Paid-up Capital Statutory Reserve Retained earnings

Figure in Million Taka 2008 2,844 2,366 1,055 6,265 2007 2,275 1,873 1,112 5,260 Tier-II Capital: 2008 1,040 328 6 90 126 4 1,594 7,859 2007 895 210 13 4 1,122 6,382 1 % General Provision on Unclassified Loans General Provision on Off-balance sheet item General Provision on Off-Shore Banking Units Revaluation Gains and Loses on investment Revaluation Reserve Exchange Equalization Sub Total Total Capital 2. 7 Management of Prime Bank Ltd: As a fully licensed professional bank, Prime Bank Limited is being managed by a highly professional and dedicated team with long experience in banking.

They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so the bank and its responsibilities itself changed in the market condition. In the bank, board of directors has the sole authority too take decision about thee affairs of the business. Now there are 14 directors in the management of the bank. All the directors have the good academic background and have huge experience in business. The board of directors holds meetings on a regular basis. There are different committees in the bank for the efficient management of the bank.

All these committees meet on a regular basis for discussing various issues and proposals submitted for decisions. The committees are: ? Board of Directors ? Executive Committee of the Board ? Policy Committee of the Board ? Credit Committee 2. 8 Department of Prime Bank Ltd: It would be very difficult to control the system effectively, if the jobs are not organized considering their interrelationship and are not allocated in a particular department. if the departments are not fitted for the particular works there would bee haphazard situation and the performance of a particular department would not be measure.

Prime Bank Limited has done this work very well. The departments are: 1. Human resource Department. 2. Financial and Administration Department. 3. Monitoring and Inspection Department. 4. Marketing. 5. Personal Relation Department. 6. Merchant Banking and Investment banking. 7. Treasury Division 8. International Division. 9. General Services Division. 10. Computer and Information Technology Department. 11. Credit Division. 12. Corporate Affairs Division. 13. Card division 14. Board Audit Cell 2. 9 Performance of the Bank: Profit and Operating Results: The Bank earned operating profit Tk. 2,463. 0 million during 2008. The Net profit before tax increased by 116 million during this year. Year-wise profit performance of PBL is presented below: Year 2004 2005 2006 2007 2008 Profit before tax (in million) 1064 1201 1741 2347 2463 3000 2500 2463 2347 2000 1741 profit 1500 1201 1064 1000 Profit 500 0 2004 2005 Year 2006 2007 2008 Profit before Tax Deposit: A strong deposit base is necessary for the success of a Bank. During the year 2008 the Bank mobilized a substantial amount of deposit from mid-level income group people under Deposit Savings Scheme. After critical handling the Bank mobilized total Deposit of Tk. 8,021 million as at December 31, 2008. The growth rate is 24. 83 percent. The significant growth in deposit enabled the Bank to expand its business, performing assets and also had an impact on the profit position of the bank. De pos it M ix–2008 0. 04 21. 09 13. 48 1. 41 7. 72 c er r ent & c ont ingent biils pay able sav ings 4. 52 shor t – t er m deposit FDR Sc eme deposit ot her s 51. 74 Assets and Liability: Prime Bank Limited ensures its available funds to meet obligation of maintaining Statutory Liquidity Ratio(STR) and investments of liquid assets in a profitable manner.

PBL property & Assets Compositions are shown in the graph- PBL Pr o p e r ty & As s e ts -2008 2% 8% 21% Li qui d A sset s Ii nv est m et Loans & A dv anc es Fi x ed A sset s 69% Foreign Remittance Prime Bank Ltd has set highest priority to mobilize inward foreign remittance of Non-Resident Bangladeshi (NRB). During 2008 the bank handled total Inward Foreign Remittance of TK. 22669 million compared to TK. 15905 million in 2007 signifying a growth of 43%. Meanwhile, Bank has established remittance arrangement with 29 (twenty nine) leading exchange companies including the global money transfer giant Western Union, as a principal agent.

With the inclusion of Western Union in 2007, the Bank has covered all the Global locations of homebound remittance. Banks existing network of 70 branches at different important locations of the country allows the beneficiaries to receive remittance from all those locations, while the bank is continuously striving to maintain service delivery standard and speed of delivery. The evergrowing branch network, introduction of ATM as the alternate delivery channel, increase in the number of remittance arrangements with leading overseas exchange companies.

During 2008, PBL has also established a special arrangement with Bangladesh Post Office to take advantage of their wide network spread across the country for distribution of foreign remittance. Inflow of Fore ign Re m ittance 2004-2008 25000 22669 20000 15906 15000 15050 10000 5000 3688 2140 0 2004 2005 2006 2007 2008 2. 10 Future Out-look: Out2. 10 Bangladesh economy is expected to grow by 6. 20% -6. 50% during the financial year 2009. However ADB and other aid giving agencies have cautioned that the global recession is likely to affect Bangladesh economy during 2009 onwards.

This may result to pressure on current account surplus. Bangladesh Bank is alert to contain the inflationary pressure & tightened monetary measures are expected to continue for facilitating smooth credit flow to the productive pursuits only for targeted output growth. Prime Bank Limited is well positioned to meet the challenges of 2009 and will continue to strive to innovate & capture opportunity for growth & value creation. The Bank will focus on its large customer base to generate more business from existing customers. This strategy is supported by wide spectrum of product & service delivery.

The Bank will continue to harness the potential of retail, credit card, and SME & remittance market. However, continued pressure on interest margins, fees, and exchange earnings. &increased provision requirement for retail, Credit Card & SME will pose a challenge to the financial institutions during 2009. In its pursuit for growth, the Bank will always adhere to good corporate. PROJECT PART 03Chapter 03An Overview of SBC Tower Branch 3. 1 Introduction: This Branch was opened at 37/A, Dilkusha, Dhaka on September 03, 2006 as the 48th Branch of Prime Bank Limited..

It has a total number of 17 employees and 3 office staffs. Also the bank has a supervisor and two security guards. The workforce is very much co-operative both to each other and to the clients. SBC Tower Branch is one of the branches of the Prime Bank Limited that has authorization to deal with Foreign Exchange. As other authorized dealers, it is licensed by Bangladesh Bank to transact all types of foreign exchange business. Though it is a small branch, its growth is increasing year by year in terms of profitability and operational efficiency. 3. 2 Departments within SBC Tower Branch

This branch has four departments as the following: 1. General Banking (GB) Department. 2. Credit Department 3. Foreign Exchange Department Figure –– 5: Departments of SBC Tower Branch 3. 2. 1 General Banking Department Some of the day-to-day activities of this department are: Account Opening. Issuance of Cheque. Receiving Cheques for Clearing, Transport, and Dispatch. Issuance of TT {Telegraphic Transfer, PO (Pay Order), DD (Demand Draft), etc. Opening and Maintaining of FDR, MBDR, and other Scheme Deposits. Fund Transfe . Closing and Transfer of Accounts. Maintaining the Locker off the Bank.

Outward Clearing of IBC and OBC. Maintaining On-line Voucher. Cash Section – This department is responsible for cash payment and receipt. The employees in this department are also liable for verifying cheques, computer posting, passing cheques, and accuracy of posting, etc. 3. 2. 2 Credit & Trade Finance Department This department is responsible for the following jobs. Meeting the requirements of existing and potential RCS customers. Meeting the requirements of Head office and Customers of General Credit to cooperate with other departments for smooth operation. Preparing CIB and CL Statements .

Preparing Credit Proposal and Statement. Administration of Retail Credit. 3. 2. 3 Foreign Exchange Department The major duties and responsibilities of Foreign Exchange Department are the following: Facilitating import and Export Trade. Providing Funded and Non-funded Credit Facility . Providing Non-commercial Remittance. Presentation and Submission of Statements (Daily, Weekly, Monthly, and Yearly). Back-to-Back L/C opening, Acceptance, and Payment. Sight L/C Opening, Acceptance, and payment. Taking necessary actions in the cases like discrepancy, amendment, etc.

Maintaining Remittance Accounts, both inward and outward. In the end, it is essential to point out that the day-to-day activities of the departments are very coordinated and sometimes interdependent. The clients of Foreign Exchange Department take LTR, LIM, etc. facilities from Credit Department. Then they have to have enough balances in the Cash section to be eligible to open a L//C. Finally, the General banking Section is the one through which clients open their accounts; cheques, TT, Pay Order, DD, etc. are issued and received,, and necessary documents are dispatched and received. . 3 Hierarchy of SBC Tower Branch: 3. 3 Figure – 6: Hierarchy of SBC Tower Branch 3. 4 Job Performed at SBC Tower Branch: I was assigned to perform my internship in Foreign Exchange Department at SBC Tower Branch of Prime Bank Ltd. I have performed different task in this Department as an intern. Besides I have also worked in credit Department. My main responsibility as an intern was to assist the officers. I have performed the following tasks: Checking and updating the LCAF. Updating files against each L/C Preparing Sanction Letter. Analyze the Financial Information of the credit

Preparing Presentation Slides for Training Credit Preparing monthly statements for loans and advances Preparing CIB forms for the clients to be sent to Bangladesh Bank for collecting information regarding their credit performance. Update L/C register, LCAF register, PAD register, Bill of Entry register Preparing forwarding for collection of Foreign Bill. Updating L/C related data in Bangladesh Bank LC Monitoring System. Updating IDBP & IDBC Registrar. Preparing Monthly statement in order to report to Bangladesh Bank. FourChapter FourForeign Exchange & Letter of Credit . 1 Introduction: “Foreign Exchange” is defined as the means and methods by which rights to wealth expressed in terms of the currency of one country are converted into rights to wealth in terms of the currency of another country. Foreign Exchange Department is international department of the bankk. It deals with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers.

If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. Some national and international laws regulate functions of this department. Among these, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control Acct, 1950 is for Documentary Credits. Governments’ Import &Export policy is another important factor for import and export operation of banks. 4. 2 Foreign Exchange Accounts Nostro Account Nostro account means “our account with you”.

A Nostro account is a foreign currency account of a bank maintained its foreign correspondents abroad. For example, US Dollar Account of Prime Bank Limited maintained with Citibank. New York. USA is a Nostro account of Prime Bank Limited. Vostro Account Vostro account means “your account with us”. The account maintained with foreign correspondent in a bank of a particular country is known as Vostro account. What is the nostro account for a bank in a particular country is a vostro account for the bank abroad maintaining the account thus the account of Prime bank Limited with Citibank N.

A New York is regarded as its nostro account held with Citibank, while Citibank NA. New York regards it as a vostro account held for Prime Bank Limited. Loro Account Loro account means “their account with you”. Account maintainedd by third party is known as loro account. Suppose Prime Bank Limited is maintaining an account with Citibank N. A Neew York andd at the same time Janata Bank is also maintaining a nostro account with City Bank N. A New York. From the point of view of Prime Bank Limited, Janata Bank’ss accountt maintainedd with Citibank N. A New York is the loro account. . 3 Letter Of Credit: Letter of credit (L//C) can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. The Uniform Customs & Practices for Documentary Credit (UCPDDC) published by international Chamber of Commerce (19933) Revision,, Publication No. 5000 defines Documentary Credit:

Any arrangement however named or described whereby a bank (the “issuing bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on it’s own behalf, 1. Is to make a payment to or to the order of a third party (the beneficiary) or is to accept and pay bills of exchange (Drafts) drawn by the beneficiary, 2. Authorizes another bank to effect such payment or to accept and pay such bills off exchange (Drafts). 3. Authorizes another bank to negotiate against stipulated documents provide that terms and conditions are complied with. 4. 4 Significance of L/C in foreign trade:

International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through Letter Of Credit. Foreign Trade plays an important role in the economic advancement of a nation. So the government of almost all developing countries concentrates very much on the import and exports relations of foreign countries. In our country the foreign trade is controlled by Bangladesh Bank under the Import and Export Control Act, 1950. Here any importer and exporter who is not registered with CCI &E is not allowed to import the goods in the country or export goods to their countries.

While the foreign Exchange Business was becoming more complex and bounded by more rules and regulations, the L/C is one type of undertaking that could reduce the risk and legalize the contract between buyer and seller. And through the L//C, the contract between the importer and exporter is given a legal shape by the Authorized Dealer-the bank . As the banks are included in the process, the contract becomes more reliable for both the importer and exporter. While through the L/CC a reputed bbank guaranntees the payyments for iimported gooods on the behalf of the importer, the exporter gets the security for payment.

Therefore the Letter of Credit constitutes one of the most important methods of foreign trade. All documentary credit covering imports into Bangladesh is subjected to the provisions of UCPDC5OO (Uniform Customs and practices for documentary-credit 1993 revision ICC Publication 500). 4. 5 Parties of a letter of Credit: The parties are: The Beneficiary. The Applicant The Negotiating Bank The Issuing Bank Other parties that facilitate the Documentary Credit are: The Advising Bank, The Confirming Bank, if any, The Remitting Bank The Advise Through Bank

In the following diagram the parties involving in L/C are shown: Parties of a L/C Importer or applicant –– Buyer who applies for opening the L/C. Exporter or Beneficiary- Seller or exporter in whose favor the Letter of Credit is opened. Issuing Bank – It is the bank which opens/issues a L/C on behalf of the importer. Confirming Bank – It is the bank, which adds its confirmation to the credit and it is done at the request of issuing bank. Confirming bank may or may not be advising bank. Advising / Notifying Bank – is the bank through which the L/C is advised to the exporters.

This bank is actually situated in exporter’s country. It mayy also assume the role of confirming and / or negotiating bank depending upon the condition of the credit. Negotiating Bank – Bank, which negotiates the bill (draft) of the exporter drawn under the credit. If the advising bank is also authorized to negotiate the bill (draft) drawn by the exporter, it itself becomes the negotiating bank. Sometimes it can also be confirming bank. Reimbursing bank – is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank. . 6 Types of Letter of Credit: On the basis of flexibility available to the buyer’s issuing bank Letter of Credits may be either: (i) (ii) Revocable. Irrevocable. (i) Revocable Letter of Credit: A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. This type of letter of credit can be revoked or cancelled at any time without consent of, or notice to the beneficiary. In the modern banking the use of revocable credit is not widespread. ii) Irrevocable Letter of Credit: An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit). Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of Credit both the Issuing and Conforming Bank have some liability, mentioned bellow, as per UCPDC -600: Other types: . Sight Letter of Credit: The beneficiary receives the proceeds of the credit upon presentation of the documents in accordance with L/C terms. The negotiating bank is given a reasonable time, not exceeding seven banking days following the day off receipt of the documents to examine the documents. 2. Stand- by -Letter of Credit: A stand -by – Letter of Credit authorizes the beneficiary to draw on a bank in the event of the non -performance of another part or on the non payments of the funds that were expected to be received from another source or under other arrangement.

It has the characteristics of a bank guarantee. 3. Acceptance Letter of Credit: Under an acceptance credit, the exporter draws a time draft either on the issuing or confirming bank or on another bank, depending on the credit terms. 4. Deferred Payment Credit: Payment under deferred L/C is made after certain days of presentation of the export bill. 5. Negotiation Credit: A credit available by negotiation is either payable at sight or at an issuance, usually at the counters of the issuing bank. 6. Credit with Advanced Payment: It authorizes the nominated bank to advance a part of the redit amount to the seller for procurement of the merchandise. 7. Revolving L/ C: The revolving credit is one, which provides for restoring the credit to the original amount after it has been utilized. In Bangladesh there is no practice of Revolving Credit. 8. Transferable Credit: Under a transferable L 1C, the beneficiary is permitted to transfer his rights in part or in full to one or more parties. 9. Back-to-Back L/C: The back-to-back credit is a new credit opened on the basis of an original credit in favor of another beneficiary.

Under the back to back concept, the seller as the beneficiary of the first credit offers it as “security” to the advising bank for the issuance of the second credit. The beneficiary of the back-to-back credit may be located inside or outside the original beneficiary’s country. 11. Documentary L/C: Documentary L/C calls for presentation of certain shipping documents evidencing shipment of goods with the Bill of Exchange (generally called draft) while claiming for payment for the shipment under the L/C.

This enables the opening banker to have recourse to the imported goods in the event of default by the importer to retire the documents. 4. 7 Instructions Issued by Bangladesh Bank for Opening and Operation of L/C for Import of Goods: All Letter of Credits and similar undertakings covering imports into Bangladesh must be documentary Letter of Credits and should provide for payment to be made against full sets of onboard (shipped) transport documents (BL, AIB, TR etc. showing dispatch of goods covered by Credit to a destination in Bangladesh; They must ensure that they deal only with known customers having a place of business in Bangladesh and can be traced easily if any occasion arise for this purpose; They should establish Letter of Credit against specific authorization on behalf of their own customers who maintain accounts with them with and know to be participated in the trade; It is not permissible to open to clean or revolving credits; They are allowed to open divisible, transferable Letter of Credits for import into Bangladesh under cash LCAF (Letter of Authorization Form); It is not permissible to open Letter of Credits in favor of beneficiaries in countries from which import into are banned by the component authority; Letter of Credits to be opened only against firm contract between the Applicant and beneficiary. Bankers should see documentary evidence, before opening Letter of Credit, that a firm order for the goods to be imported has been placed and accepted; The full description of goods to be imported along with unit price and quantity to be given in the Letter of Credit; Confidential report of the exporter to be obtained by the bank, where the amount of Letter of Credit exceeds TK. 2,00,000 in case of import against proforma invoices issued direct by foreign supplier and TK. ,00,000 against indent issued by local agents of the suppliers; Payments against discrepant documents may be made after the goods have been cleared from the customs on the basis of the locative LCAF. 4. 8 Operations of Documentary Letter of Credit: The following five major steps are involved in the operation of a documentary Letter of Credit: 1. Issuing. 2. Advising. 3. Amendment (If necessary). 4. Presentation. 5. Settlement. 1. Issuing Letter of Credit: Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application, which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. The issuing bank then issues the L/C. 2.

Advising a Letter of Credit:: Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. 3. Amendment of Credit: Parties involved in a L/C. particularly the seller and the buyer, cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. 4. Presentation of Documents:: After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to the issuing bank. 5.

Settlement: Settlement means fulfilling the commitment of issuing bank in regard too effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. a) Settlement by Payment b) Settlement by Acceptance c) Settlement by Negotiation Chapter – Five Import Procedure of Prime Bank Ltd 5. 1 Introduction: Import is the process of purchasing goods and services from foreign countries into Bangladesh. It is the flow of goods and services purchased by economic agents staying in the country from economic agents staying abroad. Individuals, firms and Government of Bangladesh import foreign goods to meet their various necessities.

According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export (CCI & E) provides the registration (IRC) to the importer. Import of goods in Bangladesh is regulated by the- Ministry of Commerce in terms of the Import and Export Control Act, 1950; Import Policy Order and the Public Notice issued by the Office of the Chief Controller of Imports and Exports (CCI&E); At present it is regulated by the Import Policy Order (2007-2006), which was come into effect on March 14, 2007. And Import Policy directs certain Import Procedure, which administers the whole activity. 5. 2 Source of Finance: Import may be allowed under the following sources of finance: a) Cash i. Foreign exchange (balance of the foreign exchange reserve of


RECEIPT OF IMPORT DOCUMENTS FROM NEGOTIATING BANK SRUTINY OF IMPORT DOCUMENT ARE THE DOCUMENT DESCREPAN? YES INSTRUCT REIMBURSING BANK NOT TO HONOUR REIMBURSEMENT INFORM NEGOTIATING BANK ABOUT DESCREPANCY NO INFORM OPENER ABOUT THE DESCRAPANCY LODGEMENT OF IMPORT BILLS DR- PAD A/C CR-H. O. A/C DO THEY AGREE TO YES YES ACCEPT DOCUMENTS DESPITE DISCREPANCY? ASK THE OPENER TO TAKE DELIVERY OF IMPORT DOCUMENTS FOR RELEASE OF ASK NEGOTIATING BANKFOR DISPOSAL INTRUCTION HAVE THEY RESPONDED? NO RETIRE THE BILL BY CREATING FORCE LIM WITH H. O. APPROVAL DR-FORCE LIM A/C CR-PAD. A/C Y E S RETIRE THE IMPORT BILLSDR-OPENER A/C CR- PAD A/C DELIVER THE DOCUMENTS TO THE OPENER FOR RELEASE OF GOODS 5. Import L/C operation procedure from opening to lodgment: Import section which is under foreign exchange department is assigned to perform import related jobs and to serve its client’s demand to import goods, it always maintains required formalities that are collectively termed as import procedure. The following flowchart shows the L/C operation and its settlement mechanism. IMPORTER (Buyer) (9) EXPORTER (SELLER) Applises to issue L/C (1) Make payment against document Present documents (8) Advising/confirming l/c (3) Submits documents (4) Issue L/C (2) ISSUING BANK forwards Documents (5) Make payment (6) ADVISING/NEGOT IATING/CONFIRM ING BANK Instructs to pay or reimburse PAYING/REIM BURSING BANK Pays or reimburse Make payments (7) 5. 4. 1 Importer’s preparation for opening L/C:

Before applying for L/C to the bank the following works have to be done by the buyer (importer): 1. At first, the importer must obtain Import Registration Certificate (IRC) from the CCI&E submitting the following papers: a) Up too date Trade License. b) Nationality and Asset Certificate. c) Income Tax Certificate. d) In case of company, Memorandum & Articles of Association and Certificate of Incorporation. e) Bank Solvency Certificate etc. 2. Then the importer has to contact with the seller outside the country to obtain the Pro forma Invoice. Usually an indenter, local agent of the seller or foreign agent of the buyer makes this communication. Other sources are: a) Trade fair. ) Chamber of Commerce. c) Foreign Missions in Bangladesh. d) Journals etc. 3. When the importer accepts the pro forma Invoice, he/she makes a purchase contract with the exporter detailing the terms and conditions of the import. After making the purchase contract, importer settles the means of payment with the seller. And import procedure differs with different means of payment. The possible means are – – Cash in Advance, – Open Account, – Collection Method and – Documentary Letter of Credit. In most cases, the Documentary Letter of Credit in our country makes import payment. Purchase Contract contains which payment procedures have to be applied.

Requesting the concerned bank (importer’s bank /issuing bank) to open a L/C (irrevocable) on behalf of importer favoring the exporter//seller. 5. 4. 2 Application for Opening L/C: At first, an importer will request banker to open L/C along with the following documents. An application. Indent or Proforma Invoice Import Registration Certificate (IRC) Taxpayer’s Identification Number (TIN) Insurance cover note with money receipt A bank account in PBL SBC Tower Branch. Membership of chamber of commerce. 5. 4. 3Bank Delivers Form to Importer After scrutinizing above-mentioned documents carefully, the authorized officer delivers the following forms to be filled up by importer and then check it carefully: Whhether the goods to be imported is permissible or not.

Whether the goods to be imported is demanding or not. After checking these, following forms are provided by the L/C issuing bank: a) L/C Application Form (L/CAF) L/C Application Form is a sort of an agreement between customer and bank on the basis of which letter of credit is opened. PBL SBC Tower Branch provides a printed form for opening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed on the form in accordance with Stamp Act currently in force. Usually Through this form The importer expresses his decision to open the L/C quoting the amount of margin in percentage. The importer gives the following information in LCAF:

Full name & address of the importer Full name & address of the beneficiary Draft amount Availability of credit by sight payment/acceptance/negotiation/deferred payment Time bar within which documents should be presented Sales type (CIF/FOB/C&F) Description of commodities, price, quantity etc Country of origin IRC no. Account no. Insurance cover note/policy,date,amount. Name & address of the insurance company Whether the partial shipment is allowed or not. Whether the transshipment is allowed or not Last date of shipment Last date of negotiation Other terms and conditions (if any) Whether the confirmation of the credit is requested by the beneficiary or not. The L/C application must be completed/filled in properly and signed by the authorized person of the importer before it is submitted to the issuing bank. ) L/C Authorization Form (L/CAF) The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against import and used in lieu of import license. The authorized dealers are empowered to issue LCA Forms to the importers as per basis of licensing of the Import Policy Order in force to allow import into Bangladesh. The LCA Forms available with authorized dealers are issued in set of five (05) copies each. First Copy is exchange control copy, which is used for opening of LC and effecting remittance. Second Copy is the customs purpose copy, which is used for clearance of imported goods from custom authority.

Triplicate and Quadruplicate Copy of LCAF are to be sent to concerned area of CCI&E office by authorized dealer/Registration Unit of Bangladesh Bank. Quintuplicate Copy is kept as offfice copy by authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF) contains the followings: Name and address of the importer IRC number and year of renewal Amount of L/C applied for (both in figure and in word) Description of item(s) to be imported ITC Number/HS Code No. Signature of the importer with seal List of goods to be imported c) Import Permit Form (IMP) FORM –– IMP This form is prepared for maintaining account of the money, which goes outside the country for the purpose of payment.

This form is required by Bangladesh Bank. It is an application for permission under 4/5 of the Foreign Exchange Regulation Act, 1947 to purchase foreign currency for the payment of import. IMP – FORM has four copies 1. Original copy for Bangladesh Bank. 2. Duplicate copy for authorized dealers. It is issued for processing Exchange Control Copy of bill of entry or certified invoice. 3. Triplicate copy for authorized dealers’ record. 4. Quadruplicate copy for submission to the bank in case of imports where documents are retired. 5. 4. 4 Preparation of L/C by Banker: Bank officers prepare L/C when above mentioned forms are to be submitted by the customer or importer.

Before PBL officers scrutinizes the application in the following areas: 1. The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation. 2. Eligibility of the goods to be imported. 3. the L/C must not be opened in favor of the importer 4. Radioactivity report in case of food item. Survey report or certificate report in case of old machinery is required. Bank of the importer is called ‘L/C Issuing Bank’. The issuing bank inform its corresponding bank, called ‘Advising Bank’ or ‘Confirming Bank’ located in exporter’s country to advise and the credit forward to the exporter and simultaneously officer makes L/C opening vouchers.

Accounting Treatment: particulars L/C Applicant A/C or Customer A/C MARGIN a/C Commission A/C Stamp A/C Documents Handling Charges A/C Others A/C Dr Cr. Cr. Cr. Cr. Cr. Dr/Cr 5. 4. 5Forwarding Documentary Credit by Advising Or Confirming Bank: The Letter of Credit duly signed by the authorized persons of the bank is then sent to the advising bank. There are three modes of sending the Letter of Credits which are as follows: By mail/courier By telex: It was practiced earlier in the other branches, but from the very beginning of the SBC Towert branch it did not transmit Letter of Credit though Telex. By SWIFT: SWIFT Stands for Society of World Wide Inter bank Financial Telecommunication.

This is special format maintained round the world. Through this facility party can communicate within few minutes with other party staying any part of the world. Prime Bank Limited, SBC Tower Branch Provides this facility to the clients. There are usually two bank involved in the documentary credit operation. The issuing bank and the 2nd bank, the advising bank, is usually a bank in the seller’s country. The issuing ban ask another bank to advise or confirm the credit. If the 2nd bank is simply “advising the credit”, it will mention that when it forwards the credit to seller, such a bank is under no commitment or obligation to pay the seller.

If the advising bank is also “confirming the credit”, this mention that the confirming bank regardless of any other consideration, must pay without recourse to seller, thenthe bank is called confirming bank also. L/C Confirming Process: Prime Bank (L/C issuing Bank) HSBC (L/C confirming Bank) Japan Exporter (L/C Beneficiary) Issue L/C & request to Add Confirm Figure :L/C Confirming 5. 4. 6 Scrutinizing Import Documents As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank. Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C.. Generally the documents that are usually required to exporter are: Bill of exchange.

Forwarding Commercial invoice Bill of lading Certificate of origin Packing list Clean repot of finding (CRF) Weight list Insurance cover note Pre-shipment certificate On receipt of the documents, the branch shall immediately set itself to the task of scrutinizing the documents. What they would ensure is that the documents received from the negotiating bank are drawn strictly in conformity with the terms of the Letter of Credit and respond to the requirement of the underlying Letter of Credit in every respect. Examination of the documents generally includes the following points: Completeness of the documents; Consistency of the documents with each other; Compliance with the Uniform Customs and Practices for Documentary Credits (UCPDC) issued by the International Chamber of Commerce, Paris.

One of the basic principles of documentary credit is that all parties deal with document and not with goods (Articles 6 of UCPDC-600). That is why the documents should be scrutinized properly. If any discrepancy in the documents is found, that is to be informed to the party. 5. 4. 7 Discrepant Documents and Notice: a) When the Issuing Bank authorizes another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents which appear on their face to be incompliance with the terms and conditions of the Credit, the Issuing Bank and the Conforming Bank, if any are bound: i. to reimburse the Nominated Bank which has paid, incurred a differed payment undertaking accepted Draft(s) or negotiated, ii. to take up the documents. ) Upon receipt of the documents the Issuing Bank, and/or Conforming Bank, if any, or Nominated Bank, acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents. c) The Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver for the discrepancy. This does not, however, extend the period mentioned in subArticle 13(b) d) i.

If the issuing Bank and/or Conforming Bank, if any, or a Nominated bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but not later that the close of the f

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