Banks play an important role in the economic development of a country. If the banking sector is highly developed then the economy of a country grow faster. A developed banking system ensures the quick industrialization and urbanization of any country. Banks can make a nation financial healthier with great contribution to foreign trade.
Modern banks play an important part in promoting economic development of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings of large masses of people scattered through out the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. Banks also contribute to the export-import sector of a country by providing documentary and standby, guarantees, performance bonds, letter of credit, securities underwriting commitments and other forms of off balance sheet exposures. Economy of Bangladesh is in the group of world's most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well has also identified that underdeveloped banking system causes some problems to the progression of economic development. So they have highly recommended for reforming financial sector. Since 1990, Bangladesh Government has taken a lot of financial sector reform measurements for making financial sector as well as banking sector more transparent, and formulation and implementations of these reform activities has also been participated by different international organization like World Bank, IMF et on behalf of the healthier economy.
We have been assigned this term paper from this perspective that we can develop our knowledge on performance of commercial bank in export-import sector of a country. We as a group selected IFIC bank and described its performance on export-import and also discussed what a client has to do to have the service regarding export-import in IFIC Bank Ltd.As, we have to work on export-import as well as foreign trade sector of IFIC bank, in this section we have discussed about IFIC bank in a brief. The historical background, present financial condition, objectives of the bank, ownership structure in a word the personal profile of IFIC bank has been illustrated briefly in this section
Profile of IFIC Bank Ltd
Historical Background:
International financial investment and commerce (IFIC) Bank Limited started its journey on June 24, 1983. Before that it was established in 1976 as a joint venture finance company at the instant of Bangladesh.Thenthe Government retained 49percent of the total shares andthe rest was held by the general public as well as the sponsors. The goals of the finance company were to establish joint venture Banks finances companies and affiliates abroad and to carry out normal functions of a finance company at home.
When the Government took the decision to inaugurate banking in the privet sector in 1983 the above finance company was altered a full- fledged commercial Bank. Beside this, the Government also permitted four other commercial banks in the private banking sector. Consequently, the Government privatized two banks, which were fully Government-owned. While in all these Banks Government is holding nominal 5 percent shares, there was an exception made in case of IFIC Bank. It retained 40 percent shares of the Bank. The Government took the decision (retaining 40 percent shares in IFIC Bank)with a view to promoting of the participation of Government and private sponsors for establishing joint venture Banks, financial companies, branches affiliates abroad.
Objectives of IFIC Bank:
IFIC is one of the leading commercial banks of Bangladesh. It has many objectives mainly focused on holding the leading position among the commercial banking sector of the country and makingindelible mark as an active partner in regional banking operating beyond the national boundary. One of its vital goals is to contribute to the economic development of the country as well as social well-being of the general mass
The bank is also aimed at providing service to its clients with the help of a skillful and dedicated workforce whose creative aptitudes, inventiveacts and competitive edge make theposition of the bank unique in providing quality service to all of individuals and institutions.
In an intensely competitive and complex financial and business environment, it particularly focuses on growth and profitability of all concerned.
Ownership Structure
At present the sponsors hold ownership of the Bank in the private sector and Government of the People's Republic of Bangladesh. Sponsors and individuals now own about 67.25 percent of the share capital and the Government owns 32.75 percent of the shares. Directors and Sponsors having vast experience in the field of trade and commerce own 11.42% of the share capital and the rest is held by the general public.
Chairman and Managing Director (MD):
Overall management of the bank is vested in a 13-member board of directors with the managing director as the chief executive. The vice chairman of Baximco group is the new chairman of IFIC bank Ltd. The shareholders at the 33rd annual general meeting held on July 26th, 2010, elected him a director of the bank.Upon completion of the 33rd AGM an emergency Meeting of the Board of Directors was held where Mr. Salman F Rahman was anonymously elected as Chairman of the Board of Directors of the Bank with immediate effect. At present, Mr. Mosharraf Hossainholds the post of the Managing Director.
Capital and Reserves
The Bank started with an Authorized capital of Tk. 100 million in 1983. Paid up capital at that time stood at Tk. 71.50 million only. Over the last 26 years, the authorized and paid-up capital has increased substantially. The paid-up capital stood at Tk. 1763.9 million as on December31, 2009.
The Bank has built up a strong reserve base over the twenty six years. In last26 years its Reserves and Surplus have raised overly. Asagainst Tk. 21.20 million only in 1983 Reserve and surpluswent up to Tk.1725.32 million inDecember31, 2009.This consistent policy ofbuilding up Reserves has enabled the Bank to keep up a betteradequacy ratio comparing to others.
Having the active support and supervision from the Government, thebank has been showing a stable and developed performance. In itstwenty six years actions, the bank has attained the position of leadingbanks among the private banks in terms of both goodwill and business.
Starting modest deposit of only Tk. 863.40 million in 1983 theBank has closed its business with Tk. 47590 million of depositas onDecember31,2009. The annual growth rate has mostly beenhigher compared to both banking sector growth and individualgrowth rates achieved by others.
Foreign exchange business of the bank during the year 2009 stood at 51500 million which included export financing and import servicing. As against a profit of Tk. 21.94 million in 1984, the Bank earned arecord profit of Tk. 2075.6 million for the year ended on December31, 2009.
Branches
The Bank covers by its activities all the important trading andcommercial centers of the country. At present it has 89 branches and 5 SME centers over the country. It has recently opened its 88th Branch (SME/Krishi) at Kashinathpur, Pabna & 89th Branch at Poradah, Kushtia on 11th of October 2010.It has 21 Branches which deals with Foreign Trade and these braches are called AD branches.
Operation Abroad:
Joint Venture
a. Bank of Maldives - In 1983, IFIC Bank set up a joint venture bank names Bank of Maldives Limited (BML). It is the first bank of Maldives. In 1992, as per contract, IFIC Bank handed over the management of BML to Maldives.
b. Oman-Bangladesh Exchange - To facilitate remittance by Bangladeshi in Oman, IFIC bank set up a money exchange company as a joint venture, named Oman-Bangladesh Exchange.
c. Nepal Bangladesh Finance & Leasing Limited (NB Finance) - Nepal Bangladesh Finance & Leasing Co. Ltd. (subsequently renamed as Nepal Bangladesh Finance & Leasing Ltd.), another joint venture leasing company between IFIC Bank Ltd. and Nepali Nationals, started its operation on April 18, 1999 in Nepal. IFIC Bank presently holds 15% share in the company
Branch abroad
a. NIB Bank Ltd., Pakistan - IFIC Bank opened its first overseas branch in Karachi, Pakistan. It opened its second branch at Lahore in Pakistan.
b. Nepal Bangladesh Limited - In December 1993, the Bank got permission to establish a joint venture bank with 50% equity capital in Nepal. The Bank known as, Nepal Bangladesh Ltd. came into operation in June 1994
Human Resource
The Bank has a Human Resource Development & Research Department to develop human resources internally. The Academy is equipped with professional library, modern training aids professional faculty and other facility. It is now under Personnel & Human Resource Development & Research Division. The Academy conducts regularly foundation courses, specialized courses and seminars on different areas of banking to take care of the professional needs. Total manpower stood nearly at 2500 as on June 30, 2010.
Technology
Since it has been started its journey as a commercial bank in 1983, IFIC Bank has been giving great importance on the adoption of modern technology. It became the pioneer in the field of automation by introducing computerized branch banking right in the same year. Gradually, all the branches were brought under similar automated platforms with advanced software applications for offering all the critical banking features. At present all domestic branches are totally computerized under networked environment.
As, the significance of Web presence in the Internet is absolutely critical, IFIC Web Site www.ificbankbd.com has long been launched for the expediency of the clients, where all the information and activities are being posted and updated constantly. A Central Mailing System is operational at the Head Office to let the customers have direct access to the selected personnel.
The bank alsoprovides fully on-line Automated Teller Machine (ATM) services under the banner Q-Cash at a number of places in Dhaka and Chittagong. The ATM facilities are available to the customers at Q-Cash booth.
Services provided by IFIC Bank Ltd
General Banking
General Banking department performs the core a function of bank operates the day to day transactions. They take the deposit fromthe customer and meet their demand for cash honoring theircheeks. The department is very rush and the employee here aretoo upgrade to their duty. They pass entry of every transactionwithin the day. It opens new accounts, remit funds, issues bankdraft and pay order etc. Since Bank is confined to provide theseservices everyday, general banking is knows as "Retail Banking".
It has five major parts in the branch to perform. The sections are as following :
a. Account opening section
b. Remittance
c. Checks clearing
d. Cash
e. FDR
Other services
Corporate Banking Retail Banking
Working Capital Finance Consumer Finance
Project Finance Deposit Product
Term Finance Card NRB Account
Trade Finance Student File
Lease Finance SMS Banking
Syndication Finance
Treasury & Capital Market Agriculture Credit
Money Market Krishi Saronjam Rin
Forex Market Shech Saronjam Rin
Brokerage House Poshupokki & Motsho Khamar Rin
Phalphashali Rin
Phasali Rin
SME Banking
Easy Commercial Loan
Retailers Loan
Transport Loan
Commercial House Building Loan
Possession Right Loan
Contractor's Loan
Bidder's Loan
Working Capital Loan
Project Loan
Trade Finance
Muldhan
Women Entrepreneur's Loan
SME Branches
Milestones in the development of IFIC BANK
1976
-
Established as an Investment &Finance Company under arrangement of joint venture with the govt. of Bangladesh.
1980
-
Commenced operation in Foreign Exchange Business in a limited scale.
1982
-
Obtained permission from the Govt. to operate as a commercial bank.
-
Set up a its first overseas joint venture (Bank of Maldives Limited) in the Republic of Maldives (IFIC's share in Bank of Maldives Limited was subsequently sold to Maldives Govt. in 1992)
1983
-
Commenced operation as a full-fledged commercial bank in Bangladesh.
1985
-
Set up a joint venture Exchange Company in the Sultanate of Oman, titled Oman Bangladesh Exchange Company (subsequently renamed as Oman International Exchange, LLC).
1987
-
Set up its first overseas branch in Pakistan at Karachi.
1993
-
Set up its second overseas branch in Pakistan at Lahore.
1994
-
Set up its first joint venture in Nepal for banking operation, titled Nepal Bangladesh Bank Ltd.
1999
-
Set up its second joint venture in Nepal for lease financing, titled Nepal Bangladesh Finance &leasing Co. Ltd. (which was merged with NBBL in 2007)
2003
-
Overseas Branches in Pakistan amalgamated with NDLC, to establish a joint venture bank: NDLC-IFIC Bank Ltd., subsequently renamed as NIB Bank Ltd.
2005
-
Acquired MISYS solution for real time on-line banking application.
-
Core Risk Management implemented.
2006
-
Corporate Branding introduced.
-
Visa Principal and Plus (Issuer and Require) Program Participant Membership obtained.
2008
-
Observing 25th Anniversary of Customer Satisfaction.
2009
-
64 Branches offering Real Time On-line banking facility.
2010
-
All 87 Branches &SME Service Centers of IFIC Bank is operating under state-of-art world class Real Time On-line Banking Solution.
Future project:
The Bank has taken up a new project with Misys International Banking System Inc. (UK) for further upgrade its banking functions to state-of-art world class on-line banking solutions to offer quicker and even more convenient centralized services to its customers.
IFIC bank is one of the leading commercial banks of the country. It is a great advantage for the bank that the government holds its 32.75 percent shares which gives the bank more stability among the private banks. The bank has great opportunities tomake more superior position. It is trying its level best in order to compete with the other existing banks over the country.
Analysis of the topic
Export-Import trade financingis an important part of a bank's everyday activities, particularly in the branches at major commercial canters. It is also one of the significant sources of banks' revenue. Investment with the expanding way towards globalization accompanied by accelerated speed of trade, commerce and investment most commercial banks have opened new windows and putbranches specializing in the finance of foreign trade. Some banks have opened branches or set up supplementary in key locations out of the country in places where banks are not directly represented by such associated activities. They have operational arrangement with correspondents so that the banks are in positions to start foreign banking in anywhere of the world.
To finance export sectors the bank gives information on potential export purpose, Rules and regulations in those purposes, counsel the Letter of credit, if any, opened by foreign importer, offer pre-shipment finance, discuss the papers, supply post shipment finance, assemble collection of earnings and pays the money to the exporter.
For importing it also supplies valuable services to the importers in the form of credit information concerning the status and credit value of the foreign purchaser, open the letter of credit and investigate the papers from the overseas suppliers from first to last.Its correspondents there lastly arrange bill for the imported shipment. Without this support to the trading societies, operating business among the country would have been almost unthinkable.
Our selected bank IFIC also provides many services facilitated export-import. We are directed to analyze the services provided by IFIC bank regarding export-import trade on this term paper. In this section we are going to describe which facilities are provided by IFIC bank related to export-import trade and what is to be done by a customer to get these facilities.
Foreign Exchange Department is international department of IFIC Bank.It deals internationally. It makes easier global trade by itsvarious types of services. It makes a bridge between importers andexporters. If the branch is approved trader in foreign exchangemarket, it remits foreign exchange from home country to foreigncountry. This section generally deals in foreign currency. That isit is called foreign exchange department.
Several local and international rules regulate activities of thisdivision. From these, Foreign Exchange Act, 1947 is fortrading in foreign exchange dealing and Import and ExportControl Act, 1950 is for Documentary Credits (UCPDC - 1993revision & International Chamber of Commerce Publication no -500) is also an significant act for establishment of terms andconditions between importer as well as exporter in global trade.Governments' Import &Export policy is one more vital issuefor import and export function for banks.
The foreign Trade sector of IFIC bank is continued to very effective through financing export-import business. In 2009 the bank opened 18039 import L/C's which worth USD 809.8 million and handled 15379 import documents which worth USD 505.57 million.
Import Operation:
Import of goods basically occupies two things, bringing of goods physically into the nation and remittance of foreign trade to the cost of the goods and services related with its dispatch toward the importer. The first part is regulated by the ministry of commerce while Bangladesh Bank regulates the payments for these import traders.
Import division helps business and other people to import goods. In global atmosphere, importers and expoters are often unfamiliar to each other. So exporter always seek out security for the fee for his products exported. Here is the job of bank. Bank provides export security that it will pay for the products on behalf of the importer. This guarantee is known as Letter of Credit. Therefore the contract between importer and exporter is given a official form by the banker in its 'Letter of Credit'.
When a importer goes to import anyproduct from a foreign exporter, importer requests his bank makes payments to the exporter of that product and bank recovers the total from the importer.
Importer classes:
1) Industrial Importer
2) Commercial Importer
3) Leasing Company
4) Actual User
5) Government
Process And Mechanism For L/C Opening:
Issuing documentary credit:
i) The importer and exporter conclude a sales agreement providing for fee in document credit.
ii) The importerdrills his bank- the issuing bank- for issuing a credit for the exporter (Recipient)
iii) Issuing bank request another bank generally in the country of the exporter, to inform and possibly also to attach its evidence toward the documentary credit.
iv) The informing or confirming bank notifies the exporter that the credit has been issued.
Settlement:
i) The exporter sends the documents as a proof of the shipment to the bank where the credit is offered.
ii) After inspection the documents meet the credit necessities, the bank makes payment for exporter.
iii) The bank then sends the documents to the issuing bank.
iv) The Issuing bank after having checked the papers meet up the credit condition makes settlement in the pre-agreed way.
v) Then documents are sanded to the importer by issuing bank.
vi) Settlement is attainedby pre-agreed way.
# The following diagram brings out clearly the operation of letter of credit:
Steps for import L/C operations:
Step 1 - Registration with CCI & E :
1. To engage in global trade, every trader must be first registered with the Chief regulator of Import and Export.
2. By paying particular listing fees to the CCI&E. the trader will obtain IRC/ERC (Import/Export Registration Certificate), for opening L/C in a bank, this IRC is obligatory.
Step 2 - Determination conditions of credit:
1. The conditions of the letter of credit are depending on the agreement between the importer and exporter. The conditions of the credit denote the sum of credit, name and address of the recipient and opener, mood of the bill of exchange, time and mode of shipment and of target, nature of credit, ending date, name and number of sets of shipping papers etc.
Step 3 - Application by importer to the banker to open a L/C :
1.To open L/C, the importer is required to fill up a approved application form given by the banker with some required papers.
Step 4 - Opening of L/C by the bank for the starter:
1. Taking complete filled up application form from the importer.
2. Collects credit statement of exporter from exporter's country by his foreign correspondent there.
3. Opening bank then issues credit by mail by credit suggestion as requested for by the opener by his foreign correspondent or branch as the case may be, at the position of recipient. The directing bank give advices the credit to the recipient on his own shape where it is addressed to him or only hands on the original credit to the recipient.
Step 5 - Shipment of products and submission of documents by exporter:
1. Then exporter ships the products to the target of the importer country.
2. Then sends the documents to the L/C opening bank through his conferring bank.
Step 6 -Lodgment of papers by the opening Bank from the negotiating bank:
1. After getting the papers, the opening banker inspects the papers. If any disagreement found, it notifies the importer. If importer admits the error, then opening bankers call importer retiring the papers. At this time many thing can occur. These are shown in the following:
⇒ Discrepancy found but the importer admits - no trouble happens in lodgment.
⇒ Discrepancy found and importer not admits to accept - In this situation, importer protest and send back all the papers to the exporter and ask for his to make in the specified way. Here banker is not bound to pay as the papers send by exporter is not in accordance with the terms of L/C.
⇒Papers are completely OK but importer is willing to leave the papers - In this case bank is obliged to pay the price of exported products. As importer did not pay for bill of exchange, this sum by bank is one kind of credit to the importer and this credit in banking is called FORCED PAD.
⇒Allare O.K. but importer fails to clear supplies from the port and request bank to clear - In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenses is debited to the importer's account and in banking it is called LI M.
# Flow Chart for opening of L/C for importing at a glance :
Insurance Coverage :
-ICC
-ND (Non-delivery)
-War
-SRCC (Srike Riot, Civil Commotion)
Guide Lines of opening L/C's:
•Import policy & export policy
•Foreign Exchange Regulation Act
•Foreign Exchange Circular
•Public Notices
Requirements of an Importer:
1. Current account maintained with the bank
2. IRC (Import Registration Certificate)
3. TIN (Tax Identification Number)
4. Membership certificate from enlisted business concerns
• In a year, TIN & membership certificate must be submitted to bank
Letter of Credit Proposal:
it includes:
• Liability position of concerned party
• Liability position of Associates
• Total liability
• Proposal L/C
• Grand Total liability
• Remark about margin, amount, account, goods, basis repayment
• Approval
L/Cs SET:
1. Demand promissory note-02 copies
2. L/C application-01 copies (Application & agreement for confirmed irrevocable withoutrecourse to drawers L/C)
3. LCA form - 6 copies make a set (LCA application form in lieu of import license)
4. Insurance cover note with money receipt
5. Request letter for opening L/C- 01 copies
6. Declaration of an importer - 01 copies
7. Authority to debit account - 01 copies
8. Request letter for amendment - 01 copies
9. Pro-forma invoice
10. IMP form (Foreign exchange regulation act 1947 - 04 copies make a set)
11. Debit voucher (corresponding credit)
12. L/C copy (06 copies)
• 02 copies to advising bank, 01 for advising bank & other forexporter
• 02 copies to importer, 01 copy as officer advising copy & other customs clearance
13. L/C forwarding letter 01 copies
14. Reimbursement authorization - 03 copies
L/C application form:
It includes:
1. L/C No.
2. Name & full address of openers
3. Name & full address of beneficiary
4. Amount of foreign currency
5. Nature of goods imported
6. Name of indentor
7. Document accompanied
8. Name of insurance company
9. Shipment information
10. Approval (for use of bank only)
11. Terms and conditions (overleaf)
Letter of Credit:
It includes-
1. Irrecoverable documentary credits No.
2. Name of advising bank
3. Beneficiary's name
4. Name of Applicant
5. Amount specified
6. Shipment
7. Expiry
8. Accompanied documents
(a) Invoice
(b) Full set of (Shipped on board/ocean bill of lading/truck receipts)
(c) Insurance cover
1. Shipment information
(i) Shipment from.. .. . .. . .. . .. . .. to.. . .. . .. . .. . .. . .. . .
(ii) Partial shipment allowed/prohibited (iii) Transshipment allowed/prohibited
1. Special conditions
2. Instructions for negotiating bank
3. Other terms and conditions
Accounting treatment:
Contra voucher (2 copies make a set)
DR: Customers liability L/C cash [copy for accounts & other for file]
Con. CR: Bankers liability L/C cash (It is taken in nearest thousand)
DR: Party accounts (3 copies)
•1 copy for accounts
•1 copy for party
•1 copy for file
CR: Sundry deposit- Margin on L/C cash (2 copies)
•1 copy for accounts
•1 copy for file
Income A/C; Commission; L/C cash (1 copy)
+Income A/C; other Receipt; TLX recoveries (1 copy)
+Income A/C; Other Receipts; Postage recoveries (1 copy)
Lodgment of Import Bill:
Accounting Treatment:
Contra voucher
CR: Customers liability L/C cash
Contra DR: Bankers liability L/C cash
DR: PAD cash (Inv. Value)
CR: IFIC Bank General A/C - H/O
DR: PAD/Party A/C (Interest from value date to lodgment date)
CR: Income A/C Intt. Received on PAD Cash.
Retirement of Import Document:
On the receipt of information letter the importer approaches the bank for departure of the papers against full payment of bank's assessment including interest on PAD and other charges. After recovery of dues bank will handover the papers to the party by sanctioning the documents in favor of the party.
Accounting Treatment:
Dr. Party A/C/LIM/T.R. Loan/Other Loan
(PAD created amt. + Intt. on PAD lodgment date to retirement date- Margin on L/C cash- Intt. Payable on Margin)
Dr. Sundry deposit margin on L/C Cash + Intt. Payable on margin(if applicable).
Cr. PAD Cash
CR: Income A/C Intt. Received on PAD (From lodgment date toretirement date)
After retirement the following particulars to be noted in the PAD retirement register: Date, PAD no. L/C No., Name of the Party, PAD Amt. Interest, Others, Total amt., L/C margin, Net amt.
Shipping Guarantee:
When needed: In absence of original documents for clearance of goodsProcedure:
1. Party application
2. Submission of invoice and transport receipt
3. Scrutinize of submitted non-negotiable copy
4. Proper voucher making
5. Certified seal on non-negotiable copy
6. Letter of authorization/No objection certificate
7. Letter of guarantee to the shipping line
Mentioning:
•B/L No.
•Port of lading
•Brief description
•Marks
Joint seal/signature
Party's signature & seal
and
For International Finance Investment
and commerce Bank Limited
Motijheel, Dhaka
Authorized Signature
Back side of L/G Form:
Please deliver to the order of
M/S. .. .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. .
For International Finance Investment
and commerce Bank Limited
Motijheel, Dhaka
Authorized Signature
Accounting Process:
DR: Party A/C
CR: Sundry deposit margin on L/C Cash
CR: Income A/C Commission on PAD Cash
When original documents come to out hand, then
DR: Sundry deposit margin on L/C Cash
CR: IFIC Bank General Account - H.O
Export Operation
Bangladesh exports a large number of goods and services toforeign households. Readymade garments (both knitted andwoven), Jute, Jute-made products, tea, frozen shrimps, fishes are themain products that Bangladeshi exporters exports to foreignnations. Garments sector is the major sector that exports thebig share of the country's export. Bangladesh exports most of itsreadymade garments goodss to U.S.A and European Community(EC) countries. Bangladesh exports near about 40% of its readymadegarments products to U.S.A. Most of the exporters who exportthrough the bank IFIC are readymade garment exporters. They open exportL/C's here to export their goods, which they open against theimport L/C's opened by their foreign importers.
Export L/C process is just reverse of the import L/C process.For exporting goods by the neighboring exporter, bank may work ascollecting bank and advising banks for theexporter.
1. As an advising bank:
It accepts papers from the foreign importer and hands it overto the exporter. Sometimes it attaches evidence on the L/C onrequest from the Opening Bank. By adding attached evidence, itassumes the liability to make payment to the exporter.
2.As Collecting Bank:
It negotiates the bills and other shipping papers in terms of theexporter. That is, it gathers the earnings of the export-bill from thedrawee and credits the exporter's account for the same. Collectionproceed from the export bill is put down in the bank's NOSTROaccount in the importer's country. Sometimes the bank purchasesthe bills at discount and waits till maturity of the bill. When the billmatures, bank presents it to the drawee to encash it.
In our country, Export and Import procedure of bank is very muchlinked with one another because of use of Back to Back andmaturity of payment for Back-to-Back L/C is set in such that it canbe paid out of export proceeds. So export and import partworks as one unit. These two procedures can hardly be dividedfrom one another in the branch.
Back to Back L/C
For procurement of raw supplies and accessories bankssometimes give finance by opening Back to Back L/C onstrength of the L/C received by its client (exporter) for exportfrom Bangladesh. Back to Back L/Cs are often used for exportof ready garments. Back to Back L/C does not occupy cashoutlay the pre-shipment period. It forms an assurance to pay when the goods are shipped as per the terms of the credit. Theoriginal L/C and lien on imported goods represent the bank'ssafety.
Documents submitted at the time of BB L/C opening:
1. Demand promissory note - 02 copies
2. L/C application - 01 copies(Application & Agreement for confirmed irrecoverable without
recourse to drawers L/C)
3. LCA form - 06 copies make a set(LCA application form in lieu of import license)
4. Insurance cover note with money receipt
5. Request letter of opening L/C - 01 copies
6. Declaration of an importer - 01 copies
7. Authority to debit account - 01 copies
8. Request letter for amendment - 01 copies (Necessary foramendment only)
9. Pro-forma invoice
10. IMP form (Foreign exchange regulation act. 1947-04 copiesmake a set).
After BB L/C Opening:
1. L/C copy (06 copies)
•02 copies advising bank - 01 for advising bank & otherexporter
•02 copies to importer- 01 as officer copy & other for customsclearance
•02 copies for opening bank- 01 copy as office copy & other forCCI & E
2. L/C forwarding letter - 01 copies
3. Reimbursement authorization - 03 copies
Voucher:
Contra voucher
DR: Customer's liability L/C BB
Contra CR: Banker's liability L/C BB
Lodgment
Contra voucher
CR: Customer's liability L/C BB
Contra DR: Banker's liability L/C BB
IFDBC (Inward Foreign Documentary Bill for Collection) Creation
Contra voucher
DR: Foreign Bills Lodged A/C
Contra CR: Foreign Bills Collection A/C
BB L/C Payment:
Contra voucher
CR: Foreign Bills Lodged A/C
Contra DR: Foreign Bills Collection A/C
Debit voucher (Double currency voucher)
DR: Exporter's F.C A/C
Credit voucher (Double currency voucher)
CR: IFIC Bank General A/C - ILO
(It is supported by IBETCA)
PAD (EDF):
At the period of creation
DR: PAD (EDF)
CR: IFIC Bank General A/C - H.O
(Supported by IBETCA)
At the period of realization:
DR: IFIC Bank General A/C - H.O
(Supported by IBETCA)
CR: PAD (EDF)
DR: EFC A/C
CR: IFIC Bank General A/C- H.O
+
CR: Income A/C - Interest Others
Forced PAD:
When needed: owing to failure of export shipment
Approval: Post facto approval is needed from ExchangeControl Policy department, Bangladesh Bank
Intimation: Intimation is sent to member custom, NationalBoard of Revenue
Payment:
Payment is given by debiting PAD A/C
Amount = Invoice value + Interest charged
At the period of creation:
DR: PAD amt. (forced)
CR: IBDA (sent by H.O & responded by branch)
At the period of realization:
DR: Exporter's EC A/C
Notional Rate
CR: IFIC Bank General A/C - H.O
DR: IFIC Bank General A/C- H.O [At ready buying rate]
CR: PAD (FORCED)
[TT buying rate]
+
CR: IFIC Bank General A/C- H.O
(amt. = 20% exchange gain)
+
CR: Income A/C- Exchange gain
(amt. = 80% exchange gain)
Total Gain: Foreign Currency (in US$) * (Ready buying rate = TT buying rate)
Export Negotiation:
If the export documents are in order then the concept of FDBP emerges.
FDBP Amount = Document value - BB L/C Finance - 5% of doc value as load.
•5% of doc. Value is taken as load amount for payment of interest against BB L/C
FDBC (Foreign Documentary Bill for Collection):
If export documents are not in order then banker sends thedocuments for collection.
FDBC amount = Draft amount
Accounting Process:
At the time of creation:
Contra Voucher
DR: Foreign Documentary Bills Receivable
Con CR: FDBC for collection
At the time of realization of export bill:
Contra Voucher
CR: Foreign Documentary Bills Receivable
Con. DR: FDBC for collection
DR: IFIC Bank General A/C- H.O (100%)
CR: EFC - 80%
+FCAD - 50%
+Other.. .. . .. . .. . 15%
•CD A/C
•STD A/C
•DHL Charge - Tk. 1500
•Local Commission (if any)
•Tax (if any)
•Handling Charge - Tk. 500
Tax: For garments Doc Value * 0.25
For others, Doc Value * 0.50%
Exchange Gain Calculation:
Total Exchange Gain = FDBP value x (debating rate purchased rate)
Or = FDBC value x (debating rate purchased rate)
Earning of H.O (Ex. Gain) = FDBP x 20%
L/C under EDF:
1. Exporter advance Fund is formed by Bangladesh Bank to give support to the exporter in Bangladesh.
2. Generally Back-to-Back L/C is Usance L/C that is here bill ofexchange is payable after some maturity time say 90 or 120days after the date of acceptance/negotiation. But someforeign exporter may require sight payment. Here import L/Cmatures first. In that condition, Bangladesh Bank gives the fund tothe bank to give the price of imported goods in favor of thelocal purchaser of raw materials. When export proceeds come,first Bangladesh Bank loan to the importer is adjusted andleft over part goes to the importer of raw supplies.
Cash L/C :
1. Normally bank requires 25% margin for opening cash L/C.
2. The left 75% will be recovered after getting the bill of exchange from the foreign exporter.
Nature of credit :
Kinds of credit occurred in L/C operation
Through L/C procedure some Credit facilities evolved to the importer and exporter. This credit facilitates are stated below :
Inland L/C Operation:
Local L/C operation is same as Import/Export L/C operation. Itopens L/C on request from the importer in favor of the exporter. That is,it assumes the responsibility to make payments to the exporter onbehalf of the importer. Most of the local L/C is 'Back to Back L/C' andcurrency concern is denominated in foreign currency (Dollar orPound).
If a customer wants to have the export import facility of IFIC bank Ltd he/she has to go through some legal procedure described above. IFIC bank has been contributing to the forging trade as well as export-import sector of the country effectively and skillfully. The role in export-import sector plays by IFIC bank in word very influencing towards the growth of foreign trade of the country.
Conclusion
Finally it can be concluded that IFIC is carrying out its foreign trade performance in a very proficient way. IFIC is in a good position to meet up the challenges and will take the opportunity of advantage from economic growth. In trade, commerce and industry IFIC is acting as a partner and guide of the customers. This tactic is supported by wide range of goods and services. From top to bottom IFIC is sustaining a well organized communication. Each employee of AD branches considers foreign trade service of the bank as a significant part of the bank to keep pace with competitive corporate world. IFIC gives utmost importance on maintaining foreign trade. The entire procedure consists of management of export-import, foreign exchange risk, remittance, and successful finishing of trade. The bank is always trying its level best for improving its performance on foreign trade. Since the bank has many braches in important commercial zone it has a great opportunity to fascinate its clients. It is always trying to accelerate its performance in foreign trade though it has some problem in foreign exchange department. Though the success of 26 years facilitated the bank to obtain a leading position but the bank must have to face new challenges in order to compete with the new generation bank for keeping up its position. As a whole the bank must take some effective strategies for being more outward appearance in its goals and being more aware of what is to be happened. It also has to give emphasis on domestic scenario more closely and scrutinize the strategies and any certain trends of its competitors. The bank should accept any failure and takes necessary steps to over come the problems and it must take the failures as an objective to attain future goal despite of blaming such failures on other factors.
After our study on IFIC bank we have found out some threats, opportunities, strength and weakness of IFIC bank which have great impact on its way of success. These findings are as follows:
It is the first private commercial bank, 32.75 percent share of which is held by government that ensures a stable position for the bank among the private banks over the country.
It has a large number of branches throughout the country.
It maintains a strong network with different exchanges in different countries.(8 currencies)
Customer satisfaction is the great concern of the bank.
Centrally networked online banking system is implemented in all the braches.
Marketing and promotional activities is not well set up.
Employees are not well trained most of the officials are unable to handle modern technology.
Salary structure is a matter of concern.
KYC (know your customer) is not implemented properly.
Only 21 branches of 89 braches deal with foreign exchange.
ATM booth facility is not available in an efficient way.
Here are some recommendations added by us that we have drawn up after our study on this bank:
The foreign exchange department should be more effective in communicating with the banks abroad.
Foreign exchange business should be increased to a great extent.
The bank should review the behavior of customer transaction for a certain period and must implenment an efficent strategy in this regard as the behavior of customers varies from one to another.
They should arrange trainig program for the offcials who are enable to manage modern technology.
New packeges should be offered by the bank for attracting new costomer as well as the existing clients.
New branches should be opened in important places where the attention of public living abroad is more.
It is one of the most neccesary step for the bank to open ATM booth in different places over the country specially on the imporatnt commercial zones.
To attract its clients, it should increase its promotional activities .
Financing the most prospective garments sector in bangladesh
Finacing weak industies which have bright prospect.
E.banking, ATM, credit card should be introduced fully on urgent basis.
Undeveloped banking system is a great obstacle to the economic development of a country. So one country must form a static and dynamic commercial banking policy in order to develop its financial condition. In the modern globalized world one of the most important banking activities is export-import trade. As a leading commercial bank of our country IFIC Bank Ltd has been contributing greatly to foreign trade sector over the years. This study on foreign trade procedure of IFIC Bank Ltd has increased our depth of knowledge in understanding the legal formalities required in export-import, understanding the role of commercial bank in improving export-import trade. It also gave us a clear idea on the performance of IFIC bank in export-import as a commercial bank. We have been greatly benefited because of getting the opportunity to prepare this term paper on this topic.
