Origin
of the Report
For ensuring quality
education in the BBA program we need to know the application of theoretical
knowledge in practical field. So, in order to identify the consistencies and
inconsistencies of theoretical knowledge learnt in BBA program with the
practical condition of our country’s economy we have made a general analysis
and an empirical analysis from ‘Uttara
Bank’ perspective on the systems and procedures of Letter of Credit as a
partial requirement of our “Law and Practice of Banking”.
Objectives of the report
Though this report
is prepared as a partial requirement for the completion of the BBA program,
this is not the prime concern to make this report. The main intention of the study is to investigate how our banking
sectors open and operate Letters of Credit.
We also tried to find out any discrepancies if have between theoretical
knowledge and practical system of Letter of Credit.
- The supplementary objectives of the report are to meet up the following queries to fulfill the academic requirements of report.
- To acquire experience in different banking services of Uttara Bank Ltd.
- To know the Letter of Credit system of Banking sector in the light of ‘Uttara Bank Limited’ in particular.
- To present an overall banking activities.
- To get a clear idea about Banks and how it runs and what functions they do.
Methodology &
Data Collection
Data Collection The Primary Sources of Data:
The primary sources
of data are as flows;
- Face-to-face conversation with the respective officers and stuff of the branch and head office.
- Relevant field study as provided by the officer concern.
The Secondary
Sources of Data:
Secondary sources
of data are flows;
- Annual report of Uttara bank Ltd.
- Website of Uttara bank Ltd.
- Various book articles regarding general banking functions.
- Different procedure manual published by Uttara bank Ltd.
- Different circular sent by Uttara bank Ltd. and Bangladesh Bank.
Data
Collection Method:
Relevant data for
this report have been collected primarily by direct investigations of different
records, papers, documents, operational process and different personnel. The
interviews were administrated by formal and informal discussion. No structured
questionnaire has been used. Information regarding office activities of the
bank has been collected through consulting bank records and discussion with
bank personnel.
Data
processing:
Data collected from
secondary sources have been processed manually and qualitative approach has
been used through the study.
Data analysis and
interpretation:
Qualitative
approach has been adopted for data analysis and interpretation taking the
processed data as the base. So the report relies primarily on an analytical
judgment and critical reasoning.
Methodology:
This report has
been prepared for a better understanding of the basis of experience gathered
during the period of interview. For preparing this report, we have also get
information from annual report and website of the Uttara Bank Limited. we have
presented our experience and finding by using different charts and tables,
which are presented in this analysis part.
Limitations:
- It was very different to collect the information from various personnel for the job constrain.
- Bank policy was not disclosing some data and information for obvious reasons.
- Due to the time limitation many of the aspects could not be discussed in the present report.
- Since the bank personnel’s ware very busy, they could provide us little time.
- Another significant problem faced during the preparation of this report was the contradictory explanation of a single subject by different employee.
- Because of the limitation of information some assumptions were made. So, there may be some personal mistake in the report.
Introduction
A standard, commercial
letter of credit (L/C) is a document issued mostly by a financial institution,
used primarily in trade finance, which usually provides an irrevocable payment
undertaking.
The letter of credit can
also be source of payment for a transaction, meaning that redeeming the letter
of credit will pay an exporter. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a
supplier in one country and a customer in another. In such cases the
International Chamber of Commerce Uniform Customs and Practice for Documentary
Credits applies. They are also used in the land development process to ensure
that approved public facilities (streets, sidewalks, storm water ponds, etc.)
will be built. The parties to a letter of credit are usually a beneficiary who
is to receive the money, the issuing bank of whom the applicant is a client,
and the advising bank of whom the beneficiary is a client. Almost all letters
of credit are irrevocable, i.e., cannot be amended or canceled without prior
agreement of the beneficiary, the issuing bank and the confirming bank, if any.
In executing a transaction, letters of credit incorporate functions common to
giros and Traveler’s cheques. Typically, the documents a beneficiary has to
present in order to receive payment include a commercial invoice, bill of
lading, and documents proving the shipment were insured against loss or damage
in transit. However, the list and form of documents is open to imagination and
negotiation and might contain requirements to present documents issued by a
neutral third party evidencing the quality of the goods shipped, or their place
of origin.
Definition
Letters of credit are often
used in international transactions to ensure that payment will be received.
Letter of credit can be classified into two kinds; one is Travelers’ Letter of
Credit and another is Letters of Commercial Credit. But Letter of Credit mainly
indicates the Letter of Commercial Credit. Due to the nature of
international dealings including factors such as distance, differing
laws in each country and difficulty in knowing each party personally, the use of
letters of credit has become a very important aspect of international trade.
The bank also acts on behalf of the buyer (holder of letter of credit) by
ensuring that the supplier will not be paid until the bank receives a
confirmation that the goods have been shipped.
Therefore a Letter of Credit is a
letter issued by the banker of the foreign buyers describing a commitment in
favor of the exporter informing him that the issuing banker undertakes to
accept the bills drawn in respect of exports made to the foreign buyer
according to predetermined conditions. It is an 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 its own behalf.
1. Is to make a payment to or to the
order of third party (the beneficiary) or is to accept any pay bills of
exchange (Drafts) drawn by the Beneficiary, or
2. Authorizes another bank to effect such
payment, or to accept and pay such bills of exchange (Drafts).
3. Authorizes another bank to negotiate,
against stipulated documents, provided that the terms and conditions are
complied with.
Importance of L/C
In international trade since the buyer
and seller are quite distant from each other a problem often arises to make the
delivery of goods and when to make the payment for the delivery. This problem
is absent in home trade. But in foreign trade neither the importer nor the
exporter can rely completely upon the others. L/C is effective instruments that
can solve this problem also act as finance for the buyer. This method is a
compromise between buyer and seller because it affords certain advantage to
both parties. The exporter is assured of receiving payment from the issuing
bank as long as its present documents in accordance with L/C. the issuing bank
is obligate to honor drawing under l./c regardless of the ability or
willingness to pay. Importer does not have to pay until shipment has been made
and the documents presented in good order. However the importer still rely upon
the exporter to ship the goods as described in the documents, since the L/C
does not guarantee that the goods purchased will be those invoice and shipped.
So the usual time under a L/C is when shipment has been made. While the goods
are available after payment, the risk to the exporter is very little, depending
on credit term, while the risk to the importer is that he has to rely on the
exporter to ship goods described in the documents. Because of all the
protection and benefits it can accords both exporter and importer.
Parties involved in letter of
credit
The applicant:
The applicant is the parties
who generally approaches in order to issue the L/C. generally the applicant ids
the exporter who reaches an agreement with the exporter before approach in the
bank to issue the L/C.
The issuing bank;
The bank issuing the L/C
is known as issuing bank and it is usually the bank with which the importer
maintains an account. The issuing bank undertakes an absolute obligation to pay
upon presentation of documents.
The advising bank:
The correspondent bank sends
the L/C is commonly referred to as advising bank. The advising bank simply
advises the L/C without any obligation on its part. However, the advising bank
shall take reasonable care to check the apparent authenticity of the credit
that it advises.
The beneficiary:
The beneficiary or exporter is
the party entitled to draw payment under L/C. The Beneficiary will have to
present the required documents to avail payment under L/C.
The Confirming bank:
The confirming bank confirms
that the issuing bank has issued a letter of credit. The confirming directly
obligated on the credit to the extent of its confirmation and by confirming it
acquires the right and obligation of an issuer.
The negotiating bank;
The bank that agrees to examine
the documents under the L/C and pay t5he beneficiary is called the negotiating
bank. Typically, the advising bank is nominated as the negotiating bank.
Back to back L/C
Back to back L/C is
mostly issued in Bangladesh. When a beneficiary receives a letter of credit,
which is not transferable, and he cannot furnish the goods himself, he may
arrange with his banker to issue a second credit, which is known as
back-to-back L/C to supplier to supply the goods.
As both L/C cover the same goods
the back to back credit must be issued with identical terms to the muster L/C,
except that the credit amount, unit price if any are smaller. The expiry date
under the back-to-back credit is earlier while the latest shipment date may
have to be advanced. The bank issuing back-to-back credit will obtain repayment
through muster credit, which is deposited to the issuing bank of the
back-to-back credit. The bank must try to maintain control of the documents and
hold them after payment to the supplier pending receipt of its customer’s
invoices and present the documents itself for payment under the muster credit
in favor of its customer.
Advantage and disadvantage of
L/C
Advantages
·
An
importer can assure that the exporter has complied with certain terms and
condition as specified in L/C before payment.
·
Importer
can insist on shipment of goods within a certain time stipulated a latest
shipment date.
·
He
can get advice from the banker according to L/C terms.
·
He
can ask for financial assistance from the banker.
·
Protection
offered by UCP500.
Disadvantages
·
Since
bank deals with documents only goods may not be the same as those specified in
the credit.
·
Issuing
bank obliged to pay even though the conditions of goods may be poor.
·
L/C
commission is relatively high.
Advantages for exporter
·
The
risk for nonpayment is lower as complies provided with L/C.
·
It
is a safe method through which prompt payment obtains after shipment.
·
Exporter
can get expertise advice from the banker.
·
The
exporter can get financial assistance before the buyer makes payment.
Disadvantages
·
Sometimes
terms and condition cannot fulfill such as unreasonable shipment date adding on
L/C the clause of “restriction of a designated vessel to be informed by L/C
amendment
·
The
goods shipped before receiving payment and so it is not 100 percent safe.
Letter of Credit opening of Uttara Bank Limited
Foreign
exchange Practices of Uttara Bank Limited
Foreign
Exchange is very lucrative & profitable in modern Banking business. Its
recognized as a way of generating maximum profit with low investment. In other
Banking like advance needs high capital investment. But foreign exchange
required comparatively low investment. In foreign business complexity is high
due to rapid change in technology especially for a bank consists of so many
branches dispersed in a wide region. The system is easy for a bank to control
rich in capital equipped with modern technology concentrated in a small areas.
Technology is necessary to prepare quick statement, getting information,
preparing reports .Now technology is a turbulent in foreign exchange
business. To survive in the competition a bank has to adapt with this changes.
For this it will require skilled manpower, on line banking, 24- hours banking
services, high capital investment. Problems arise in foreign exchange for
changes in economical, and political business environmental changes of the
country. Changes in exchanges rate, change in currency rate, govt. rules and
regulations, create problems while dealing in foreign business. So it needs
always a conscious mind for successfully dealing in foreign business.
Sample Form for
Requesting a Letter Of Credit
Dear
International Buyer:
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We
are providing the following instructions as a guideline to be used when
opening a letter of credit to us. Because a letter of credit is a very
critical document, please verify that the information is accurate and
complete, without any mistakes which can create a discrepancy and lead to our
subsequent request for an amendment, and delay the shipment.
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Regarding
your purchase order number dated ,
please ask your bank to open an irrevocable, at sight, commercial letter of
credit according to the following terms and conditions.
|
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Beneficiary
Name
|
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Beneficiary
Address
|
||
Requested
Advising Bank Name
|
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Requested
Advising Bank Address
|
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Telephone
|
Fax
|
Swift
|
In
the amount of US$
|
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The
letter of credit must be payable at the counters of or
it must be negotiable and payable at the counters of a bank in .
|
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The
letter of credit must be in the possession of the Advising Bank and received
by us days before the agreed
upon shipment date.
Shipment will occur days after an acceptable letter of credit is in the possession of the Advising Bank. |
||
Shipment
terms are: Incoterms
2000
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Partial
shipments are permitted.
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Latest
shipment date is . Latest expiration
date is .
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Documentary
requirements are:
1. Signed
commercial invoice originals
and copies
2. Packing
list originals
and copies
3.
4.
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Documents
are to be presented within days
from the shipping date.
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All
bank charges will be paid by the Applicant.
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How to open an L/C:
For opening an
L/C there must be a relationship between banker and customer through opening an
account with the bank.
1.
L/C
must be open through current account.
2.
Perquisite
for opening L/C
Have to take some charge documents from the party
a) Trading
Licensee
b) Chamber of
Commerce certificate
c) last fiscal
year Income Tax certificate
Then the importer have to submit a proposal for opening L/C along with-
·
L/C application.
·
License no.
·
Performa invoice.
·
Party’s application.
·
L.c. set
·
IRC.
·
Insurance covered note.
L/C dealing officer have to
properly check the Proforma invoice –description of goods along with its
price, quantity, quality, sources of export country, marketability of goods,
shipment dates, shipping days, bill of entry. Packing list, certificate of
origin, H.S. code no. Brand new.
·
Certificate of taxpayers from tax commissioner.
·
Trade License from city commissioner.
·
Certificate from import and export registration department.
·
Money receipt from insurance company to reduce risk export port to import destination.
·
L/C Authorization form of the bank contains IRC number, shipping period,
description of goods date of l./c issues. – 1 copy for Bangladesh banks. With
name and address of dealer remittance, l./c form, description of goods,
inventor name, price for exchange clearance. 1- copy for custom purpose,
another copy for office record.
Nature of L/C
1.
Cash
L/C (sight)
2.
Cash
L/C
3.
Inland
B/B L/C (sight)
4.
Foreign
B/B L/C
5.
L/C
under AID loans
6.
Import
from EPZ B/B/L/C)
7.
Import
from EPZ B/B/L/C) (sight)
8.
Import
from EPZ 9CASH L/C (SIGHT)
9.
L/C
UNDER sta.
10.
Others
A L/C is most
suitable under following conditions
·
When
the importer is not well known. The exporter selling on credit may wish to have
the promise of payment.
·
When
the importer doesn’t want to pay the exporter until it is reasonable certain
that the merchandise has been shipped in good condition.
L/C
procedure:
The various steps involved
in the operation of credit are described as follows
·
The importer and exporter have contract before a L/C has been issued.
·
The importer applies for a L/C from his banker known as the issuing bank. He
may use his credit lines.
·
The issuing bank opens the L/C that is channeled through its overseas
correspondent bank, known as advising bank.
·
The advising bank informs the exporter of the arrival of the credit.
·
Exporter ships the goods to the to the importer or other designed place as
stipulated in the L/C.
·
Meanwhile the exporter also prepares his own documents and collects transport
documents or other documents from relevant parties. All documents will be sent
to his banker, which is acting as negotiating bank.
·
Negotiation of export bills occurs when the banker agrees to provide him with
finance. In such case he obtains payment immediately upon presentation of documents.
If not the documents will be sent to the issuing bank for payment or an
approval basis in the next step.
·
Documents are sent to issuing banker reimbursing bank, which is a bank
nominated by the issuing bank to honor reimbursement from negotiating bank for
reimbursement or payment.
·
Issuing bank honors to its undertaken to pay the negotiating bank on condition
that the documents comply with the L/C terms and conditions.
·
Issuing bank releases documents to the importer when the letter makes payment
to the former or against the letter trust receipt facilities.
·
The importer takes delivery of goods upon presentation of the transport
(usually shipping documents).
Types of Letter of Credits
offered by ‘Uttara bank limited’
Documentary credits may be
either:
1.
Revocable
Letter of Credit.
2.
Irrevocable
Letter of Credit.
Revocable Letter of Credit:
A revocable credit is a
credit, which can be amended or cancelled by the issuing bank at any time
without prior notice to the seller.
Irrevocable Letter of Credit:
An irrevocable credit
constitutes a definite undertaking of the issuing bank (since it cannot be
amended or cancelled without the agreement of all parties thereto), provided
that the stipulated documents are presented and the terms and conditions are
satisfied by the seller. This sort of credit is always preferred to revocable
letter of credit.
Parties to a Letter of
Credit (L/C):
Importer/Buyer
Procedure or Formalities
1.
Procurements
of IRC (Import Registration Certificate) from the concerned authority.
2.
Signing
purchase contract with the seller.
3.
Requesting
the concerned bank (importer’s/issuing bank) to open a L/C on behalf of the
importer favoring the exporter.
4.
The
issuing bank opens or issues the L/C in accordance with the request of the
importer and request another bank (advising bank) located in the exporter’s
country to advice the L/C to the beneficiary.
5.
The
advising bank advises or informs the seller that the L/C has been issued.
6.
As
soon as the exporter receives the L/C and is satisfied that he can meet the
L/C’s terms and conditions, he is in a position to make shipment of the goods.
7.
After
making shipment of goods in favor of the importer, the exporter submits the
documents to the negotiating bank for negotiation.
8.
The
negotiating bank examines the documents and if found in order, negotiates the
documents and send them to the issuing bank.
9.
After
receiving the documents the L/C issuing bank also examines the documents and if
found in order makes to the negotiating bank.
10.
The
L/C opening bank then the importer to receive the documents on payment.
11.
The
importer after paying all the dues receives the documents from the L/C issuing
bank and releases the imported goods from the port authority.
Import
Procedure Including Registration
To carry on the business of
import, the first thing one need is registration with the licensing authority.
To get this registration the interested person submits the application along
with the following papers or documents directly to the Chief Controller of
Imports AND Exports or the respective Zonal Offices of CCI and E.
1.
Income
tax registration certificate.
2.
Nationality
certificate.
3.
Certificate
from Chamber of Commerce and Industry or Registered Trade Association.
4.
Bank
Solvency Certificate.
5.
Copy
of Trade License.
6.
Any
other documents if required by CCI and E.
On receiving application
the respective CCI and E offices will examines the documents and conduct
physical verification and issue demand notice to the prospective importers to
submit the following papers through their nominated bank.
1.
Original
Copy of Treasury Challan deposited as IRC fees.
2.
Asset
certificate.
3.
Affidavit
from 1st class Magistrate.
4.
Rent
receipt.
5.
Two
copies of passport size photograph.
6.
Partnership
deed in case of partnership firms.
7.
Certificate
of Registration, Memorandum, Articles of Association in case of limited
company.
The nominated bank of the
applicant will scrutinize the documents and verify the signature of the
applicant. After scrutinization and verification, the nominated bank will
forward the same to the respective CCI and E office with forwarding schedule in
duplicate through bank’s representative. The CCI and E office will ac knowledge
on duplicate copy of the forwarding schedule and return back the same to the
bank representative.
On being satisfied, after
scrutinization of the documents, the respective zonal offices of CCI and E will
issue Import Registration Certificate (IRC) to the applicants.
Typical
Letter of Credit (L/C):
If the relationship with
the customer is good, other methods of financing can make business transactions
easier. We might want to consider three special types of letters of credit that
offer more flexibility:
1. Revolving Letter of Credit
(L/C): This is useful when shipping a variety of
goods to an established customer. It normally runs a period less than one year
and it provides for prompt reinstatement when drawn against.
2. Assignable Letter of Credit
(L/C): This type the same as the normal letter of
credit, except that it includes the phrase “and/ or assignees” following the
name of the beneficiary. This allows the exporter to make his or her domestic
purchase by using the overseas buyer’s credit. That is, we agree that payment
for the letter of credit may be made to us U.S. suppliers. This is a way for an
exporter to conduct business with limited capital.
3. Banker’s Acceptances: As our business grows we
will want to extend credit to our importer. One of the most efficient methods
of doing this is through a banker’s acceptance. After agreeing to the terms
(e.g. 90 days at sight), the importer opens a draft (check) under a letter of
credit in favor of the exporter (beneficiary). The exporter presents the draft
and the requested shipping documents to the paying bank. The bank reviews the
documentation for correctness, then “accepts” the draft to become payable
(mature) in 90 days, or if the exporter requires, “accepts” the draft and
discounts the amount because of the need for immediate funds.
Documentary
Drafts (Bill of Exchange):
Drafts are a popular and
common method of financing exports. A draft is a written instrument drawn by
one party (exporter) on a buyer for certain sum of money at sight (D/P) or at
some definite future time. Since World War II, Letters of credit have become
less popular because of competition.
When using drafts, we and
the buyer usually agree beforehand that the transaction will be on a sight
draft basic or perhaps on a 60 or 90 days deferred payment basis (60 SD, DA).
·
Sight Draft Document Against Payment (S/D, D/A): The overseas importer
orders merchandise directly from us, and we arrange to ship the goods. We then
take us shipping documents and our own drafts, drawn on the importer, to our
bank. Our bank U.S. bank forwards all documents to its correspondent bank overseas.
This overseas bank notifies the importer when the documents arrive. If terms
are payment at sight, this arrangement would be called a sight draft document against
payment (S/D, D/A), and the importerwould be required to pay
immediately to obtain the shipping documents so she or he can pick up the
goods.
·
Document Against Payment (D/A): If the importer has agreed
to “accept” (pay letter) (D/A) the draft, he or she is permitted to obtain the
documents by accepting the draft and the merchandise but is not obliged to make
payments until the draft matures (e.g. 60 days D/A). The exporter will, of
course, have established credit locally and made arrangements with his or her
bank prior to undertaking the shipment.
Two other types of drafts
are used less frequently: time drafts and date drafts.
1.
1. Time Draft: They are used to give the
buyer better financing because they are forms of deferred payment. In the case
of Time Draft, the buyer may take possession of the merchandise with payment
deferred.
2.
2. Date Draft: With a Date Draft, the
seller retains the title of goods until payment. The main problem with this
type of financing is the possibility of the buyer being insolvent when the
drafts are presented for payment. Therefore, before offering such terms, we
should be fairly certain of the buyer’s financial stability.
Documents required for New
Importer while Opening L/C:
An importer should follow
the relevant import formalities while the importer tends to import goods to
Bangladesh. A list of significant documents which are required for a new
importer while opening a L/C is given below:
1.
Account
to be maintained with the bank.
2.
Valid
Import Registration Certificate (IRC).
3.
Bonded
warehouse license (in case of export oriented industry).
4.
Pro-forma
Invoice (PI) issued by the foreign supplier.
5.
Insurance
cover note.
6.
Trade
license.
7.
TIN
(Tax Identification Number) Certificate.
8.
VAT
(Value Added Tax) Certificate.
9.
Declaration
in triplicate regarding the payment of income tax by the importer.
10.
Letter
of Credit Authorization Form duly filled in and signed by the importer.
11.
One
set of IMP form duly signed by the importer.
12.
Valid
membership certificate from a registered Chamber of Commerce and Industry or
Trade Association.
13.
Membership
certificate from BGMEA (Bangladesh Garment Manufacturers and Exporters
Association) in case of Garments Industry.
14.
Proof
of payment of renewal fees for the IRC.
15.
Certificate
of incorporation with RJSC (Registrar Join Stock Companies).
16.
Certificate
of commencement.
17.
Resolution
of Board of Directors.
18.
Any
such documents as may be required as per Import Policy Order (IPO).
Discrepant
Documents:
A
list of common discrepancies is given below:
1.
Unclean
Bill of Lading.
2.
Bill
of Lading.
3.
Bill
of Lading undated.
4.
Shipment
effected from port other than that stipulated in the credit.
5.
Goods
shipped on deck (unless stipulated in the credit).
6.
Full
set of bill of lading not presented.
7.
Certificate
of country of origin not presented.
8.
Certificate
notifying insurance company of shipment not presented.
9.
Weighment
certificate not presented.
10.
Cuttings
or alterations in documents not authenticated.
11.
Documents
inconsistent with each other.
12.
Description
of goods on invoice differs from that in the credit.
13.
Weights
differ between documents.
14.
The
amount shown in invoice and bill of exchange differ.
15.
Shipping
marks and numbers differ between documents.
16.
Credit
amount exceeded.
17.
Credit
expired.
18.
Documents
not presented in time.
19.
Late
shipment.
20.
Short
shipment.
21.
Absence
of documents called for in the credit.
22.
Bill
of exchange drawn on a wrong party.
23.
Bill
of exchange payable on an indeterminable date.
24.
Absence
of signatures in the documents.
25.
Packing
list not submitted.
26.
Inspection
certificate not submitted.
27.
Unit
price not mentioned in invoice.
Operations
of Documentary Letter of Credit (L/C):
The following five major
steps are involved in the operation of a documentary Letter of Credit:
1.
1. Issuing.
2.
2. Advising.
3.
Amendment
(If necessary).
4.
Presentation.
5.
Settlement.
1. Issuing Letter of Credit: Before issuing L/C, the
buyer and seller located in different countries, concludes a “sales contract”
providing for payment by documentary credit. As per requirement of the seller,
the buyer then instructs the bank-the issuing bank-to issue a credit in favor
of the seller (beneficiary).Instruction or 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. After being
convinced about the ‘necessary conditions’ contained in the application form
and ‘sufficient conditions’ to be fulfilled by the buyer for opening a credit
the opening bank then proceeds for the credit to be addressed to the
beneficiary.
2. Advising a Letter of Credit
(L/C): 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. Before forwarding, the advising bank has to verify the signature
of the officer of the opening bank and ensures that the terms and conditions of
the credit are not in violation of the existing exchange control regulations
and other regulations relating to export. In such act of advising, the advising
bank does not take any liability.
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.
In case of revocable
credit, it can be amended or cancelled by the issuing bank at any moment and
without prior notice to the beneficiary. But in case of irrevocable credit it
can neither be amended nor canceled without the agreement of the issuing bank,
the confirming bank (if any) and the beneficiary.
4. Presentation
of Documents: The seller being with the terms and
conditions of the credit proceeds to dispatch the required goods to the buyer
and after that, has to present the documents evidencing dispatching of goods to
the negotiating bank on or before the stipulated expiry date of the credit.
After receiving all the documents, the negotiating bank then checks the
documents against the credit. If the documents are found in 0rder, the bank
will pay, accept or negotiate to the issuing bank. The issuing bank also checks
the documents and if they are found as per credit requirements, either.
1.
Effects
payment.
2.
Reimburses
in the pre-agreed manner.
5. Settlement: Settlement means fulfilling
the commitment of issuing bank in regard to effecting payment subject to
satisfying the credit terms fully. This settlement may be done under three
separate arrangements as stipulated in the credit.
·
Settlement by Payment: Here the seller presents
the documents to the paying bank and the bank then scrutinizes the documents.
If satisfied, the paying bank makes payment to the beneficiary and in case this
bank is other than the issuing bank, then sends the documents to the issuing
bank if the issuing bank is satisfied with the requirements, payment is
obtained by the paying bank them the issuing bank.
·
Settlement by Acceptance: Under this arrangement, the
seller submits the documents evidencing the shipment to the accepting bank
accompanied by the draft drawn on the bank (where credit is available) at the
specified tenor. After being satisfied with the documents, the bank accepts the
documents and draft and if it is a bank than the issuing bank, then sends the
documents to the issuing bank stating that it has accepted the draft and at
maturity the reimbursement will be obtained in the pre-agreed manner.
·
Settlement by Negotiation: This settlement procedure
starts with the submission of documents by the seller to the negotiating bank
accompanied by a draft drawn on the buyer or any other drawee, at sight or at a
tenor, as specified in the credit. After scrutinizing that the documents meet
the credit requirements, the bank may negotiate the draft. This bank, if other
than the issuing bank, then sends the documents and the draft to the issuing
bank. As usual, reimbursement will be obtained in the pre-agreed manner.
Findings:
1.
Lack
of modern technology.
2.
Higher
educated and smart employees are not present.
3.
Sitting
space for customers is not sufficient.
4.
The
decoration and environment of this branch is poor compare with other banks.
5.
Workloads
on the employees are too heavy; it also creates problems to provide proper
services.
6.
This
branch has no customer services department.
7.
Customer
turnover is high.
8.
This
branch offers only a few loan schemes to customers.
Recommendation:
Uttara Bank Limited is
successfully doing their business in Bangladesh. From the findings it has been
found that the overall position of the bank is satisfactory. But in some case
it has been found that their performance is below the optimum level. As an old
bank in Bangladesh, UBL can follow the following recommendations to improve
their business.
1.
Uttara
bank Ltd (Tongi Branch) should use modern technology to provide better services
and attract to customers.
2.
UBL
should be needed to provide standard payment structure. It will be very easy to
attract and retain higher educated employees.
3.
UBL
should need to increase sitting space for customers by this way customers will
be satisfied and attracted.
4.
The
authority of UBL should decorate it nicely both inside and outside of the
branch.
5.
To
reduce workloads of the employees the bank should use latest technology and
provide training to employees.
6.
UBL
should open customer care department within very short time customer so that
customers get there required information easily.
7.
UBL
should open ATM card, debit card, marriage loan, home loan, educational loan,
car loan; it should open different types of schemes to reduce the customer
turnover.
8.
UBL
should offer all types of loan scheme which is already offers by the other
branches, like commercial lending (Export, Import, Internal trade).
Conclusion:
Banking sector being a
service of Bangladesh continues to contribution to a great in the economy of
Bangladesh. Uttara Bank Ltd. is one of the leading banking services of the
country. Though UBL is the new entrants in the banking industry, it has already
shown huge potentials 7 years of operation.
I observe the total foreign
exchange department very carefully while completing my internship in UBL. With
a keen attention and observation the study has been tried to complete. The
following are some extract of the major findings:
·
For
the effectiveness of the foreign exchange department, UBL has divided the whole
department into three major parts, which are Export, Import, and Remittance.
·
The
monitoring system of the command is strictly maintained here. The executives
now and then visit the department, which keeps all the officers alert about
their duty.
·
Sometime
officers show negligence to the clients, which have a negative impact on its
service.
I also think that there is
bright future waiting for the Uttara Bank Ltd. and UBL is in a position to go
as a catalyst for third development in the banking sector in Bangladesh.
Another thing I have to mention here that the UBL is going through the oath in
which they need to go and as like today it will bring more and welfare oriented
activities in the banking sector in the years to come.
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