Export LC Advising, Transferring , Checking and Back to

Back LC (BB LC) Opening & Operation Procedures

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Discussion outlines
Introduction:

# LC definition / concept.
# Types / special Forms of LC.
# Features / Characteristics of Back to Back LC
# International / Inland Trade Payment Methods &
Purpose / uses / necessity of LC in Trading / Bai.
# Concept of F. Ex. & F. Ex. works.
# Works under Export section.
LC Advising.
LC Transferring.
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Discussion outlines (contd.)

Back

to Back (BB) LC Opening:

# B. Bank / HO guidelines for BB LC opening.
# Procedures of BB LC Opening:
*Checking & Lien of Export LC.
*Obtaining application,other required papers for
opening BB LC & Credit report of supplier &buyer.
*Preparation of BB LC opening Appraisal Form.
*SWIFT operation for Issuing LC& *Vouchering.
Lodgement of BB LCs Bills.
Payment of BB LCs Bills & Retirement of BB LC.

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Introduction: LC definition / concept

of Credit or Credit / Documentary Credit:
LC means any arrangement, however named or
described, that is Irrevocable & thereby constitutes
a definite undertaking of the Issuing Bank to
honor a complying presentation (Article-2).
# What is LC ? - A conditional payment undertaking.
# Who gives undertaking?: Issuing Bank.
#To whom the undertaking is given-To the Exporter.
# Undertaking for what:To honor-payment undertaking
# Conditional Undertaking?: Yes, if the presented
Bill is complied with LC, UCP-600 & ISBP terms.
LC-Letter

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Introduction: LC definition / conceptcontinued

So,LC

is a definite payment undertaking of the LC

Issuing Bank to the exporter if the presented Bill is
complied with the LC terms & Rules of UCP, ISBP.
i.e. the LC is a conditional payment undertaking of
the LC Issuing Bank to the Exporter to honor a
Complying Presentation.
What do you mean by Complying Presentation: If
the submitted Bill against LC for getting payment is
complied with the LC terms as well as with the
rules of UCP-600 &ISBP-681, then the submission
of LCs Bills is known as Complying Presentation.
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Type/forms of LC:All LC are Irrevocable but

may have special name having special term
Cash

LC-Back to Back(BB) LC: Basis-Source of

payment of LC. If the payment of LC is aimed from
the existing reserve of FC, the opened LC is known
as Cash LC. It is opened basically by the Importer.
If the payment of LC is aimed- not from the existing
reserve of FC but from the export earnings /
proceeds, the opened LC to import raw materials is
known as BB LC. It is opened by the Exporter.
Export LC-which is received for export of goods.
Import LC which is issued for import of goods.
Inland LC - Foreign LC: Basis -purchase of goods
from Inland supplier or from foreign country/supplier.
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Type/forms of LC: Contnued

Sight

LC -Deferred / Usance LC: Basis - payment

time i.e. when the payment against LC is made at
sight i.e.on demand Sight LC. when the payment
against LC is made after certain period- usance LC.
Both the LCs (Cash LC or BB LC) may be InlandForeign, Sight-Usance LC containing related term.
Other special Forms of LC:Basis-containing special
terms:Add Confirmed or Confirmed, Transferrable,
Red/Green Clause,with/without recourse, Nego/Acp

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International/Inland trade payment methods

&use/necessity of LC in Import-Export/Bai.
Cash

in Advance: Purchaser/Importer pays the

goods value advance to the seller/exporter & then
seller ship/delivers the goods towards the purchaser.
Here, purchaser / Importer feels risk / uncertainty
regarding receipt of goods against his payment. B.
Bank has restrictions for import by this method.
Open Account: Total a reverse situation of Cash in
Advance.The seller at first ships /delivers the goods
towards the purchaser & then the purchaser pays
the goods value. Here, seller / exporter feels risk /
uncertainty regarding receipt of payment of goods.
B. Bank has restrictions for export by this method.
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International/Inland Trade Payment

Methods &use/necessity of LC (contd).
Documentary

Collection:In addition of open account

,after shipment of goods, the seller also prepare &
send Bill towards the purchaser for getting payment
Here, seller / exporter also feels risk / uncertainty
regarding receipt of payment of goods against Bill.
# In above 3 Methods,the Bank may act as a media to
send the price from the purchaser to the seller by
TT/DD/PO/On Line & its no undertaking involved.
LC/DC:Issuing Bank undertake to arrange payment
against submitted complied Bill of seller/exporter by
LC. So that, LC system minimizes the risk & is
worldwide popular for international / inland trading.
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Foreign Exchange and works of F.Ex Dept

& Export section
Means Foreign Currency(FC) or Int. Trade.
FC means-Cash FC or Financial Instruments in FCFDD,Bill of Exchange,Promissory Note,Cheque etc.
Functions/works at F.Ex:Export,Import,F.remittance
Main works under Export section:
# Export LC Advising & Transferring.
# BB LC Opening(non funded/off balance sheet item).
# BB LCs Bills handling: Lodgement # Bai Salam Inv.
# Bill Negotiation:Bai us Sarf/MDB Inv#FBC/IBC,FBCA
# BB LCs Bills Payment&Retirement:(i) By Export
Proceeds(ii)By creating Baim-FC Bills# Q-SCA etc.
F. Ex:

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Characteristics of Back to Back LC:

It

is an LC to purchase / import raw materials for

manuf. finished goods under an Export LC/Contract
It is opened against lien / support / back of an
Export LC / Export Order / Export Contract / Sale
Contract-known also as Master/Mother LC,Contract
It may be Inland,Foreign,non cash LC&duty free LC
It is by nature, an Ussance LC(but sight BB LC
may be opened under certain extra conditions).
Its payment is normally made by the export
proceed earned after exporting the finished goods
under the export LC otherwise by Inv-Baim FC Bills
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Export LC Advising (Article-9)

LC

Advising: Sending of export LC to the exporter

by the Advising Bank is known as LC Advising.

Advising

Bank: At request of Issuing Bank, the Bank not a confirming Bank, advises / sends the LC & any
amendment to the exporter without any undertaking
to honor or negotiate, is known as Advising Bank.

Advising

Guidelines:Apparent authenticity,No change,

without risk & responsibility,inform to Issuing Bank,
Adv. Authority, message type-700,707;Amendment etc
Advising Procedures: # Authentication of LC:SWIFTauto authenticated #Entry in Adv.Register # Affixing
seal-signature on advised copy&commission recov.

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Export LC Transferring (Article 38)

Transferrable

LC-contains a clause - Transferrable.

General principles for transferring an LC:
# Transferrable clause must present in LC/Amendment.
# Transferable for whole or part value-partial shipment
# Transferrable may be to one or more than one exporter
part by part at the request of the 1st exporter but 2nd
exporter can not transfer to 3rd one.The 1st exporter
will not be treated as 3rd exporter.
#The transferring Bank is nominated by Issuing Bank.
#Transferred LC must reflect original terms except:LC
value/unit price,shipment/expiry date-may reduced.
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Back to Back LC Opening: BB Guidelines

B.Bank

guidelines(CH-7,P-38)-For Import BB LC:

# 100%export oriented G.Ind.having Bond License.
# Admissible value addition must as per Import Policy.
# Total finance up to 90% of net FOB value of ELC.
# No BB LC for Barter / STA without BB permission.
# For import raw materials only to manufacture the
finished goods for export #ERC must #Lead time to
be sufficient-time to ready the goods before export
shipment date#May on ussance basis for maximum
180 days. Usance interest not exceed LIBOR #May
sight basis againstEDF&/or balance of NFCD-ERQ
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BB LC Opening (contd.)-BB Guidelines

# Inland BB LC may open in Tk or in FC to purchase
raw materials against Export LC. In case of Inland
BB LC in FC, admissible value addition be followed
but IMP/EXP form is not applicable unless EPZ unit
# Import (F.) BB LC may also open to import required
goods from abroad by the local manufacturer cum
supplier having bond license against Inland BB LC.
Procedures of BB LC Opening:
Checking of Export LC: Whether the Export LC is # Authenticated, properly coded/advised/transferred.
# Operative-Inoperative:absence of it-treat operative.
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BB LC Opening(contd.) - Checking of ELC

# Subj. to UCP-600#Name/address:Issuing-Adv.Bank
# Transferrable, transferrable allowing /not prohibiting
part shipment # Lead Time # Irrevocable or not.
# Delivery Terms: FOB/CFR(if CFR-freight certificate
required # Name & address-Importer & Exporter.
# % of Local/Buying Agent/house com-upto 5% is ok,
Opening Bank Charges if any. # Readable / Garble.
# Shipment date, expiry&place of expiry(to be B. desh)
# Negotiation clause-Freely negotiable required.
# Specific/clear payment clause: Available or not.
# Description of goods (unit price, permissible or not).
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BB LC Opening (contd.): Checking of ELC

# BL Clause: To be the order of Negotiating Bank (to
the order of exporter BL, Blank backed BL, Blank
endorsed BL, endorsed favoring exporter BL is not
acceptable) # Port of shipment/destination # Tenor.
# Shipping Document: Types/NOs, Issuing Authority,
Easy to obtain / procure or not, PSI clause etc.
# Currency: Free convertible currency is acceptable.
Documents

required for BB LC Opening:Application,

ERC,Bond License,ELC/Contrac,LCAF,IMP,PI/Indent,
Insurance Cover Note,TL,TIN&VAT Certificate,

Original Export LC, Charge & Security documents

etc.

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BB LC Opening (contd.)
Credit

Report: In case of Proforma Invoice, for LC

value above $10000 & in case of Indent, for LC
value above $20000, Credit Report to be obtained.
Preparation of Pre Audit Memo (BB LC Appraisal
report F-217):#Limit particulars # Export LC- BB LC
particulars # Audit observation-lapses/ irregularities
# Recommendation/Br approval for BB LC opening.
SWIFT:Formatting, numbering of LC& transmission
Vouchering / Accounting:# DR:Asset as per contraBB LC/ILC, CR: Liability as per contra-BB LC / ILC.
DR-Current A/c, CR-Bank Com/Charges, VAT etc.
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BB LCs Bill Lodgement

Lodgement means

recording/entry the Import Bill

in the Import Bill Register which includes following
works related to Import Bill: # Information to the
Importer regarding receipt of Bill # Checking of the
Import Bill /documents complying with the LC terms
#If the document is found OK,entry of the Bill in the
Bill register fixing the Bill no# In case of usance Bill,
Acceptance of Bill of Exchange from the Importer&
issuance of maturity / payment date to exporters
Bank #Reversal of LC liability & passing of Bill liability# If
the Bill is discrepant,raising discrepancy to Issuing Bank
# Endorsement of Bill-to clear the goods from the port.
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Endorsement of BB LC Bills/ Import

Document-Transport document(BL,AWB,TR
To

clear the imported goods from the port under

Bank Inv,a set of Import document to be sent to the
port customs authority by the Bank.The set include#Invoice-value certified by the Bank # Endorsed BL
/TD- Please deliver to the order of... Branch,IBBL
/ C&F Agent or the Importer-when no Bank finance.
# Copy of LCAF (marking Bill value at its back) #
Copy of Insurance Cover Note etc with a forwarding
# In case of copy document- Banks NOC against
Letter of Indemnity from the Importer is required.
Imported goods may clear against Original doc as
well as by Copy doc-no right to raise discrepancy.
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Payment & Retirement of BB LC / Bills

Payment

of BB LCs Bills: # By Export Proceedsafter realization of export value # By creating Inv:

Baimuajjal FC Bills- if no export/no realization, short
realization of proceeds / distress cargo etc. In these
cases, Customs Authority &B. Bank to be informed.
# By the balance of exporters FCAD A/c in case of
Sight BB LC # Before payment of Usance Import
BB LCs Bills, Bill of Entry for bond to be submitted
in evidence of actual arrival of imported goods.
#Payment must before maturity of BB LCs Bills.
Retirement of BB LC: # Issuance of Payment
Instruction # Reversal of BB LC Bill Liability.
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HO (IBW) limit Sanction Procedures

Processing

& Appraisal: Application, CIB,

Appraisal Form-167A & 167-B, Ratio Analysis, IRG
& Recommendation.
Approval & sanction: Branch, ZO, HO(IBW) Division, Wing, MD, MC, EC, Board.
Documentation: Charge document, Security
document & other document.
Opening & Operation of BB LC- Lodgement,
Payment & Retirement.
Payment: By export proceeds & By Inv-Bamuajjal
FC Bills.
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Referrances
Bangladesh

Bank Guidelines for Foreign Exchange

Transactions.
ICC Publication:UCP 600 (UCP/UCPDC: Uniform
Customs and Practice for Documentary Credit).
Foreign Exchange & Anterjatic Banojje Orthaon
Sayed Ash raf Ali.
A Text Book on Foreign Exchange- LR Chowdhury.
Import Policy Order 2012-2015.

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Any Questions?

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