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January 05, 2011

Internship Report On Commercial Letter Of Credit and The performance of AB Bank

Prepared for Ms. Sumaiya Zaman Lecturer, School Of Business University of Liberal Arts

Prepared By Nazmin Akter Id # 071011047 School Of Business University Of Liberal Arts Bangladesh

Submission date: January 05, 2011

LETTER OF TRANSMITTAL

Sumaiya Zaman Lecturer Department of Business Administration University of Liberal Arts Bangladesh

Subject: Submission of BBA Internship Report

Dear Madam, With due respect and honor, I would like to submit internship report, which was done on AB Bank Ltd., a study on its Karwan Bazar Branch. The internship program has given me the opportunity to combine my theoretical knowledge with practical experience. I tried my level best to make this report meaningful and informative. I have done my internship in AB Bank Ltd. for the period of three months. The officers of ABBL were very cordial and extended their hands within the limit of their authority. As the time was limited, the report could not be done more comprehensively and analytical. Your valuable advice, suggestion and guidance have helped me a lot to prepare the report. I will be very grateful, if you kindly accept this report. Sincerely yours, Nazmin Akhter ID-BBA 071011 Department of Business Administration University of Liberal Arts, Bangladesh

Contents
LETTER OF TRANSMITTAL ................................................................................................................... 1 Executive Summary ................................................................................................................................. 1 Paper work is must for Back to Back LC. Due to the proper documentation every year defaulters are increasing rapidly..................................................................................................................................... 2 Though I ve worked in the LC department of this bank I observed the following findings- ........................ 2 1.1. Origin of the Report .......................................................................................................................... 4 1.2. Objective of the report...................................................................................................................... 4 The main objectives of the study are: ...................................................................................................... 4 The Secondary objectives of this report are: ............................................................................................ 4 1.3. Methodology of the Study ................................................................................................................ 5 1.3.1. Primary Sources of Data: ................................................................................................................ 5 1.3.2. Secondary Sources of Data: ............................................................................................................ 5 1.4. Scope of the Study ............................................................................................................................ 6 1.5. Limitations of the Study .................................................................................................................... 6 2.0. Introduction ...................................................................................................................................... 7 2.1. AB Bank over View ............................................................................................................................ 8 2.2. Management Committee ................................................................................................................ 10 2.3. Corporate Information .................................................................................................................... 10 3.0. Letter Of Credit ............................................................................................................................... 11 3.1. Parties involved in LC transaction: ................................................................................................... 11 3.2. Letter of Credit Process: .................................................................................................................. 12 3.3. Commercial Letter of Credit Flow .................................................................................................... 12 3.4. Settlements under a Letter of Credit ............................................................................................... 13 3.5. Types of Letter of Credit.................................................................................................................. 13 3.6. Advantages of Letter of Credit: ....................................................................................................... 15 3.7. Risks involved in Letter of Credit. .................................................................................................... 15 3.8. 1. Account Party Beneficiary......................................................................................................... 16 3.8.2. Account Party -- Issuing Bank ....................................................................................................... 18 3.8.3. Issuing Bank Beneficiary ............................................................................................................ 18 3.9. Functions of a Commercial Credit.................................................................................................... 19 ii

3.10. Back to Back Letter of Credit (LC s) ................................................................................................ 20 3.10.2. Opening of Back-to-back Import LCs ........................................................................................... 20 3.10.3. Payment against Back-to-back Letter of Credit (LCs) ................................................................... 21 3.10.4. Back-to-Back LC .......................................................................................................................... 22 3.10.5. Advance against Red Clause Letter of Credit (LC) ........................................................................ 23 3.10.6. Reshipment Investment facilities................................................................................................ 23 3.10.7. Foreign Back-to-Back Letter of Credit ......................................................................................... 24 3.11. Formalities & Procedure................................................................................................................ 25 3.12. In land Back-to-back Letter of Credit (LC) ...................................................................................... 26 3.12.1. Documents Required for Opening of Back-to-back LCs ............................................................... 26 3.12.2. Additional Documents ................................................................................................................ 26 3.12.3. Charge Documents ..................................................................................................................... 26 3.12.4. Payment of Back-to-back LC, and Adjustment of Investment facilities ........................................ 27 4.0. My Activities at AB Bank Ltd, Kawran Bazar Branch ......................................................................... 28 4.1. SWOT Analysis ................................................................................................................................ 29 4.2. My Understanding: ......................................................................................................................... 31 While working with the company I ve come up with the following understandings that- ....................... 31 Paper work is must for Back to Back LC. Due to the proper documentation every year defaulters are increasing rapidly. A proper documentation with full phase having fair evaluation can bring back faith to the bank as well as the consistent clients of the bank. ........................................................................... 31 4.3. Findings .......................................................................................................................................... 31 AB Bank is one of the recognized banks in Bangladesh banking sector and it s accomplishing its activities in LC sector for a long time. Though I ve worked in the LC department of this bank I observed the following findings- ................................................................................................................................. 31 4.4. Recommendations .......................................................................................................................... 32 5.0. Case Study on a practical Back-to-Back L/C...................................................................................... 32 6.0. Conclusion ...................................................................................................................................... 37 7.0. Reference ....................................................................................................................................... 37

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Executive Summary
AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982. AB Bank Limited is now well growing and it s operating 77 branches in different parts of Bangladesh. The scope of the study will be limited to the organizational setup, function and operation of the ABBL in the Bangladesh. I was assigned at the karwan Bazar Branch and this provided me the way to get myself familiarized with banking environment for the first time indeed. I have an opportunity to gather experience by working in different departments of the Branch. A letter of credit is a document typically issued by a bank or financial institution, which authorizes the recipient of the letter (the "customer" of the bank) to draw amounts of money up to a specified total, consistent with any terms and conditions set forth in the letter. This usually occurs where the bank's customer seeks to assure a seller (the "beneficiary") that it will receive payment for any goods it sells to the customer. These are the following intermediaries of LCThe Applicant is The Beneficiary The Issuing or Opening Bank An Advising Bank The Paying Bank The Confirming Bank The branch may open back-to-back import LCs against export LCs received by export oriented industrial units operating under the bonded warehouse system, subject to observance of domestic value addition requirement (stated in terms of permissible limit of CFR value of imported inputs as percentage of FOB export value of output) prescribed by the Ministry of Commerce from time to time.
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Paper work is must for Back to Back LC. Due to the proper documentation every year defaulters are increasing rapidly.

Followings the rules and regulation can also play a vital role for the bank though in some cases it s very difficult to maintain the rules in the corporate dealings but above all rules and regulations should be managed in a proper manner. While working here I came to understand that dealing client especially in the LC department is not an easy task for this though each of the staffs are very sincere about their activities but they cannot do it properly due to the work pressure.

Though I ve worked in the LC department of this bank I observed the following findingsIn the department Fax is one of the key instruments to maintain LC activities but in most cases I found it is out of service which is unexpected. Clients from different corporate sector are coming for opening LC without having proper documentation and also not that much respective about the law. Staffs here are so busy that they cannot cooperate as they should with the clients. As a bank ABBL does have that sufficient support to the client as well as its clients which is also unexpected.

y y y y

ACKNOWLEDGEMENT

At first, I must show my gratitude to the Almighty Allah for giving me capabilities to prepare this report. Then, I would like to remember the contribution and keen interest of my parents that has made me able to come to this stage. Then I would like to express my sincere gratitude and thanks to my honorable program supervisor Sumaia Zaman, Assistant Professor, Department of Business Administration of University of Liberal Arts Bangladesh for her brilliant and excellent guidance and assistance to complete this report.

I am very much grateful to the officials of the Kazi Ashraf Ali, AVP & Operation Manager, Karwan Bazar Branch for their support and co-operation. After that, I especially express my thanks to Ms. Sumaiya Zaman, my supervisor of that branch for guiding me throughout the internship program.

Finally I like to extend my thanks to all of my teachers and friends who have helped me in different ways.

Nazmin Akhter ID # B.B.ASchool Of Business University of Liberal Arts

1.1. Origin of the Report

Placement or internship program is an indispensable part of BBA (Bachelor of Business Administration) program, University of Liberal Arts that bridge the gap between the theoretical knowledge and practical situation. I was assigned to the AB bank at karwan bazar branch, Dhaka to take the real banking experience in order to reinforce knowledge acquired so far from the BBA program. In this internship program, each student selects a project for study, completes the study and prepares a report with recommendation for solution of the problem. This report is tentatively prepared to complete my BBA program and assigned by Sumaia Zaman.

1.2. Objective of the report

The main objectives of the study are:

To find out the actual banking activities happening in a private commercial bank in Bangladesh. To fulfill the requirement for the completion of BBA program. The Secondary objectives of this report are:

To know the operation of karwan bazar Branch of AB Bank Ltd. To describe the customer service process of AB Bank Limited. To analyze the barriers faced by the ABBL in providing service to their customers. To suggest a supportive role in the progress of banking system in financial sector. To know about the objectives and planning of ABBL. To know how the branches are efficiently controlled. To identify whether all process are perfectly and effectively practiced or not.

1.3. Methodology of the Study

Different data and information are required to meet the goal of this report. Those data and information were collected from various sources, such as, primary and secondary which is shown below:

1.3.1. Primary Sources of Data:

Personal observation. Face to face conversation with the officers. Face to face conversation with the client. Working at different desks of the bank.

1.3.2. Secondary Sources of Data:

File study. Annual report of AB Bank Ltd. Statement of affairs. Bank Rate sheet. Internet. Progress report of the Bank. Bangladesh Bureau of Statistics report.

1.4. Scope of the Study

AB Bank Limited is now well growing and it s operating 77 branches in different parts of Bangladesh. The scope of the study will be limited to the organizational setup, function and operation of the ABBL in the Bangladesh. This report mainly encompasses the performance of AB Bank Limited in comparison to the overall banking system in Bangladesh. For the purpose of my internship program, I was assigned at the karwan Bazar Branch and this provided me the way to get myself familiarized with banking environment for the first time indeed. I have an opportunity to gather experience by working in different departments of the Branch.

1.5. Limitations of the Study

During the study, I have faced the following limitations: Due to some legal obligation and business secrecy bank was reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview. The bankers are very busy with their jobs, which lead a little time to consult with them. Category wise export, import and guarantee business, amount and percentage of classified loan originated from the international trade are missing in the report for their restriction.

2.0. Introduction
A letter of credit is a document typically issued by a bank or financial institution, which authorizes the

recipient of the letter (the "customer" of the bank) to draw amounts of money up to a specified total, consistent with any terms and conditions set forth in the letter.

This usually occurs where the bank's customer seeks to assure a seller (the "beneficiary") that it will receive payment for any goods it sells to the customer. For example, the bank might extend the letter of credit conditioned upon the beneficiary's providing documentation that the goods purchased with the line of credit have been shipped to the customer. The customer may use the letter of credit to assure the beneficiary that, if it satisfies the conditions set forth in the letter, it will be paid for any goods it sells and ships to the customer. In simple terms, a letter of credit could be said to document a bank customer's line of credit, and any terms associated with its use of that line of credit. Letters of credit are most commonly used in association with long-distance and international commercial transactions.

2.1. AB Bank over View

AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982. AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer s and client s trust while upholding their reliability, across time. During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World. In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2008 financial year with good results. The Bank s consolidated profit after taxes amounted to Taka 230 cr which is 21% higher than that of 2007. The asset base of AB grew by 32% from 2007 to stand at over Tk 8,400 cr as at the end of 2008. The Bank showed strong growth in loans and deposits. Deposit of the Bank rose by Tk. 1518 cr ie., 28.45% while the diversified Loan Portfolio grew by over 30% during the year and recorded a Tk 1579 cr increase. Foreign Trade Business handled was Tk 9,898 cr indicating a growth of over 40% in 2008. The Bank maintained its sound credit rating in 2008 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an A1 rating in the long term and ST-2 rating in the short Term.

The Bank decided to change its traditional color and logo to bring about a fresh approach in the financial world; an approach, which like its new logo is based on bonding, and trust. The bank has developed its logo considering the contemporary time. The new logo represents our cultural Sheetal pati as it reflects the bonding with its clientele and fulfilling their every need. Thus the new spirit of AB is Bonding . The Logo of the bank is primarily red , as red represents velocity of speed and purity. Our new logo innovates, bonding of affiliates that generate changes considering its customer demand. AB Bank launched the new Logo on its 25th Anniversary year. AB Bank commits to nation to take a lead in the Banking sector through not only its strong financial position, but also through innovation of products and services. It also ensures creating higher value for its respected customers and shareholders. The bank has focused to bring services at the doorstep of its customers, and to bring millions into banking channels those who are outside the mainstream banking arena. Innovative products and services were introduced in the field of Small and Medium Enterprise (SME) credit, Women s Entrepreneur, Consumer Loans, Debit and Credit Cards (Local & International), ATMs, Internet and SMS Banking, Remittance Services, Treasury Products and Services, Structured Finance for Corporate, strengthening and expanding its Islamic Banking activities, Investment Banking, specialized products and services for NRBs, Priority Banking, and Customer Care. The Bank has successfully completed its automation project in mid 2008. It envisages enabling customers to get banking services within the comfort of their homes and offices. AB Bank has continuously invests into its biggest asset, the human resource to drive forward with its mission to be the best performing bank in the country. The bank has introduced Dress Code for its employees. Male employees wear designed ties and females wear Sharee or Salwar Kamiz, all the dresses are consisted with the unique AB Bank logo. AB is recognized as the people s choice, catering to the satisfaction of its cliental. Their satisfaction is AB s success.

2.2. Management Committee

Following members are also in the Management Committee: Head of HR & Transformation Head of Financial Institutions and Treasury Head of Internal Control & Compliance Head of Information Technology Head of Credit Risk Management Head of Credit Administration Management Head of Islami Banking Division Head of Retail Banking Head of SME Head of Risk Management Unit Head of Corporate & Structured Finance Head of Regions

2.3. Corporate Information

Name of the Company AB Bank Ltd Legal Form: A public limited company incorporated on 31st December, 1981 under the Companies Act, 1913 and listed in the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd. Commencement of Business 27th February 1982 Registered Office BCIC Bhaban, 30-31, Dilkusha C/A Dhaka 1000, Bangladesh. Tel: +88-02-9560312 Fax: +88-02-9564122, 23 SWIFT: ABBLBDDH E-mail: info@abbank.com.bd Web: www.abbank.com.bd

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3.0. Letter Of Credit

In International trade, the buyer and the seller who are located in different countries, may not know each other and hence many times the problem of Buyer s Creditworthiness hampers the trade between the buyer and the seller. The main objectives of the buyer and the seller in any international trade and contradictory in terms of Buyer will always try to delay the payment while the seller would like to receive funds at the earliest. To mitigate this problem, Seller always request Buyer to arrange for a Letter of Credit to be issued by Buyer s Bank. Upon issuance of Letter of Credit, the Buyer s bank replaces its own Creditworthiness to that of the Buyer, it undertakes to reimburse the Seller for the value of the Letter of Credit Irrevocably provided two underline conditions are fulfilled by the Seller: All the documents stated in the LC are presented; All the terms and conditions of the LC are complied with. The beauty of the LC is that if above two conditions are fulfilled, Issuing Bank will effect payment to the Beneficiary, irrespective of Applicant reimburses the Issuing Bank or not. Thus, a Letter of Credit is an undertaking issued by a bank in favor of a Beneficiary (Seller), which substitutes the bank s creditworthiness for that of the Applicant (Buyer). It is named a Letter because initially the LCs were issued manually in a Letter format address by Issuing Bank to Beneficiary confirming its conditional undertaking to reimburse the Beneficiary, the amount of the LC provided above 2 basic conditions are fulfilled.

3.1. Parties involved in LC transaction:

The Applicant is the party that arranges for the letter of credit to be issued. The Beneficiary is the party named in the letter of credit in whose favor the letter of credit is issued. The Issuing or Opening Bank is the applicant s bank that issues or opens the letter of credit in favor of the beneficiary and substitutes its creditworthiness for that of the applicant. An Advising Bank may be named in the letter of credit to advise the beneficiary that the letter of credit was issued. The role of the Advising Bank is limited to establish apparent authenticity of the credit, which it advises. The Paying Bank is the bank nominated in the letter of credit that makes payment to the beneficiary, after determining that documents conform, and upon receipt of funds from the issuing bank or another intermediary bank nominated by the issuing bank. The Confirming Bank is the bank, which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the issuing bank s commitment to pay.

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3.2. Letter of Credit Process:

3.3. Commercial Letter of Credit Flow

Applicant approaches Issuing/ Opening Bank with LC application form duly filled and requests Issuing Bank to issue a Letter of Credit in favor of Beneficiary. Issuing Bank issues a Letter of Credit as per the application submitted by an Applicant and sends it to the Advising Bank, which is located in Beneficiary s country, to formally advise the LC to the beneficiary. Advising Bank advises the LC to the Beneficiary. Once Beneficiary receives the LC and if it suits his/ her requirements, he/ she prepares the goods and hands over them to the carrier for dispatching to the Applicant. He/ She then hands over the documents along with the Transport Document as per LC to the Negotiating Bank to be forwarded to the Issuing Bank. Issuing Bank reimburses the Negotiating Bank with the amount of the LC post Negotiating Bank s confirmation that they have negotiated the documents in strict conformity of the LC terms. Negotiating Bank makes the payment to the Beneficiary. Simultaneously, the Negotiating Bank forwards the documents to the Issuing Bank to be released to the Applicant to claim the goods from the carrier. Applicant reimburses the Issuing Bank for the amount, which it had paid to the Negotiating Bank. Issuing Bank releases all documents along with the titled Transport Documents to the Applicant.
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3.4. Settlements under a Letter of Credit

All commercial letters of credit must clearly indicate whether they are payable by sight payment, by deferred payment, by acceptance, or by negotiation. These are noted as formal demands under the terms of the commercial letter of credit. In a sight payment, the commercial letter of credit is payable when the beneficiary presents the complying documents and if the presentation takes place on or before the expiration of the commercial letter of credit. In a deferred payment, the commercial letter of credit is payable on a specified future date. The beneficiary may present the complying documents at an earlier date, but the commercial letter of credit is payable only on the specified future date. An acceptance is a time draft drawn on, and accepted by, a banking institution, which promises to honor the draft at a specified future date. The act of acceptance is without recourse as it is a commitment to pay the face amount of the accepted draft. Under negotiation, the negotiating bank, a third party negotiator, expedites payment to the beneficiary upon the beneficiary s presentation of the complying documents to the negotiating bank. The bank pays the beneficiary, normally at a discount of the face amount of the value of the documents, and then presents the complying documents, including a sight or time draft, to the issuing bank to receive full payment at sight or at a specified future date.

3.5. Types of Letter of Credit

Irrevocable An irrevocable letter of credit can neither be amended nor cancelled without the agreement of all parties to the credit. Under UCP500 all letters of credit are deemed to be irrevocable unless otherwise stated. Here, the importer's bank gives a binding undertaking to the supplier provided all the terms and conditions of the credit are fulfilled. Unconfirmed The advising bank forwards an unconfirmed letter of credit directly to the exporter without adding its own undertaking to make payment or accept responsibility for payment at a future date, but confirming its authenticity. Confirmed A confirmed letter of credit is one in which the advising bank, on the instructions of the issuing bank, has added a confirmation that payment will be made as long as compliant documents are presented. This commitment holds even if the issuing bank or the buyer fails to make payment.
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The added security to the exporter of confirmation needs to be considered in the context of the standing of the issuing bank and the current political and economic state of the importer's country. A bank will make an additional charge for confirming a letter of credit. In many cases, the confirming bank is located in Beneficiary s country.

Confirmation costs will vary according to the country involved, but for many countries considered a high risk will be between 2%-8%. There also may be countries issuing letters of credit, which banks do not wish to confirm - they may already have enough exposure in that market or not wish to expose themselves to that particular risk at all. Standby Letters of Credit A standby letter of credit is used as support where an alternative, less secure, method of payment has been agreed. They are also used in the United States of America in place of bank guarantees. Should the exporter fail to receive payment from the importer he may claim under the standby letter of credit. Certain documents are likely to be required to obtain payment including: the standby letter of credit itself; a sight draft for the amount due; a copy of the unpaid invoice; proof of dispatch and a signed declaration from the beneficiary stating that payment has not been received by the due date and therefore reimbursement is claimed by letter of credit. The International Chamber of Commerce publishes rules for operating standby letters of credit - ISP98 International Standby Practices. Revolving Letter of Credit The revolving credit is used for regular shipments of the same commodity to the same importer. It can revolve in relation to time or value. If the credit is time revolving once utilised it is re-instated for further regular shipments until the credit is fully drawn. If the credit revolves in relation to value once utilized and paid the value can be reinstated for further drawings. The credit must state that it is a revolving letter of credit and it may revolve either automatically or subject to certain provisions. Revolving letters of credit are useful to avoid the need for repetitious arrangements for opening or amending letters of credit. Transferable Letter of Credit A transferable letter of credit is one in which the exporter has the right to request the paying, or negotiating bank to make either part, or all, of the credit value available to one or more third parties. This type of credit is useful for those acting as middlemen especially where there is a need to finance purchases from third party suppliers. Back-to-Back Letter of Credit A back-to-back letter of credit can be used as an alternative to the transferable letter of credit. Rather than transferring the original letter of credit to the supplier, once the letter of credit is
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received by the exporter from the opening bank, that letter of credit is used as security to establish a second letter of credit drawn on the exporter in favor of his importer. Many banks are reluctant to issue back-to-back letters of credit due to the level of risk to which they are exposed, whereas a transferable credit will not expose them to higher risk than under the original credit.

3.6. Advantages of Letter of Credit:

The beneficiary is assured of payment as long as it complies with the terms and conditions of the letter of credit. The letter of credit identifies which documents must be presented and the data content of those documents. The credit risk is transferred from the applicant to the issuing bank. The beneficiary can enjoy the advantage of mitigating the issuing bank s country risk by requiring that a bank in its own country confirm the letter of credit. That bank then takes on the country and commercial risk of the issuing bank and protects the beneficiary. The beneficiary minimizes collection time as the letter of credit accelerates payment of the receivables. The beneficiary s foreign exchange risk is eliminated with a letter of credit issued in the currency of the beneficiary s country.

3.7. Risks involved in Letter of Credit.

Since all the parties involved in Letter of Credit deal with the documents and not with the goods, the risk of Beneficiary not shipping goods as mentioned in the LC is still persists. The Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection The Beneficiary s documents must comply with the terms and conditions of the Letter of Credit for Issuing Bank to make the payment. The Beneficiary is exposed to the Commercial risk on Issuing Bank, Political risk on the Issuing Bank s country and Foreign Exchange Risk in case of Usance Letter of Credits.

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3.8. 1. Account Party

Beneficiary

The commercial credit functions as the method of payment in a sales contract between the Account Party (the buyer) and the Beneficiary (the seller). In the course of negotiating this sales contract, the Account Party and the Beneficiary agree to the terms and conditions under which the commercial credit will be issued. The following are basic issues which should be resolved in these negotiations. The maximum amount of drawings All credits must include a maximum amount of liability, which usually is the purchase price of the goods. the expiration date for the credit All credits must be of limited duration, although "evergreen clauses" may be used to automatically renew credits. The credit revocable or irrevocable A revocable credit can be modified or rescinded by the Account Party at any time. Therefore, a Beneficiary should insist that the credit be irrevocable (i.e. that the credit cannot be modified or rescinded after issuance without the Beneficiary's approval.) The Beneficiary present in order to receive payment under the credit This is a critical issue. The Beneficiary will not be paid unless she produces each of these documents. Thus, a Beneficiary should make every effort to keep the documents as simple as possible. None of the documents should require the signature or approval of the Account Party or the Account Party's agent. Further, to the extent possible, the Beneficiary should not agree to the inclusion of foreign government documents because they may be difficult to obtain in a timely fashion. The following is a short description of documents frequently required in commercial credits.

A Bill of Lading is a receipt that a common carrier gives to the seller for the goods that the carrier will transport. It frequently serves as a document of title, giving the person who possesses it ownership of the goods. A Commercial Invoice is a bill prepared by the seller for submission to the buyer which details all items bought, together with amounts owed.

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A Draft or bill of exchange is a negotiable instrument that is payable to the seller and drawn on the issuing bank and/or the buyer. This document is prepared by the seller, but is analogous to a check written from the buyer to the seller. Drafts can be either "sight drafts" where the bank pays the full amount of the draft upon the seller's presentation, or "time drafts" where the bank's obligation at the time of presentation is merely to accept the draft for payment at a later date (e.g. 90 days after the seller's presentation). Time drafts provide the buyer with short-term financing. Often, banks will purchase their accepted time drafts at a discounted rate. A Consular Document shows that the goods satisfy the relevant regulatory requirements of the importing country. An Insurance Certificate shows that the Beneficiary obtained insurance for transportation of the goods. (Appropriate only if the seller agrees to be responsible for the insurance.) An Inspection Certificate shows that the goods have passed a quality inspection prior to shipping. Either an independent third party or an agent of the buyer can perform the inspection. However, if it is an agent of the buyer, the seller should recognize that the buyer may block payment under the Credit until any dispute regarding the conformity of the goods is resolved. The Beneficiary present the documents required under the credit The Beneficiary may find it difficult to make a document presentation in a foreign country. Therefore, the appropriate place for presentation may be the Issuing Bank's office in the Beneficiary's country. If none exists, the credit may designate another bank (the Nominated Bank) to serve as the place for presentation. I t is important to note that while the Nominated Bank is authorized to act on behalf of the Issuing Bank to honor the credit obligation, the Nominated Bank itself has no obligation that runs directly to the Beneficiary. Should the credit be confirmed by another bank

A commercial credit is only as good as the bank that issued it. A Beneficiary that is uncertain of the creditworthiness of the Issuing Bank or uncertain of the political risks associated with the country in which the Issuing Bank is located, should consider requesting that the credit be confirmed by another bank (the Confirming Bank). The Confirming Bank adds its obligation to that of the Issuing Bank to honor the credit. A confirmation from a strong bank in the Beneficiary's country affords the Beneficiary a high degree of protection from the risk of nonpayment.

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3.8.2. Account Party -- Issuing Bank

The Account Party applies with the Issuing Bank (typically the Account Party's own bank) for a commercial credit that satisfies the specifications in the sales contract. The Issuing Bank examines the Account Party's credit in the same manner as it would for any loan application, and decides whether to issue the credit. Assuming the bank decides to issue the credit in the form requested, the Account Party enters into a reimbursement agreement with the Issuing Bank. If and when the Issuing Bank ultimately pays money under the credit, it will seek reimbursement from the Account Party. n exchange, the Issuing Bank will forward the bill of lading and other relevant documents to the Account Party. This will enable the Account Party to claim the goods from the independent carrier.

3.8.3. Issuing Bank Beneficiary

Issuing Bank Advises Beneficiary that the Credit is open. The Issuing Bank advises the Beneficiary that the credit is open in its favor. The letter in which the Issuing Bank provides this advice is literally the "letter of credit." It specifies the terms and conditions under which the credit operates. As soon as the Beneficiary receives the credit, she should review it to ensure that it is consistent with the terms and conditions in the underlying sales contract (or any amendments to the sales contract). The Beneficiary should promptly contact the Issuing Bank and the Account Party if there are any errors in the credit. Beneficiary Performs in Accordance with the Terms in the Credit. The Beneficiary will only be paid under the credit if she makes a documentary presentation that conforms to the time, place and manner requirements in the commercial credit. Time: The Beneficiary must meet at least two deadlines. Date of Expiry: The documents must be presented on or before the date of expiry specified in the credit. The Beneficiary, however, should make her presentation well ahead of this date of expiration. Banks have a reasonable period of time (not to exceed 7 days) to examine a presentation, and decide whether the documents conform to the credit. A Beneficiary who has made her presentation less than 7 days before the date of expiry may not have an opportunity to cure any defects. Expiration of Transport Documents: Unless the credit specifies otherwise, banks will not accept bills of lading and other transport documents which are not presented within 21 days after the date of shipment. Manner: It is critical that the Beneficiary present all the documents specified in the credit in a form that complies with the requirements in the credit. Banks traditionally apply a high standard, known as the strict compliance rule, for determining whether
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documents comply with the credit. If the documents (especially the commercial invoice) vary in any respect, the bank may reject the presentation. In one case, the credit described the goods in the underlying contract as "100% Acrylic Yarn." The bank denied payment because the Beneficiary's invoice described the goods as "Imported Acrylic Yarn." The Beneficiary sued, but the court ultimately held in favor of the bank, stating that the invoice did not "strictly comply" with the requirements of the credit. Curtails North America, Inc. v. North Carolina National Bank, 528 F. 2d 802 (4th Cir. 1975). At its discretion, the Issuing Bank may ask the Account Party to waive any discrepancies between the document presentation and the credit. However, a Beneficiary should not rely on the generosity of the Issuing Bank and Account Party to accept non-conforming presentations. Place: The Beneficiary must make her document presentation at the place specified in the credit. Note that if the credit identifies a Nominated Bank as the place of presentation, and the Nominated Bank refuses to honor, the Beneficiary may be required to make its presentation directly to the Issuing Bank. Issuing Bank's Duty to Honor if Presentation Conforms to Credit: n determining whether to honor drafts under the credit, the Issuing Bank does not examine the good, or otherwise consider whether the Beneficiary has complied with the underlying contract. The Issuing Bank focuses on the documents. If the documents comply with the credit, and are not fraudulent, the Issuing Bank must honor the Beneficiary's drafts. This separation between the commercial credit and the Underlying contract is called the independence principle. "Honor" means different actions depending on the Issuing Bank's obligations under the credit. If the credit calls for a sight draft, the Issuing Bank will honor by paying the draft promptly. If the credit calls for a time draft, the Issuing Bank will honor by accepting (i.e. signing) the draft promptly, and paying it upon maturity. Beneficiaries often sell accepted time drafts to Issuing Banks at a discounted rate immediately after acceptance.

3.9. Functions of a Commercial Credit

A commercial credit has several basic functions. It is important to note, however, that the parties can modify or change these basic functions to tailor the credit to their own needs. Prompt Payment: The Beneficiary is paid promptly after shipping her goods. Without the credit, the Beneficiary would have to require pre-payment for the goods or would have to wait until after the Account Party received the goods.

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Substituting Credit: The Beneficiary may be reluctant to sell on open account if it does not know enough about the credit worthiness of the Account Party. The credit helps to overcome the Beneficiary's reluctance to do business with the Account Party. Shifting Litigation Costs: Every sales contract carries a risk of a dispute concerning whether the goods conform to the contract. If the method of payment is an open account, the seller most likely will bear the cost of litigating that dispute without the purchase price. A commercial credit re-allocates this cost to the buyer, because the seller receives the purchase price promptly when he presents conforming documents to the Issuing Bank. Shifting the Forum: The holder of the purchase money has little incentive to initiate litigation. Since the commercial credit places the purchase money in the hands of the seller, the buyer will likely need to pursue the purchase money by entering the forum of the seller.

3.10. Back to Back Letter of Credit (LC s)

3.10.1. General The branch may open back-to-back import LCs against export LCs received by export oriented industrial units operating under the bonded warehouse system, subject to observance of domestic value addition requirement (stated in terms of permissible limit of CFR value of imported inputs as percentage of FOB export value of output) prescribed by the Ministry of Commerce from time to time.

3.10.2. Opening of Back-to-back Import LCs

In addition to the general instructions in the foregoing sections, the following instructions should be complied with while opening back-to-back import LCs: Only recognized export oriented industrial units operating under bonded warehouse system will be allowed the back-to-back LC facility. The unit requesting this facility should possess valid registration with the CCI&E and valid bonded warehouse license. The master export LC (against which opening of back-to-back LC is requested) should have validity period adequate to cover the time needed for import of inputs, manufactures of merchandise, and shipment to the consignee. The back-to-back LC value shall not exceed the admissible percentage of net FOB value of the relative master export LC (as per prescribed value addition requirement). For computation of net FOB value of a master export LC, the freight charge, insurance cost
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and commission, if payable by the exporter, shall be deducted from the LC value. If the freight element is not shown separately, a certificate from the shipping company or the shipping agent should be asked for. The back-to-back import LCs shall be opened for up to 180 days usance (DA) basis except in case of those opened against Export Development Fund (EDF) administered by the Department of Banking Operation and Development of Bangladesh Bank. In the latter case the back-to-back LC will be opened on sight basis). Profit for the usance period shall not exceed LIBOR or the equivalent profit rate in the currency of settlement. All amendments to the master export LC should be recorded carefully to rule out chances of incurring excess obligation under the back-to-back import LC. Back-to-back import LC shall contain condition of pre-shipment inspection by an internationally reputed inspection firm regarding quality and quantity of the merchandise. Inland back to back LCs denominated in foreign currency may be opened in favour of local manufacturer-cum-suppliers of inputs against master export LCs received by export oriented manufacturing units operating under the bonded warehouse system up to value limits applicable as per prescribed value addition requirement/utilization permit. Back-to-back LC may in turn be opened for import of necessary inputs, against inland back-toback LC in favour of local manufacturer cum-supplier operating under the bonded warehouse system, in accordance with the instructions, mutatis mutandis, as explained above.

3.10.3. Payment against Back-to-back Letter of Credit (LCs)

Payment in settlement of usance bill against back-to-back import LCs shall be made at maturity, out of proceeds of the relative export repatriated in foreign exchange. The required foreign exchange will be set aside, out of the export proceeds, in a separate foreign currency account in the subsidiary ledger of the branch. Before making the remittance, the branch should see that the exchange control copy of Bill of Entry for bond as evidence of actual arrival of the relative imports has been submitted. Usance bills against back-to-back import LC should be settled at maturity even if for some reason export has not taken place, or where the export proceeds have not been realised, or where the realised export proceeds net of value addition requirement do not cover the back-toback import payment. In such cases post facto approval of Bangladesh Bank will have to be applied for, explaining fully the circumstances of non-realisation/short realisation of export proceeds with relevant supporting documents. Cases of failure of export against the relative master LCs should also be reported to the National Board of Revenue (NBR) and the concerned Commissioner of Customs so that they may monitor closely the level of stock of the relative
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goods in the bonded warehouse. A copy of the letter to NBR reporting the export failure should be submitted to Bangladesh Bank along with the application for post facto approval of remittance towards back-to-back import payment. Also, all applications for post facto approval of such remittance in the event of export failure and short realisation/non-realisation of export proceeds should be accompanied by the exchange control copy of the relative Bill of Entry evidencing actual receipt of the back-to-back imports. The branch should maintain effective watch on the stock of inputs procured under the back-to-back arrangement and of the finished products made therewith. Any indication of illegal disposal of stocks from the bond coming to the knowledge of the branch should immediately be reported to the concerned commissioner of Customs and NBR.

3.10.4. Back-to-Back LC
Under this arrangement opening an inland or overseas LC on Back-to-Back basis on the request of the beneficiary of an Irrevocable Letter of Credit received from the foreign buyer finances export trade. The beneficiary is normally a middleman who does not manufacture the goods to be exported under the credit. This back-to-back LC is opened by the bank in favor of the actual manufacturer or producer of the goods on the strength of the original foreign LC. A lien is created on the original export LC as security. Export of jute goods and ready-made garments from Bangladesh are financed under this type of LC. The actual supplier of the goods effects the shipment on behalf of the beneficiary of original LC and submits the shipping documents to the bank that opened the Inland LC for payment. The letters of credit opened in Bangladesh for import of inputs for export of RMG are known popularly as back-to-back letter of credit. Strictly speaking these are not back-to-back letter of credit but are in fact separate letters of credit, not different from other ordinary letters of credit.

Under the back-to-back letter of credit of the ordinary type some of the documents, such as drafts, invoice etc. are replaced by a fresh set of corresponding documents prepared by the beneficiary of the original foreign LC, who submits his own drat and invoice, etc. for the full amount of original LC for negotiation. The local bank negotiates the documents submitted by the beneficiary of the foreign LC and makes payment of the bill drawn against the Inland LC. In this case also the bank may sometimes need to insist on collateral securities on the merits of the cases.

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The back to back LC must conform to the terms and conditions of the original foreign LC with the following exceptions:

The name of the actual supplier is substituted by that that of the beneficiary. The amount of LC should be somewhat smaller than the original LC, to cover the profit margin and other expenses incurred by the original beneficiary. The period of validity for shipment and negotiation should be a few days earlier than the expiry date of the original LC.

3.10.5. Advance against Red Clause Letter of Credit (LC)

Under this facility, which is not commonly used in Bangladesh, the LC opening bank authorizes the exporter s bank (negotiating bank under LC) to make advances to the exporter (beneficiary of LC) prior to shipment. This special arrangement is intended to enable the exporter to procure the goods and execute the order of the foreign buyer. It presupposes a strong commercial relation between the buyer and the seller. The advance is liquidated against the export bills negotiated under the LC. This clause in the LC authorizing the negotiating bank to make advance to the beneficiary of the LC is written or typed in red ink. It gives the name Red Clause LC. This advance is made at the risk of LC opening bank and is restricted to the amount authorized under the red clause. Before disbursement of the advance all necessary documents including an undertaking, must be obtained from the beneficiary of the LC (exporter) in conformity with the terms and conditions of the LC and Red Clause.

3.10.6. Reshipment Investment facilities

Credit worthiness of the exporter should be properly assessed by preparing credit report in the Bank s prescribed perform. Past export performance and behavior of the exporter should be verified from the bank s records and financial statements. Similarly, credit worthiness and solvency of the foreign buyer should also be verified through foreign correspondents. Period for which the investment is sanctioned should be clearly mentioned in the sanction letter.

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Charge documents as well as any other documents as mentioned in the sanction letter should be obtained and got properly executed by the borrower. The bank s legal adviser should be asked, if necessary, to vet the memorandum of deposit under equitable mortgage. Export documents should be carefully scrutinized before negotiation of export bills. If the export bill is negotiated under LC, it should be ensured that all its terms and conditions have been fully complied with. The LC should be from our correspondent bank or a reputable foreign bank whose status should be verified. The LC must be irrevocable (preferably confirmed) and unrestricted. The original LC should remain deposited with the bank and a lien mark should be given on it. But before marking lien the LC terms should be thoroughly scrutinized to see that no clause detrimental to the bank s interest or contrary to existing exchange control and regulation has been incorporated in it. The date of expiry of LC should be properly recorded in the Register. No drawings should be allowed after the expiry of the credit unless extended. If shipment could not be made within the date stipulated in the LC, the advance should be called back. If the shipment is covered by policies issued by Sadharan Bima Corporation under the Export credit guarantee scheme, the related policy should be obtained in favor of the bank. It should also be ensured that the exporter/bank fulfils all the terms and conditions of the Insurance Policy.

3.10.7. Foreign Back-to-Back Letter of Credit

The Government of Bangladesh has devised a special procedure under which the export oriented garment units are allowed to import their inputs free of duty under the bonded warehouse arrangement. Back-to-back letter of credit, in essence, is used to import the inputs generally on credit terms up to 180 days on the strength of the foreign LC received from the overseas buyers.

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3.11. Formalities & Procedure

For opening back-to-back LC for readymade garment industries engaged in export the branches should follow the following guidelines meticulously: The industry applying for opening the LC should be recognized by the Textile Division of the Ministry of Textiles as an export oriented readymade garment industry and possesses a valid Bonded Warehouse License. For new customers, the branch should satisfy itself, if necessary from the Credit Information Bureau of Bangladesh Bank, that they have no outstanding liability with any other bank. The irrevocable export LC, on the strength of which the back-to-back LC is desired to be opened, should be from a first class internationally reputed bank. The LC should conform to the Uniforms Customs and Practices for Documentary Credit--ICC Publication (Brochure No. 500). The branch should ascertain whether there is any quota restriction for the item of export. In case of quota restriction, branch shall ensure that the party has obtained quota allocation/license from EPB.

Finally the branch should satisfy itself that the industry has organizational and necessary logistics to fulfill the export order within the stipulated period. The import LC will be opened to the extent prescribed by the government from time to time for knit items and woven/jacket on the basis of value addition. For computation of FOB value, freight charges, insurance and commission involved in shipment of the merchandise under export LC must be deducted. If the freight is not shown separately, a certificate from the shipping company or the shipping agent should be obtained. The import order for fabrics should clearly describe the fabrics, and details as composition of the fabrics, stripe, checks, prints, solid (white or dyed) yarn count, length flannel, shirting, poplin, drill, twill etc. should be inserted in the LC. These descriptions should also be mentioned in the LC. The LC should provide for submission of packing list showing the gross and net weight
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of each bale and carton or crate or wooden boxes. These descriptions are necessary to ensure that the fabrics imported are actually required to meet the export order.

3.12. In land Back-to-back Letter of Credit (LC)

Readymade garment units under bonded warehouse system may open inland back-to-back LC against export LC in favor of local manufacturer-cum-supplier of fabrics and accessories. Banks may open inland back-to-back LC on account of local manufacturers-cum-supplier up to the extent of the net FOB value of the export LC for import of cotton yarn, dyes, chemicals, sizing materials etc as may be permitted by the government.

3.12.1. Documents Required for Opening of Back-to-back LCs

LC Authorization Form duly filled in and signed; LC application and agreement form duly stamped and signed; IMP Form; Performa Invoice; Insurance Cover Note (from the port of shipment to the Bonded Warehouse) and money receipt.

3.12.2. Additional Documents

Valid membership certificate from the concerned Chamber of Commerce & Industry or from the concerned Trade Association as per provision of the Import Policy. Valid IRC/ERC Valid Bonded Warehouse License

3.12.3. Charge Documents

Besides other documents, the following charge documents duly stamped should be obtained prior to disbursement: Demand Promissory Note Letter of Arrangement Letter of Lien for Packing Credit (on special adhesive stamp) For Packing Credit ---Letter of Disbursement For Export Cash Credit--Letter of Continuity
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Bai Salaam Agreement

3.12.4. Payment of Back-to-back LC, and Adjustment of Investment facilities

On manufacturing the garments is exported and the party submits the related shipping documents to the bank for negotiation / collection. After receipt of the documents, the same is duly scrutinized with the respective export LC and if found drawn strictly in conformity with LC terms and conditions up to 20% of the documents value is negotiated if requested by the party.

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4.0. My Activities at AB Bank Ltd, Kawran Bazar Branch

Department Cash Account opening Customer Service desk Clearing Foreign Trade Time line of Work Several times I worked there when it required. Two weeks. One whole day. One day. Two months

Foreign Trade Export Back to back (under import department) Back to Back payment Paid the bill amount systematically. Transfer the bill amount party/applicant account to their intermediary account which is called DAAD account for local and foreign payment Then prepare the pay order form for local payment and Demand draft form for foreign payment The Local remittance department prepares the pay order cheque. they also cut the commission for particular payment Demand Draft cheque is ready as like pay order cheque After preparing both pay order and DD prepare a forwarding for sending that DD or Pay order cheque to beneficiary s bank After that the LCAF, commercial invoice, IMP form, photocopy of beneficiary s bill forwarding, T/M form have to separate from that document set for reporting. LCAF form with endorse seal at the back of the form + CI + Duplicate IMP form (1 set) For Bangladesh Bank IMP form + CI + photocopy of LCAF form for office record T/M form + CI + photocopy of beneficiary s bill forwarding

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4.1. SWOT Analysis

Strengths

The Bank has been rated by CRAB Single a Two (A2) in terms of long term lending. The bank s asset portfolio consists of above 60% in long term lending. The Bank s Loan disbursement rate is growing largely, suggesting its high growth in lending to deposit ratio (currently 79.4%). The team of Letter of Credit Department are skilled enough to maintain all the circumstance and proper paperwork related to the total procedure of LC The Correspondents both National and International are strongly attached.

Weaknesses

Internal communication system procedural equipments are not well developed. Net Interest Margin on the decline. Due to favoritism often LC department face documentation problem.

Opportunities

The bank should focus on expanding its loan syndication and project financing business bigger projects. Improving capital market conditions and developing equity culture should help the bank to improve its fee-based revenue by further developing its existing investment management and advisory business.
Threats

There is intense competition in the local market, not only from the local banks but also from the foreign banks. The lack of concentrate on equipment development can be a reason of future backward.
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4.2. My Understanding:
While working with the company I ve come up with the following understandings that-

Paper work is must for Back to Back LC. Due to the proper documentation every year defaulters are increasing rapidly. A proper documentation with full phase having fair evaluation can bring back faith to the bank as well as the consistent clients of the bank. Followings the rules and regulation can also play a vital role for the bank though in some cases it s very difficult to maintain the rules in the corporate dealings but above all rules and regulations should be managed in a proper manner. While working here I came to understand that dealing client especially in the LC department is not an easy task for this though each of the staffs are very sincere about their activities but they cannot do it properly due to the work pressure.

4.3. Findings AB Bank is one of the recognized banks in Bangladesh banking sector and it s accomplishing its activities in LC sector for a long time. Though I ve worked in the LC department of this bank I observed the following findingsIn the department Fax is one of the key instruments to maintain LC activities but in most cases I found it is out of service which is unexpected. Clients from different corporate sector are coming for opening LC without having proper documentation and also not that much respective about the law. Staffs here are so busy that they cannot cooperate as they should with the clients. As a bank ABBL does have that sufficient support to the client as well as its clients which is also unexpected.

y y y y

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4.4. Recommendations
With my little experience in the bank with vast and complex banking system, it is very difficult for me to recommend. I have observed some shortcomings regarding operational activities of the bank. On the basis of my observation I would like to recommend the following points:

y y

y y y

Though the performance of L/c is good, but their employees are not well trained. The department needs to recruit expert human resources to provide good customer service, which will bring effectiveness of the bank s operation. The employees are given deposit target, which creates extra pressure to them for that reason they cannot freely provide customer service. They had to spend some time to fill up their target. If the bank can reduce the pressure then they could be able to provide good service. In many cases, the foreign banks choose for a confirmation from other foreign banks, which is dishonor for the local bank. It proves the poor financial condition of our country. Bank should try to improve this situation. AB Bank ltd should organize various seminars and symposium so that both national and international people can be more familiar. To provide quality service to the customer, it is necessary to have a trained team of an organization or an institution. For this reason the bank should recruit fresher, bright energetic persons. One of the business strategies is promotion. Successful business depends on how they can promote their products or services to the customer. In this connection to improve the business status bank should introduce more promotional programs. AB needs more specialized personnel in Foreign Exchange department. International communication is weaker in AB Bank. More Training on Foreign Exchange is necessary for the AB Bank officials.

5.0. Case Study on a practical Back-to-Back L/C

In internship period I used to work in L/C department. Among many L/Cs one of my work I have showed one of that L/C.
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MT700: Issue of a Documentary Credit

To Institution HKBAAU2SXXX

- HSBC BANK AUSTRALIA LIMITED - HSBC CENTRE,580 GEORGE STREET, SYDNEY - SYDNEY Priority N

27:Sequence of Total - 1/1 40A:Form of Documentary Credit - IRREVOCABLE 20:Documentary Credit Number - 0664090118182 31C:Date of Issue - 091119 40E:Applicable Rules - UCP LATEST VERSION 31D:Date and Place of Expiry - 100205AUSTRALIA 50:Applicant - RAZZAQUE PACKAGING LTD. - 42,INDIRA ROAD,DHAKA-1215 - PHONE- 810305,816762. 59:Beneficiary - VISY PAPER PTY LTD., - 2 SOUTHBANK BOULEVARD SOUTHBANK,VIC3006, AUSTRALIA. - TEL:(03)247 4777, FAX:(03)247 4799

 

 

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32B:Currency Code, Amount - USD14305,00 39A:Percentage - 10/10 - 41D:Available With ... By ... - Any bank in AUSTRALIA - BY NEGOTIATION 42C:Drafts At ... - SIGHT 42A:Drawee - ABBLBDDH002 - AB BANK LIMITED - KARWAN BAZAR BRANCH - 102, KAZI NAZRUL ISLAM AVENUE - DHAKA 43P:Partial Shipments - ALLOWED 43T: Transhipment - ALLOWED 44A:Place of Taking in Charge/Dispatch from.../Place of Receipt - ANY SEA PORT OF AUSTRALIA 44B:Place of Final Destination/For Transportation to.../Place of Delivery - CHITTAGONG SEA PORT, BANGLADESH ON CFR BASIS. 44C:Latest Date of Shipment - 100120 45A: Description of Goods and/or Services - +KRAKT LINER PAPER- 270 GSM (K270X) 17 MT AT THE RATE OF USD 565.00 PER MT AND MEDIUM PAPER- 180 GSM (M180) 10 MT AT THE RATE OF USD 470.00 PER MT. QUANTITY, QUALITY, DESCRIPTION OF GOODS, UNIT PRICE AND ALL OTHER DETAILS AS PER PROFORMA INVOICE NO. VP/FVL-172/09 DATED 14.11.2009.

     

46A: Documents Required - + A CERTIFICATE REGARDING COUNTRY OF ORIGIN MUST BE ISSUED/CERTIFIED BY THE GOVERNMENT APPROVED AUTHORITY/ORGANISATION OF THE
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EXPORTER'S COUNTRY AND MUST ACCOMPANY THE ORIGINAL SHIPPING DOCUMENTS. - + BENEFICIARY'S AT SIGHT DRAFT (S) IN DUPLICATE DRWAN ON OURSELVES BEARING THE CLAUSE DRAWN UNDER AB BANK LIMITED, KARWAN BAZAR BRANCH, DHAKA, BANGLADESH L/C NO. AND DATE. - + BENEFICIARY'S SIGNED COMMERCIAL INVOICE IN OCTUPLICATE CERTIFYING MERCHANDISE TO BE OF AUSTRALIA ORIGIN AND INDICATING THAT THE GOODS ARE BEING IMPORTED UNDER I.R.C.NO. BA-115229, LCAF NO.12423, H.S. CODE NO. 4804.11.00. AND 4805.11.00. - + DETAILED PACKING LIST IN TRIPLICATE SHOWING GROSS AND NETWEIGHT. - + ONE FULL SET OF CLEAN SHIPPED ON BOARD OCEAN BILL OF LADING SHOWING FREIGHT PREPAID DRAWN TO THE ORDER OF AB BANK LIMITED, KARWAN BAZAR BRANCH, DHAKA, BANGLADESH AND MARKED NOTIFY APPLICANTS OF THE CREDIT BEARING OUR LETTER OF CREDIT NO. AND DATE. - + INSURANCE COVERED IN BANGLADESH. CERTIFICATE OF SHIPMENT TO BE SENT DIRECTLY TO AGRANI INSURANCE COMPANY LTD, DILKUSHA BRANCH, 44 DILKUSHA C/A (6TH FLOOR), DHAKA-1000, BANGLADESH AND TO THE OPENER BY COURIER /FAX IMMEDIATELY AFTER SHIPMENT QUOTING MARINE COVER NOTE NO. AICL/DK/MC-325/11/2009 DATED 15.11.2009 AND THIS CREDIT NUMBER A COPY OF WHICH SUPPORTED BY RELEVANT ORIGINAL COURIER RECEIPT AS EVIDENCE TO THIS EFFECT MUST ACCOMPANY THE ORIGINAL SHIPPING DOCUMENTS. - + INVOICE TO BE DRAWN ON CFR BASIS AND ALL SHIPPING DOCUMENTS MUST BEAR L/C NUMBER AND DATE. 47A: Additional Conditions - + BENEFICIARY MUST CERTIFY ON THE INVOICES THAT GOODS SHIPPED ARE STRICTLY IN ACCORDANCE WITH THE IPROFORMA INVOICE NO. VP/FVL-172/09 DATED 14.11.2009. - +BENEFICIARY SHOULD SEND A MESSAGE THROUGH FAX NO.88-02-9128545 TO L/C OPENING BANK WITHIN 72 HOURS FROM THE DATE OF SHIPMENT ADVISING THE DATE OF SHIPPMENT, NAME OF VESSEL, And AMOUNT OF BILL TO BE DRAWN AGAINST THE SHIPPMENT AND L/C NUMBER AND A COPY OF THIS FAX MESSAGE SHOULD ACCOMPANY THE SHIPPING DOCUMENTS. - +PACKING: EXPORT STANDARD PACKING. - + ONE FULL SET OF SHIPPING DOCUMENT (NON NEGOTIABLE) SHOULD BE SENT TO THE L/C APPLICANT BY ANY COURIER WITHIN 07 DAYS FROM THE DATE OF SHIPMENT. BENEFICIARY'S STATEMENT TO THIS EFFECTSUPPORTED BY RELEVANT ORIGINAL RECEIPT IS REQUIRED FOR NEGOTIATION.
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- +ALL SHIPING MARKS MUST BE LABEL PRINTED ON THE BOTH CORES SIDE OF THE ROLLS. - +A DISCREPANT DOCUMENTS FEES OF USD 100.00 WILL BE DEDUCTED FROM DRAWING IF DOCUMENTS ARE PRESENTED WITH DISCREPANCIES. - +THIS L/C IS OPENED UNDER BOND. - +TOLERANCE OF 10 PERCENT PLUS/MINUS ON BOTH QUANTITY AND AMOUNT TO BE ALLOWED. - +THE ALTERNATE NUMBER OF THIS DOCUMENTARY CREDIT FOR OUR CENTRAL BANK REPORTING PURPOSES IS 066409010532. ALL DOCUMENTS THAT ARE REQUIRED TO BEAR THE L/C NUMBER WILL HAVE TO MENTION BOTH 066409010532 AND 0664090118182. ALL CORRESPONDENCES FROM NEGOTIATING/CONFIRMING BANK SHOULD QUOTE BOTH 066409010532 AND 0664090118182. 71B: Charges - ALL EXPENSES OUT SIDE BANGLADESH ARE ON BENEFICIARY'S ACCOUNT. 48: Period for Presentation - DOCUMENTS TO BE PRESENTED WITHIN 15 DAYS FROM THE DATE OF SHIPMENT BUT WITHIN THE VALIDITY OF THE CREDIT. 49: Confirmation Instructions - WITHOUT 78: Instructions to the Paying/Accepting/Negotiating Bank - + UPON RECEIPT OF DOCUMENTS COMPLYING WITH THE TERMS AND CONDITIONS OF THE CREDIT WE SHALL EFFECT PAYMENT AS PER NOMINATED/COLLECTING BANK INSTRUCTION - + ALL DOCUMENTS WILL BE FORWARED TO US BY SEPARATE COURIER/ AIR MAIL TO AB BANK LIMITED, KARWAN BAZAR BRANCH, DHAKA, BANGLADESH. - + NEGOTIATING BANK MUST CERTIFY ON THEIR COVERING SCHEDULE THAT EACHDRAWING HAS BEEN ENDORSED ON REVERSE OF THE CREDIT AND ALSO CERTIFY THAT THE TERMS AND CONDITIONS OF THE CREDIT HAVE BEEN DULY COMPLIED WITH. 57A:'Advise Through Bank - ANZBAU3MXXX - AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - 570 CHURCH STREET VICTORIA MELBOURNE MELBOURNE 301

72: Sender to Receiver Information

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- + THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, ICC PUBLICATION LATEST VERSION

6.0. Conclusion
A back-to-back letter of credit can be used as an alternative to the transferable letter of credit. Rather than transferring the original letter of credit to the supplier, once the letter of credit is received by the exporter from the opening bank, that letter of credit is used as security to establish a second letter of credit drawn on the exporter in favor of his importer. Many banks are reluctant to issue back-to-back letters of credit due to the level of risk to which they are exposed, whereas a transferable credit will not expose them to higher risk than under the original credit. That was all about the Back to back LC but the most important thing is to handle the overall procedure with proper care and for this bank like ABBL should be more active to improve its office maintenance by improving its staffs and instruments. Moreover the clients also be patient and should show its respect to the rules and regulations set by the central bank and for this the bank can arrange some motivational programme for the clients and at the same time can train its staffs by providing some effective clients behavior. And finally the govt. should be caring about the term because it s all about money inflow in the country which is the most important thing than any other issue. If they come forward and empower the banking sector by imposing a bit easy rules to LC than export and import will be more earning issue for the country s economy I believe.

7.0. Reference
Ali Ashraf Kazi,(2010, pers. comm. 15 December). 2010, AB Bank Manual, AB Bank Ltd. Bangladesh, Dhaka. 2010, Foreign Exchange Guide Line, Bangladesh Bank, Dhaka Ministry of Commerce, 2009-2012, Import Policy Order.

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