1.1.

The Organization:
Dhaka Bank Limited (DBL) is the leading Private Sector Bank in Bangladesh. It is a Scheduled Bank, which was incorporated as a public limited company on April 06, 1995 under the Companies Act, 1994. Within this short time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. The Bank is now widely acclaimed by the business community from small entrepreneur to big merchant and multinational, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution.

1.2. Company Overview:

Dhaka Bank Limited (DBL) started its commercial operation as a Private Sector Bank on July 05, 1995 with a target to play the vital role on the socio-economic development of the country. The Authorized Capital of the Bank at that time was Tk.1000 million, divided into 10 million ordinary shares of Tk. 100 each. The issued, subscribed, and paid up capital of the bank in 1995 was Tk. 100 million, which was paid fully by the sponsors. The Bank offers a full range of Personal, Corporate, International Trade, Foreign Exchange, Lease Finance and Capital Market Services. It is the preferred choice in Banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, Global reach in Trade and Commerce and high yield on Investments, assuring Excellence in Banking Services. Dhaka Bank Ltd provided 15% cash dividend & 10% stock dividend [i.e. 1(one) bonus Share for every 10(ten) shares] for the year that ended December 31, 2008 to its shareholders. The Bank has 45 branches, 2 SME Service Centers, 1 Business Center, 2 Offshore Banking Units across the country and a wide network of correspondents all over the world. The Bank has plans to open more branches to expand the network. The Bank offers the full range of banking and investment services which backed by the latest technology and a team of highly motivated officers and staff. In the effort to provide Excellence in banking services, the Bank has launched Online Banking service, joined a countrywide-shared ATM network and has introduced a co-branded credit card. A process is also underway to provide e-business facility to the bank's clientele through online and Home Banking Solutions.

Corporate Information:
Principal Activity Legal form Date of Commencement Board Chairman Commercial banking A public ltd. company incorporated in Bangladesh on April 06, 1995 under company Act 1994 and listed in Dhaka & Chittagong Stock exchange July 05,1995 MR. Altaf Hossain Sarker

1.3. Mission Statement:

To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver- Excellence in Banking.

1.4. Vision:
At Dhaka Bank, we draw our inspiration from the distant stars. Our team is committed to assure a standard that makes every banking transaction a pleasurable experience. Our endeavor is to offer you razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge technology, and tailored solution for business needs, global reach in trade and commerce and high yield on your investments.

1.5. Goal:
Our people, products and processes are aligned to meet the demand of our discerning customers. Our goal is to achieve a distinction like the luminaries in the sky. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision Excellence in Banking.

1.6. Values:
Customer Focus Integrity Teamwork Respect for the Individual

 Quality Responsible Citizenship

1.7. Financial Performance of the Bank:

Dhaka Bank Limited is highly performing Private Commercial Bank, which further consolidated its position in the market in terms of quality services to the customers & value addition for the shareholders. Assets: The total asset of the Bank is 71.14 billion, an increase of 24% as against 2007. Investment of the Bank: The Bank invests during the year 2008 in government security which stood at TK 7239 million as against TK. 5972 million making a growth of 21% over the last year Loan & Advances: The Bank record a 24% growth in advance with a total loans and advances portfolio of Tk.49698 million at the end of 2008 compared to Tk. 39972 at the end of 2007 Liability: Total liabilities of the Bank stood at TK.67137 millions at 31 December 2008 registering a growth of 24%. Deposit: The deposit base of the Bank continued to register a steady growth & stood at Tk. 56986 million excluding call as of 31 December 2008 compared to Tk.48731 million of 2007 with a growth 17%.

Dhaka Bank at a glance in Year 2007-2008:

Particulars 2008 (TK) Paid up Capital Total Capital Total Asset Total Deposit Total Loan & Advances ROI ROA Earnings Per share(TK) Net Income per share Price Earnings Ratio (Times) 1,934,252,875 4,808,212,249 71,136,842,020 56,985,924,645 49,697,705,621 9.18 1.18 43.36 43.36 8.31 Amount 2007(TK) 1,547,402,300 3,680,328,764 57,443,251,307 48,730,676,322 39,971,903,240 8.68 1.23 36.39 36.39 19.40 Change in % 25 31 24 17 24 6 (4) 19 19 (57)

In 2008 the authorized capital of Dhaka Bank Limited is TK.6000 million divided into TK.60 million ordinary shares of TK. 100 each. The Paid up capital of the bank is TK. 1,934,252,875 divided into 19342528.75 ordinary shares. The Company went for the public issue of shares on 18the November 1999 and its shares are listed with the Stock Exchange of Bangladesh

1.8. Company Philosophy:

The motto or the philosophy of the Bank is Excellence in Banking. Dhaka Bank Ltd is committed to provide the best whether in personal, corporate, treasury of trade transactions. Meeting the demand of the banks discerning customers is not the sole objective. The bank endeavor to deliver a quality that makes every transaction a pleasurable experience. The bank feels that, if they can meet maximum clientele requirements in less time with efficiency then they will be able to accomplish a successful business in the world of banking. Their main objective is to provide all the customer service available in todays banking procedure for their clientele. Thus they can guarantee the excellence in banking to their valuable customers. Slogan of DBL:

Excellence in
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Motto of DBL: The bank will be a confluence of the following three interests: Of the Bank: Profit Maximization and Sustained Growth.

Of the Customer: Maximum Benefit and Satisfaction. Of the Society: Objectives of DBL: Become one of the best banks of Bangladesh. Achieve excellence in customer service next to none and superior to all competitors. Cater to all differentiated segments of retail and wholesale customers. Be a high quality distributor of product and services. Use state of the art technology in all spheres of banking. Maximization of Welfare.

1.9. Workforce:
Dhaka Bank Limited recognizes that a productive and motivated workforce is a prerequisite to leadership with its Customers, its Shareholders and in the Market it serves. DBL treats every employee with dignity and respect in a supportive environment of trust and openness where people of different backgrounds can reach their full potential. The Banks Human Resources Policy highlights on job satisfaction, growth opportunities and due recognition of superior performance. A good working environment reflects and promotes a high level of loyalty and commitment from the employees. So Bank has placed the utmost importance on continuous development of its Human Resources, identify the strength and weakness of the employee to assess the individual training needs, they are sent for training for self-development. To enhance the Banking knowledge of the employees Dhaka Bank Training Institute (DBTI) organizes both in-house and external training. At the present the total numbers of employees are around 1000.

1.10. Management of Dhaka Bank Ltd:

Management of the Bank is vested in an 18-member board of directors that includes the chairman and a vice-chairman. The managing director is the chief executive of the Bank. 5 executive vice presidents, 7 senior vice presidents, 18 vice presidents, 25 senior assistant vice presidents, 29 first assistant vice presidents, and 29 assistant vice presidents assist him. At present the bank has 45 branches where about 1000 regular employees working and providing services in and outside the city.

1.11. Organization structure of Dhaka Bank Limited:

Chairman

Board of Directors

Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Senior Assistant Vice President

First Assistant Vice President

Assistant Vice President

Senior Principal Officer

Principal Officer

Senior Officer

Officer

Junior Officer

Assistant Officer

Assistant Trainee Officer

Figure: Organization structure of Dhaka Bank Limited

1.12. Division of Dhaka Bank Ltd:

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If the Jobs are not organized considering their interrelationship and are not allocated in a particular division it would be very difficult to control the system effectively. If there arent any divisions then there would be haphazard situation and the performance of a particular division would not be measured. Dhaka Bank Ltd has managed this work very well. Different divisions of Dhaka Bank Limited (DBL) are as follows: Human Resources Division Personal/ General Banking Division Treasury Division Operations Division Computer and Information Technology Division Credit Division Finance & Accounts Division Financial Institution Division Audit & Risk Management Division

1.13. Different Departments of Dhaka Bank Bonani Branch:

As every other branch Dhaka Bank Bonani Branch has four departments to perform all of its daily activities. Those departments are: General Banking Department Foreign Exchange Department Investment Department Accounts Department

General Banking Department:

Some common types of works every bank should do to operate the banking business. Although the mode of performing these works differs from bank to bank but all the banks have to do the task. In the banking perspective these types of works are known as general banking. Dhaka Bank Bonani branch performs three types of works, cash, clearing and transfer.

Foreign Exchange Department:

One of the largest businesses carried out by the commercial bank is foreign trading. The trade among various countries fills for close link between the parties dealing in trade. The situation calls for expertise in the field of foreign exchange operations. The bank, which provides such operations refereed to as rending international Banking operation. Mainly trisections with overseas countries are respects of import, export and foreign remittance come under the preview of foreign exchange transaction, and international trade demands a flow of goods from seller to buyer of payment from buyer to seller. This department handles various types of activates by three separate sections: Import Section Export section Foreign Remittance

Investment or Credit Department:

Banking is essentially a business dealing organization with money and credit like all other business activates. Banks are profit-oriented organization. A bank invites its find many ways to earn more and more profit and most of its income is derived from loans and advances. Bank makes loans and advances to traders, Businesspersons, industrialists and many other persons against security of some cautions policy and sound lending principle in the matter of lending. Dhaka Bank is a lending bank in loans and advances and it grant loans in various sectors especially in industry, trade and commerce.

Account Department:
The routine daily tasks of the accounts department are as follows: Recording the daily transactions in the cash book Recording the daily transactions in general and subsidiary ledgers Preparing the daily position of the branch comprising of deposit and Preparing the daily statement of affairs showing all the assists and Making payment of all expenses of the Branch

cash liability of the branch as per ledger and subsidiary leader separately

Recording inters branch fund transfer and providing accounting Checking and recording of the vouchers in the Voucher Register

treatment in this regard

The routine periodical tasks performed by the department are as follows: Preparing the monthly salary statements for the employees Preparing the weekly position for the branch this is sent to the Head Preparing the monthly position for the branch, this is sent to the Preparing the weekly position for the branch comprising of the Preparing the budget for the branch by fixing the target regarding

Office to maintain Cast Reserve requirement Head office to maintain statuary liquidity requirement break up of sector wise deposit, credit etc profit and deposit so as to take necessary steps to general and mobilize deposit Preparing an Extract which is a summary of all the transactions of the Head Office account with the branch to reconcile all the transaction held among the accounts of all the branches.

1.14. Foreign Exchange Department of DBL, Bonani Branch:

Foreign exchange is an important department of Dhaka Bank Limited, Bonani branch which deals with import, export and foreign remittances. Foreign Exchange is an International Department of the bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. This department mainly deals in foreign currency, that's why it is called foreign exchange department. Foreign Exchange department of Dhaka Bank handles various types of activates by three separate sections: 1. Import Section: Letter of Credit (L/C) Payment against Document (PAD) Payment against Trust Receipt (PTR)

Loan against Imported Merchandise (LIM) Back to Back L/C open Foreign Document Bill for Collection (FDBC) Foreign Document Bill for purchase (FDBP) Local Documentary Bill for purchase (LDBP) Secured Overdraft (SOD) export

2. Export section:

3. Foreign Remittance: Inward remittance Outward remittance

1.15. Branches of Dhaka Bank Ltd:

Dhaka Bank Limited has 45 Conventional Branches and 2 Islamic Banking Branches. Among total 47 branches, 21 branches are located in Dhaka City, 9 branches are located in Chittagong. The other 7 branches are located in Sylhet, Narsingdi, Narayangonj, and Sirajgonj each. Using the following flow chart shows branches:

Dhaka Bank Limited

Dhaka Division

20 Branches Head Office

Rajshahi Division

Chittagong Division

4 Branch

9 Branches

Sylhet Division

4 Branches

10 other Branches

Figure: Division wise Number of Branches of DBL

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1.16. Organogram of Dhaka Bank Ltd:

11

Board of Directors

Managing Director

Deputy Managing Director (Operations)

Deputy Managing Director (Credit & Risk Management)

EVP, F&AD

SVP, Financial Institution Division

VP, Personal Banking Division SVP, Audit & Risk Management

FAVP, HRD

SVP,

Operations Division Senior Vice President

Vice Preside nt

Vice Preside nt
Assistant vice President

Vice Preside nt First Assistant Vice president

Senior Assistant Vice President First Assistant Vice president

Assistant Vice President

Figure: Organogram of Dhaka Bank Limited

2.1. Origin of the Report:

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This Report is an Impartial University Curriculum Requirement for Bachelor of Business Administration (BBA) Degree, assigned by my Internship Supervisor Mr. M Taseen Chowdhury, Faculty Member, School of Business, in American International University Bangladesh (AIUB). for internship based on project assigned by Dhaka Bank Limited (DBL) Bonani Branch. It took three months to analyze and evaluate the Letter of Credit Operation and its Impact on Dhaka Bank Limited

2.2. Background and Rational of the Study:

Bangladesh has gone through different Banking system. Banking system of Bangladesh has moved out three phases of development - Nationalization, Privatization, and lastly Financial Sector Reform. In Bangladesh, now-a-days more than 50 commercial & specialized banks are conducting their operations, but they differ from one another in many ways regarding their services. In the banking system the department of foreign exchange is very foremost section where letter of credit (LC) is the primary financial tool which used in the most import and export transactions. Guaranteed payment upon presentation of the documents, reducing the production risk, obtain financing for production or purchase of goods, allows the importer to avoid or reduce pre-payment and also the payment will be made only upon presentation of the documents confirming shipment of the goods. All these help the bank to deals with the customers in the country and also outside the country. With due consent of my supervisor, I have selected my area of interest in this particular aspect and set my internship topic as Letter of Credit Operation and its Impact on Dhaka Bank Limited. I deem my effort will provide not only theoretical knowledge but also practical experience, which helps to know how bank perform Letter of credit transaction practically. The letter of credit is the safest, most secure and most convenient settlement method for international transactions. In Bangladesh there are different banks works for developing not only the customers satisfaction but also the countries economic development.

2.3. Statement of the problem:

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From this report, I would like to focus the current financial performance of the Dhaka Bank Limited, Bonani branch and also show the operation procedures and performance of the Export & Import department. Beside in that report I find out some current problem and give some suggestion for remove those problems and improve the operation procedures and performance of the Export & Import department

2.4. Scope and Limitation of the Study:

During these three months internship program in Dhaka Bank Limited, Banani Brach, almost all the desks have been observed. For that purpose I needed to get information from Dhaka Bank Head Office. But I was appointed into Dhaka Bank, Banani branch. There I had to work in General banking, Loan & advances department and Foreign exchange desks as a routine work. It was difficult to collect the information relevant my report, because the people of this Bank was so busy with their duty that they cannot be able to give me much time. . Here I try to cover the activities and rules and regulation related to Foreign exchange department. The present study was not out of limitations. But as an intern it was a great opportunity for me to know the banking activities of Bangladesh specially Dhaka Bank. Some restraints are disclosed bellow: The main constraint of the study is insufficiency of information, which was required for the study. There are various information the bank employee can't provide due to security and other corporate obligations. Due to time limitations many of the aspects could not be discussed in the Since the bank personals were very busy, they could provide me very little I cant present the recent data relating to Letter of credit of Foreign present report. time. Exchange department. Because the annual report and the financial statement are published at the month of April every year.

2.5. Objectives of the Study:

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The internship program, designed to provide the BBA students with an opportunities to obtain on the job training, aims at bringing together the two facts of learning the theoretical and practical. While conducting the study, certain aims are fulfilled while I believe as the objectives of the study. These are as follows: -

2.5.1. Primary objective:

The Primary objective of the report is to evaluate the Letter of Credit Operation and its Impact on Dhaka Bank Limited.

2.5.2. Secondary objectives:

To be acquainted with how bank perform Letter of credit transaction To know about the mechanism of letter of credit procedures of the Dhaka To find out the major problems of Letter of Credit process and the At last to relate theoretical knowledge with practical experience in several practically. Bank. recommendation accordingly. functions of the Bank.

2.6. Methodology:
Methods followed to perform a job or conducting activities to complete a task is called methodology. In conducting this study the following methodology will be adopted in collecting data and information, preparation of reports etc. A conceptual framework was developed first through the practical work in the bank. An inductive method has been followed in preparing the report. In the evocation of referred problems I provide my own opinion back by Observation and experience of month long internship served as a major conceptual framework developed in literature review part. source of information.

2.7. Sources of Information:

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The report was fully investigative in nature. Data have been collected from both primary and secondary sources. Data Collection This study is mainly based on secondary data available from the various divisions and departments of Dhaka Bank (Banani Br.) in addition to these other necessary information have been collected from the daily news papers, relevant journals, annual reports of Dhaka Bank, Bangladesh Bank, Ministry of Finance and Planning and publications of other relevant institutions have also been taken into consideration.

2.7.1. Primary Sources:

Face to face conversation with the bank officers & staffs. Conversation with the clients. Different' manuals of Dhaka Bank Limited. Different circulars of Dhaka Bank Limited.

2.7.2. Secondary Sources:

Procedure manual published by the Dhaka Bank Ltd. Files and documents of the branch. Annual report of Dhaka Bank Limited, 2008. Different papers of Dhaka Bank. Unpublished data. Different textbooks.

2.8. Schedule of Activities:

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Gant chart: to show our activity schedule, we will use the Gant chart for better understanding. Duration (weeks) 1 **** 2 **** **** **** **** **** **** **** **** **** 3 4 5 6 7 8 9 10

A B C D E F G H

Activity explanation A- Understand & discuss the topic B- Preparing & submitting the proposal C- Website, library research D- Collecting data E- Rearrange data F- Report writing G- Presentation preparation H- Presentation & Report Submitting.

3.1. Definition of L/C:

A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all

17

documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms and conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to as a Documentary Credit. A Letter of Credit can be defined as a written undertaking made by a bank at the request of the applicant for the credit to pay a specified amount in an agreed currency to a beneficiary on the condition that the beneficiary presents stipulated documents within a prescribed time limit. A Letter of credit is internationally recognized and accepted instrument and can be used practically everywhere in the world. For countries with government controlled foreign trade it is often a legal requirement that payments for imports have to be settled through letter of credit. The bank acts as an intermediary between the buyer and seller. Settlement is effected through the bank by means of a direct exchange; the beneficiary presents the required documents to the bank and receives, in return, the amount specified in the credit. With a documentary credit, the beneficiary is no longer dependent on the buyers ability or willingness to pay. A Letter of Credit balances the needs of the exporter and the importer and provides an adequate level of security to both of them. Once an exporter receives a documentary credit he is assured that a Party who is independent of the buyer, committed to effect payment as soon as he has: Delivered the goods or services, Presented credit conform documents to the bank and Fulfilled the other conditions stipulated in the documentary credit. The importer, on the other hand, knows that he has to pay if an independent party (the bank) has certified that the supplier has met the conditions required in the documentary credit. Moreover a letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. A bank or finance company issues a letter of credit on behalf of an importer or buyer, authorizing the exporter or seller to obtain payment within a specified timeframe. A letter of credit provides the exporter or seller with the issuing bank, is

18

the greatest degree of safety when extending credit. It is useful when the importer or buyer is not well known and when exchange restrictions exist or are possible.

3.2. Advantage of Letter of Credit:

The letter of credit is the safest, most secure and most convenient settlement method for international transactions. There are a number of advantages both for the seller/exporter and the buyer/importer. Advantages of L/C to the importer (Buyer): Provides guarantees for the delivery of goods according to the terms and condition of the L/C. It is safer to deal with bank than to prepay. Buyer may get better terms and prices. The beneficiarys foreign exchange risk is eliminated. A letter of credit allows the buyer to confirm its paying capacity. Provides possibility to obtain a longer period for the payment in comparison with the other terms of payment. Advantages of L/C to the exporter (Seller): Reducing the production risk. The chance to obtain financing for production or purchase of goods (pre-export finance). Facilitates pre-shipments financing through packing cash credit or B to B L/C Reduces vagueness regarding transaction because terms are specified in the L/C The ability to structure the delivery schedule according to the exporter's interests.

3.3. Form of Letter of Credit:

Letter of credit comes in various basic forms. These differ according to the degree of security provided and the point of time at which the bank takes over the risk. Banks may issue several types of letters of credits. It is best for importers and exporters to meet with 19

their banking officer to determine which type of credit best suits their needs. Basic forms of Letter of credit are furnished below:

i. Revocable Letter of Credit:

A Revocable Letter of Credit can be amended or cancelled by the issuing Bank (usually on the instructions of the applicant) at any time without prior notice to the beneficiary. It does not constitute a legally binding undertaking by the Issuing Bank to make the payment. Revocable is however, possible prior to payment, acceptance or negotiation by the bank, with which revocable credit has been made available, against documents which appear on their face to be in compliance with the terms and conditions of the credit. Thus a revocable credit does not usually provide adequate security for the beneficiary. Above all, a correspondent bank cannot confirm it. So the seller can face the problems of obtaining payment directory form the buyers. Because this places the exporter at risk, revocable letters of credit are not generally accepted and this type of credit is not worth considering unless the parties to the transaction are already well known to each other. Revocable credits are seldom used these days.

ii. Irrevocable Letter of Credit:

An Irrevocable Letter of Credit constitutes a firm undertaking by the issuing bank to make payment. Provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the credits are complied with. It, therefore, gives the beneficiary a high degree of assurance regarding the payment of his goods or services. An irrevocable credit cannot be amended or cancelled without the consent of the beneficiary, the issuing bank and the confirming bank, if any. If the seller wishes to amend or cancel individual provisions of the credit, he must get the buyer to send instructions to this effect to the issuing bank. Almost without exception, the beneficiary is advised of the opening of an irrevocable credit through a correspondent bank. The correspondent bank may be instructed by the issuing bank merely to advise the credit or to confirm it.

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iii. 'With' or 'Without Recourse' Credit:

Letters of Credit often mention whether bills to be drawn under them are to be "with recourse" or "without recourse". In a "with recourse" bill, in the event of refusal but the drawee to honor the bill, the negotiating bank may demand refund of money from the drawer. So, in a "with recourse" credit, the beneficiary may have to face the possibility of repaying the money to the bank that negotiated his bill in case the importer and/or the opening bank refuse to meet the bill for any reasons, whatsoever. To avoid this eventuality, exporters insist on a "without recourse" credit as the bills drawn under such a credit having once been negotiated, the beneficiary, who is the drawer of these bills, cannot be asked to pay even though the importer or the opening bank may have refused to honor the bills. In a "without recourse" credit the beneficiary has no liability after his bill has been negotiated. He has no further role in the operation of the credit. The negotiating bank then has only the goods as its security and in the event of non-payment by the importer he can sell them to recover money. A without recourse credit has greater convenience for the beneficiary but he may have some difficulty in negotiating his bills. A "with recourse" credit, on the other hand, provides greater security for the negotiating bank.

3.4. Types of Letter of Credit:

As already mentioned, the basic forms of a documentary credit differ in respect of the degree of security they provide for the beneficiary. Credits are further classified into various types according to the method of settlement employed. There are also special arrangements involving combination of separate credits or the assignment of credit proceeds.

i. Sight Credit
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The most commonly used credits are sight credits. These provide for payment to be made to the beneficiary immediately after presentation of the stipulated documents, on the condition that the terms of the credit have been complied with. A sight credit is payable immediately upon presentation of documents to the opening or the nominated bank. As per UCP (Publication No.600) of the ICC, a sight credit in compliance with credit term must be paid within 5 banking days.

ii. Acceptance Credit

With an acceptance credit, payment is made in the form of a term bill of exchange drawn on the issuing bank or the correspondent bank. Once he has fulfilled the credit requirements the beneficiary can demand that the bill of exchange be accepted and returned to him. Thus the accepted bill takes the place of cash payment. UCPDC Article 6.c states that a credit must not be issued available by a draft drawn on the applicant since the Issuing Bank is primarily liable to pay under the credit. If a credit, nevertheless, calls for a draft on the applicant, the same shall be considered as an additional document. Bill of exchange drawn under an acceptance credit usually has a term 60-180days.

iii. Deferred payment credit

Under a deferred payment credit the beneficiary does not receive payment when he presents the documents, but at a later date specified in the credit. On presenting the required documents, he receives the authorized bank's written undertaking to make payment at maturity. In this way the importer gains possession of documents and thereby of the goods or services, before being debited for the amount involved.

iv. Red clause credit

In the case of a red clause credit, the seller can obtain an advance for an agreed amount from the correspondent bank. This advance is used to finance the manufacture or purchase of the goods that are going to be delivered under the documentary credit. On receiving the advance, the beneficiary must give a receipt and provide a written undertaking to present the required documents before the credit expires. The correspondent bank pays the advance, but it is the issuing bank that assumes liability. If the seller does not present the required documents in time and fails to refund the advance, the correspondent

22

bank debits the issuing bank with the amount of the advance plus interest. The clause permitting the correspondent bank to make an advance against the credit used to be written in red ink, hence the name 'red clause credit'.

v. Revolving credit
Revolving credits can be used when goods are to be delivered in installments at specified intervals. The amount available at any one time is equivalent to the value of one partial delivery. The revolving clause often also specifies the intervals at which the credit may be utilized. A revolving credit can be cumulative or non-cumulative. Cumulative means that amounts from unused or incompletely used portions can be carried forward to a subsequent period. If a credit is non-cumulative, the portions not used within the prescribed period cease to be available.

vi. Negotiation credit

A negotiation credit means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank. A negotiation credit is a commercial letter of credit opened but the issuing bank in the currency of its own country and addressed directly to the beneficiary. The credit is usually delivered to the addressee by a correspondent bank. This credit is sometimes also called as 'Hand on Credit'.

vii. Stand by credit

Stand by credits are encountered principally in the US. Under the laws of most American States, banks are prohibited from issuing regular guarantees. So, stand by credits are used instead. In Europe too, the use of this type of credit is increasing. The types of payment and performance that can be guaranteed stand by credits include the following: Payment of term bills of exchange, Repayment of bank advance, Payment of goods delivered, 23

Delivery of goods in accordance with contract

viii. Transferable credit

Transferable credit means a credit that specifically states it is transferable. A transferable credit may be made available in whole or in part to another beneficiary ("Second Beneficiary") at the request of the beneficiary (First Beneficiary). Transferable credits are particularly well adapted to the requirements of international trade. A trader (middleman) who receives payment from a buyer in the form of a transferable documentary credit can use that credit to pay his own supplier. This enables him to carry out the transaction with only a limited outlay of his own funds. The buyer applies for an irrevocable credit issued in the trader's favour. The issuing bank must expressly designate the credit as transferable. The basic rule for transfer of credits is that payment of the original credit must be obtained on the strength of the documents presented under the transferred credit. Thus the terms and conditions of the transferred credit have to be identical with those of the original credit. Possible exceptions to this rule are as follows. The amount of the credit and the unit price may be reduced. The last date of presentation may be brought forward. The period for shipment may be shortened, provided that the original credit does not specify a particular shipping date. The required percentage of insurance cover may be increased, in order to provide the amount of cover stipulated in the original credit. The trader may require additional documents; these remain in his keeping. A transferable credit may be transferred only once. The second beneficiary cannot transfer it again unless there is an express provision to this effect in the original credit, e.g., 'transferable twice'.

ix. Back-to-Back L/C

Where an exporter receives a documentary credit opened by foreign buyer in his favor, he tenders the same to a bank in country as a cover for opening a credit in favor of his suppliers. The letter is called 'back to back Letter of Credit'. Since same goods are

24

involved in both the credits, a back-to-back L/C cannot be issued in respect of suppliers of iron and steel on the strength of an export L/C for garments. Back to back credit in short, is one, which is opened against a master L/C. The terms of back-to-back L/C should be identical except that the price may be lower and validity earlier. This type of credit keeps the identity of the ultimate buyer secret.

x. Other Credits
i. Installment credit: To differentiate with a revolving credit, an installment credit is a credit for the full value of goods, but requires shipment of specific, quantities of goods within nominated periods and allows part shipments. In case any installment of shipment is missed, credit ceases to be available for that and subsequent installments unless the L/C permits otherwise. ii. Green Clause Credits: A Green Clause Credit is a credit with a special clause incorporated into it that which not only authorizes the advising bank to grant pre-shipment advances but also storage cost for storing the goods prior to shipment. The Dhaka Bank basically deals with irrevocable L/C., which cannot be amended or cancelled by the issuing Bank at any moment and without prior to the beneficiary. It also deals back-to-back L/C, which is the letter of credit, provided by the exporter to the import the raw materials from abroad in order to produce the exportable commodity for the importer.

3.5. Parties to a Letter of Credit & Their Responsibilities:

A Letter of Credit is issued by a bank (Issuing Bank) at the request of an importer (applicant) in favor of an exporter (beneficiary) from whom the importer has contracted to purchase some commodity or commodities. The importer, the exporter, and the issuing bank are, thus, obviously parties to a letter of credit. Some other parties are also involved in the process. Parties to the Documentary Credits and their responsibilities obligatory are outlined below:

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3.5.1. Issuing bank/opening bank/buyer's bank: Issuing bank means the Bank
that issues a credit at the request of an applicant or on its own behalf. Responsibilities: The issuing bank is primarily responsible for payment under the credit to the beneficiary. The issuing bank should nominate the bank, which is authorized to pay or to accept drafts or to negotiate, unless the credit allows negotiation by any bank. Upon receipt of the documents, the issuing bank must determine, on the basis of the documents alone, whether or not they appear on their face to be in accordance with the terms and condition of the credit. If the documents appear on their face not to be compliance with the terms and conditions of the credit, the issuing bank may refuse to take up the documents. If the issuing bank determines that the documents appear on their face not

to be in compliance with the terms and conditions of the credit, it may in its sole judgment approach the applicant waiver of the discrepancies. This does not however extend period of five days available for scrutiny and communicating decision.

3.5.2. Customer / Applicant / Buyer/ Importer: Customer/buyer/

Applicant /Importer mean the party on whose request the credit is issued. Responsibilities: Since the credit is based on the sale contract between the exporter and the importer, the latter has a duty to the exporter to see that the credit opened is as per the terms of the sale contract. The obligations between the importer and the issuing bank are governed by

the application-cum-agreement submitted by the importer to the bank. Such instructions for the issuance of credits as well as his instructions for any amendments thereto must be complete and precise.

26

The issuing bank utilizing the services of another bank or banks for the

purpose of giving effect to the instructions of the applicant does so for the account and at the risk of the applicant. The applicant is liable to indemnify the banks against all obligations and responsibilities imposed by foreign laws usages.

3.5.3. Beneficiary/exporter/seller: Beneficiary/exporter/seller means the party in

whose favor a credit is issued. Responsibilities: The beneficiary has the obligation to make export as per contract and produce the documents as required by the credit, cannot gain him of the contractual relationship existing between the banks or between the applicant for the credit and the issuing bank. If the documents tendered are accepted by the negotiating but later found to be defective due to some latent defects falsification, he should reimburse the negotiating bank unless the negotiation was made without recourse. In a transferable credit, if he requires it to be transferred, should pay the charges of the transferring bank.

3.5.4. Advising Bank: Advising Bank means the bank that advises credit at the request
of the issuing bank. Responsibilities: A credit may be advised to a beneficiary through another (the advising bank) without engagement on the part of advising bank, but that bank shall take reasonable care to check the apparent authenticity of the credit, which it advises If the bank elects not to advise the credit, it must inform the issuing bank without delay. Thus the responsibility of the advising bank is to vouchsafe the authenticity of the credit.

27

3.5.5. Confirming Bank: Confirming Bank means the bank that adds its confirmation
to a credit upon the issuing bank's authorization or request (Article-2). Responsibilities: If the credit is available by sight payment, deferred payment or acceptance

with the confirming bank; If the credit is available by deferred payment with another nominated bank

and that nominated bank does not incur its deferred payment undertaking or having incurred its deferred payment undertaking, does not pay at maturity; If the credit is available by negotiation with another nominated bank and

that nominated bank does not negotiate. Negotiate, without recourse, if the credit is available by negotiation with

the confirming bank. A confirming bank is irrevocability bound to honour or negotiates as of the

time it adds its confirmation to the credit.

3.5.6. Negotiating Bank/Nominated bank: Negotiating or Nominated bank

means the bank with which the credit is available or any in the case of a credit available with any bank. Responsibilities: Unless the negotiating bank is nominated in the credit and it accepts the nomination or it is the confirming or paying bank, the beneficiary can compel no bank negotiate documents under the credit. A bank, under an open credit, may accept on its own to negotiate documents. The negotiating bank should accept documents tendered only if they conform to the terms and conditions of the credit. In documentary credits all parties concerned deal in documents and not in goods. If the negotiating bank finds any discrepancies in the documents tendered, but still negotiates, it may require the beneficiary to execute an indemnity in 28

favor of the bank. But such indemnity cannot be transferred to the issuing bank.

3.5.7. Reimbursing Bank: If the L/C issuing bank nominates a third bank in the letter
of credit to honor the claim of the negotiating bank, the bank is called reimbursing bank who may honor the claim accordingly, if otherwise in order. Responsibilities: An issuing bank must provide a reimbursing bank with a reimbursement

authorization that conforms to the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date. A claiming bank shall not be required to supply a reimbursing bank with a An issuing bank will be responsible for any loss of interest, together with

certificate of compliance with the terms and conditions of the credit. any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit. A reimbursing bank's charges are for the account of the issuing bank.

3.5.8. Paying Bank: Paying bank is a bank in the beneficiary's country nominated in
the letter of credit to make payment against documents to be tendered under the credit. When the paying bank accepts its nomination in the credit, it is liable to pay against documents tendered provided they satisfy the requirements of the credit.

3.5.9. Accepting Bank: Accepting bank is the bank nominated in (Exporter)of credit Seller the letter
to accept usance bills drawn under the credit. If the bank so nominated accepts the nomination, its responsibility to the beneficiary is not only to accept the drafts drawn, but also to payment on their due dates.
Advising Bank Confirming Bank Negotiating Bank Buyer (Importer) Indenter

Issuing Bank

Reimbursement Bank

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Figure: Parties to a Letter of Credit

3.6 Key Issues:

Some vital things that should be mentioned while talking about the L/C are as follows: i. Middlemen who buys and sells on a letter of credit basis ii. Usually the export letter of credit is not transferable iii. The Master L/C is a source of repayment iv. The baby L/C is a separate undertaking from that of the issuing bank v. Matching of the terms and conditions of both credits in order to produce the required documents within time limits stipulated in the master L/C, with the following exception: Applicants name Amount Unit price Dates Insurance Documents can be substituted 30

3.7. Uniform Customs And Practices of L/C:

Uniform Customs and Practice for Documentary Credit (UCPDC), International Chamber of Commerce (ICC) publication are rules that apply to any documentary credit, when the text of the credit expressly indicates that it is subject to these rules. Bankers and commercial parties in more than 200 countries use the UCPDC. UCPDC was first published in 1933 and subsequently updating it throughout the years. In 1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles. UCPDC-500 is a set of rules formulated by ICC to apply to all transactions in L/C carried out by banks. The purpose of the rules is to bring about uniformity in the form of L/C and the practice and procedures adopted by banks in handling the instruments. In order to provide common understanding about the interpretation of the terms and terminology, a uniform code is very essential. Therefore, the ICC formulated the Uniform Customs and Practice, which is universally accepted, and L/C transactions everywhere are subject to this set of rules. The latest revision was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006. This latest version, called the UCPDC600, formally commenced on 1 July 2007. It contains a total of about 39 articles covering the following areas, which can be classified as 8 sections according to their functions and operational procedures. Information of ICC& UCPDC ICC Founded Membership and Association Purpose ICC publication UCPDC Application 1st publication Revised versions were issued Latest version

(International Chamber of Commerce) world business organization 1919 Thousands of members companies and associations of over 200 countries. To promote international trade, investment system and market economy worldwide. UCPDC-500, UCPDC600, URR-525, URC-522 etc. Uniform Customs and Practice for Documentary Credits. Import and export through L/C 1933 1951, 1962, 1974, 1983 and 1993 UCPDC600 31

Effective from (in force) Number of Articles UCPDC-500 contains

Formally commenced on 1 July 2007 39 Definition, liabilities and responsibilities of all parties involved in L/C, Rules and Guidelines for L/C operation (issue, advise, negotiation and reimbursement). New technologies and the simplification of rules, definition, Interpretation, independence of credits and underlying contracts, Pre-Advised Credits, nominated bank, reimbursement arrangements, complying presentations and discrepant, waiver, original documents.

UCPDC-600 contains

3.8. Regulatory Requirements of L/C:

There are some requirements of L/C for the import or export transaction in the foreign exchange. LOCAL RULES: Guidelines for foreign exchange transaction regulation on import (guidelinechapter-XV) The Import/Export Act 1950 Import policy for the concerned year Customs duty, VAT, SRO, Tariff Rate of exchange and its application Fe Circular, IBD Circular Public notice issued by CCI&E Office UNIFORM RULES: UCUDC-ICC Publication No. 500 URC-ICC Publication No.522 URR-ICC Publication No.525 INCOTERM-ICC Publication No.560 Harmonized Commodity Description & Coding System (H.S. Code) UCPDC-600

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3.9. Operational Flow of the Process of Letter of Credit:

Letter Of credit is the main expedient arrangement for international transactions. For the providing of guarantees for the delivery of goods both the importer and exporter need to open L/C. The complete Import and Export process in includes the following stages. Both the importer and exporter are involved in this process of L/C. In here both party do some tasks. Importers do various tasks or exporters do responsibilities and others do some and some. The process is very much like the following: Importer 1
6

Exporter 9

14

15

Ship of the Goods

10

11

Issuing Bank

13 3
Advising Bank

Negotiating Bank 12 7 8

Reimbursing Bank

Confirming Bank

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Figure: Operational Flow of the Process of Letter of credit

For Import or export of the goods or materials opening L/C is the most necessary things to do; which is safer process and also reducing the production risk. For opening the L/C first establish a buying and selling contract between the importer and the exporter. The flow of the process shows that: Establish a buying and selling contract between the buyer and the seller. Submission of application with necessary documents to the bank. L/C issue and advise it to the advising bank. Issue reimbursing instruction to the reimbursing bank. Asking for the confirmation of the L/C to the importer. Advise the L/C to the exporter by the advising bank after verification of the L/C. Issuing request letter by the issuing bank to the confirming bank (as per exporters requirement) toe confirm the L/C. Issuing confirmation by confirming bank. Shipment of the goods. Submit required document to the negotiating bank for negotiation. Negotiate the bill by the negotiating bank and make payment to the exporter. Claim to the issuing bank or reimbursing bank for payment. Payment reimbursed by the issuing bank or reimbursing bank. Ask the importer to collect the documents from the bank. Collect documents from the issuing bank by paying the banks dues.

3.10. Factors for Opening L/C:

A letter of credit provides the exporter or seller with the greatest degree of safety when extending credit. It is useful when the importer or buyer is not well known and when exchange restrictions exist or are possible. There are some factors for the L/C applicant for opening L/C like-

34

Account holder of the bank: First of all, L/C applicant must be a client of the bank. If a new client comes in for opening L/C, he/she has to open an account with Dhaka bank first.

Trustworthiness: This is the vital issue while considering about opening the L/C. the past experience of dealings with that person is considered. For a new applicant, his/her previous dealings with other banks are considered.

Post-import retirement: Post-import retirement is another factor that will have to be considered for opening L/C. Volume of business: The volume of business is also a major factor to be considered. Because after the maturity payment are the initial facts. Detailed analysis of financial condition: Detailed analysis of financial condition of the applicant is required for the process, especially for a new applicant.

CIB (Credit Information Bureau): CIB report from Bangladesh Bank is also a most important thing to measure the applicant condition. Personal relationship: And finally the personal relationship of the applicant with the bank or its high officials plays a vital role in opening L/C. Proposal approved by executive committee: A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit. If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one core.

3.11. Documents Required While Applying for L/C:

In credit operation, all parties deal with the documents. Documents works as a written commitment between the parties for the exchange of goods, services and other materials. So in the process of L/C different documents are required whish is must submit the applicant while applying for Letter of credit. The following documents are required for opening L/C with DBL for a new applicant: Trade License (up to date) Import Registration Certificate (IRC) (up to date) 35

Tax Identification Number (TIN) (up to date) VAT Registration Certificate (up to date) Chamber Membership Certificate L/C Application (in letterhead pad of the client) LCA (L/C Application) form-duly filled in and signed by the importer IMP Form- duly filled in and signed by the importer Charge documents Suppliers Credit Report Applicants Credit Report Other necessary papers depending on the nature of import.

3.10.1. Requirements of L/C Application Form:

L/C Application Form is a sort of an agreement between the customer and the bank on the basis of which letter of credit is opened. Dhaka bank provides a printed form for opening of L/C to the importer. A special adhesive stamp of value TK. 150 is affixed on the form in accordance with the stamp act currently in force. Usually, the importer expresses his decision to open the L/C quoting the amount of margin in percentage. In filling up the form, the importer has to provide the following information: Full name and address of the importer. Full name and address of the beneficiary. Draft amount. Time bar within which the documents should be presented. Sales type (CIF/FOB/C&F). Brief specification of commodities, price, quantity, indent No. Etc. Country of origin. Import license no. IRC No. Account No. Documents No. 36

Insurance Cover Note/Policy No., date, amount. Name and address of insurance company. Whether the partial shipment is allowed or not. Whether the transshipment is allowed or not. Last date of shipment. Last date of negotiation. Other terms and conditions (it any). Whether the confirmation of the credit is requested by the beneficiary or not. The L/C application must be completed / filled in properly and signed by the authorized person of the importer before it is submitted the issuing bank.

The above information is provided along with the following documents: Performa Invoice or Indent stating the description of the goods including quantity, unit price etc. Insurance Cover Note with money receipt, name and address of issuing company and the policy number. Four set of IMP (Import) Form.

3.10.2. Important Documents in the L/C Procedure:

Depending upon the terms stipulated in the letter of credit several documents need to be presented for settlement of claims under the credit. These documents are also called shipping document or documents of foreign trade. These documents are submitted in sets and are issued and signed by the designated authorities with the terms of contract of sale. These documents can be classified five categories: Commercial Documents Official Documents Insurance Documents Transport Documents

37

 Financial and Financing Documents

Commercial Documents:
A commercial invoice is a statement containing full details of the goods shipped. The general contents of a commercial invoice used in foreign trade are: Names and addresses of the seller and the buyer. Details of goods shipped-quantity, description and value. Packing details and packing marks. Price and amount payable by the buyer. Terms of trade-FOB, CFR or GIF, etc. Details of freight charges, insurance premium and other charges. Reference to the sale contract in fulfillment of which the shipment is made. Name of the vessel in which the goods are shipped. and An invoice is not a document of title to the goods but is only a description of goods. It serves the purpose of verifying that the goods shipped and the prices charged are as per the contract. Though there is no specific pro-forma in which an invoice is to be prepared certain countries may prescribe the format in which invoices for imports into their countries have to be prepared. Such requirements have to be kept in view while preparing the invoice. The following commercial documents are generally used in foreign trade: i) Invoices ii) Certificate of origin iii) Weight notes or certificates iv) Packing list v) Quality or inspection certificates i) Invoice: An invoice evidences the contract of sale and purchase between buyer and seller.

38

The "Pro-forma Invoice" is a memorandum of the terms of a contract of sale wherein the seller gives the quotation to a potential buyer. If the buyer approves its terms he sends a definite order for supply. Such an invoice is marked with the words "Pro-forma Invoice". ii) Certificate of Origin: A certificate of origin declares the place of actual manufacture or growth of the goods. A country may place restrictions on importers from certain countries. Or, preferential treatment may be accorded in tariff for imports from certain countries. For both these purposes certificate of origin becomes necessary. Usually, such certificates are issued by the Chambers of Commerce or Trade Associations exporting country. iii) Weight Note or Certificate: This gives the weight of individual items shipped. If the goods are shipped in bulk, like food grains, the list may cover the entire shipment. It is generally issued by a public agency.

iv) Packing list: The exporter must prepare a packing list showing, item by item, the contents of the containers or cases to enable the importer of the goods to check the shipment. It should give description of the goods, net weight and gross weight, measurement etc. this helps in identifying the contents of specific packages and thus may facilitate assessment by the customs. v) Quality or Inspection Certificate: This is a certificate declaring that the goods have been examined and found to be accordance with the contract of sale. The manufacturer or supplier signs this, but the contract of sale may require to be issued by a recognized independent inspection body. It is also called survey report.

Official Documents: The official documents include:

i) Consular Invoice. 39

ii) Legalized Invoice. iii) Black-listed Invoice. iv) Health, Veterinary and Sanitary Certificate / Certificate of analysis. i) Consular Invoice: It is a special type of invoice, usually in a prescribed form, describing the details of the goods shipped and sworn as being 'correct in all respects by the exporter before the Consul of the importing country stationed in the exporting country. The consul then certifies the invoice. Any false declaration in the consular invoice involves heavy penalty. ii) Legalized Invoice: The purpose of a legalized invoice is similar to that of a consular invoice. The difference is that instead of a specific format of invoice, the ordinary commercial invoice is presented to the Embassy or Consulate for certification. Certain countries in Middle East require legalized invoice. iii) Blacklist Certificate: A country at war with or having a strained political relationship with another country may require a certificate that: the goods are not of the origin of. the particular country, or the parties involved in the transaction arc not blacklisted or the transport vessel will not touch the other country.

iv) Health, Veterinary and Sanitary Certificate/Certificate of Analysis: It is often necessary for shipping documents to contain something more than a certified invoice as evidence of quality in order to meet health requirements in the country of destination or to satisfy the importer about the precise strength or chemical composition of the goods. "Health, Veterinary and Sanitary certificates" are generally needed in the purchase of foodstuff, hides and livestock and in the use of packing materials. The recognized health authorities in the exporting countries issue this certificate

Insurance Documents:

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The insurance document must indicate that risks are covered at least between the places of taking in charge or shipment and the place of discharge or final destination as stated in the credit.

Transport Documents
These are the documents which evidence that the goods have been delivered to the named shippers, airlines or transporters for carriage to a named port, airport or place of delivery. Following transport documents are being used at present in the international trade: i) ii) iii) iv) v) vi) Air Waybill/Air Consignment Note. Mate's Receipt. Bill of Lading. Railway Consignment note / Railway Receipt. Roadway Bill. Post Parcel Documents Airlines or their agents issue airway bills or air consignment notes as a receipt of consignment received as carriers. ii) Mates Receipt: Bill of lading should be distinguished from a Mate's Receipt. When the goods are delivered to the shipping company for transportation at first a temporary receipt is issued by the ship's Chief Officer acknowledging the delivery of the goods alongside the carrying vessel, which is known as the Mate's Receipt. iii) Bill of Lading A bill of lading is a document issued by the shipping company or its agent, acknowledging the receipt of goods for carriage, which are deliverable to the consignee or his assignee in the same conditions as they were received. Bill of lading renders the following three functions: It is an evidence of contract of carriage; It is a receipt for the goods received by the carrier; and

i) Air Waybill/Air consignment Note:

41

It is a document of title to goods. iv) Rail Consignment Note or Railway Receipt: When the exporter or his agent delivers a consignment to the railway authorities for its onward carriage to a named destination, they issue a receipt, indicating the details of the consignment and the destination to which they would carry it. This document is called the Rail Consignment Note or Railway Receipt. v) Road-way Bill: It is an internationally approved document of transportation when goods are being sent by road through the countries. This document is Road- way Bill. This is a nonnegotiable document and provides written evidence that the goods are being carried under the terms of Road- way Bill.

vi) Post Parcel Documents: It is a receipt issued by the Post Office for the parcel they have received for direct delivery to the addressee. It is not a document of title to goods and generally contains the post office stamp indicating the date of dispatch, name and address as mentioned in the parcel, name and address of the sender, postage paid and identification number of the parcel.

Financial and Financing Documents:

These documents are used in payment by the buyer to the seller of goods in the international trade transactions. Bills of Exchange Promissory Notes are very commonly used such documents. i. Bill of Exchange: A bill of exchange is an instruction by the exporter (drawer) to the importer or the importer's bank to make payment of the amount mentioned in it. A bill of exchange is a negotiable instrument and is governed by the Negotiable Instruments Act 1881 in Bangladesh and by similar enactments in other countries.

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3.11. L/C Issuing Process in the Dhaka Bank:

For the issuing of Letter of credit Dhaka Bank follow some steps or flow in the processing. Below the flow Chart mentioning Steps in issuing an L/C in Dhaka Bank-

Fill up the application form

Discussion between the Bank and the party

Accumulate forms and depositing those

Preparing offering sheet

Putting L/C No.

Checking Documents

Singing offering sheet

Typing the L/C

Checking the L/C

Dispatching L/C
Figure- Issuing Process of L/C

Acknowledgment the account

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In the Dhaka Bank Banani branch, foreign exchange department issue the import or export letter of credit for the customer. For opening L/C, a bank promises to pay on behalf of a customer. The bank will only issue a letter of credit if they know the buyer will pay. Some buyers have to deposit (or already have) enough money to cover the letter of credit, and some customers use a line of credit with the bank. Sellers must trust that the bank issuing the letter of credit is lawful. The comprehensive process of L/C issuing in Dhaka Bank is explained belowStep-1: Fill up the application form: First time issuing the letter of credit the clients who want to open a L/C have to fill up the application form in the banks letterhead pad. In there all the information likes name of the product, origin of the product, where to imported, margin and other things. The applicant shall have to apply for the required forms of the bank.

Step-2: Discussion between the Bank and the party After receiving the application form, the Bank pays attention to the issues mentioned below. The products that are going to be imported are considered. Because there are restrictions by the government on some products. The quoted rates are specially analyzed, as theyre also some restrictions by the government. Step-3: Accumulate forms and depositing those For the primary stage applicants collect the necessary from for opening L/C like L/C application form, LCA form and also IMP from the bank. They fill up all the form according to the instruction and maintain all the regulation and acts. After finish the task the forms and all other necessary documents are then deposited at the desk of the dealing officer. Step-4: Checking Documents After fill up the entire form applicant give that to the dealing officer. Dealing officer than check all the forms and documents specially the quoted rates, the terms and

44

conditions of the indent or pro-forma invoice and the validity of the documents. Generally the person from whom the forms are collected is engaged in checking out the documents. Step-5: Putting L/C No. Every L/C form there has a L/C number. After checking the documents bank given L/C No. for the easy identification and erase the complexity. Generally the officer who checks the documents puts the L/C No. L/C number helps not only the applicant but also the banks to fill the all documents easily. Step-6: Preparing offering sheet Generally the dealing officer who deals all the process of the L/C. Officer checks the all present documents and prepares the offering sheet prepares the offering sheet. It is the responsibility of that officer to prepare this and maintain as an act.

Step-7: Singing offering sheet The offering sheet is then signed by the officer having the authority to open the L/C of the specified amount. If it is within the maximum limit of the amount (for which the L/C is applied) of the SAVP or branch manager, he/she can sign it. But if it is beyond his/her limit proposal must be sent to the head office, either for case-to-case sanction or for credit limit. Generally, in Dhaka Bank, branch managers are empowered to open an L/C without communicating with the head office, if the L/C amount is within his limit.

Step-8: Typing the L/C After the approval of opening L/C is given, the L/C is typed in a structured format. In the Dhaka Bank has a structured format mainly they use it when any applicant want to open a L/C account. So for the work they need 2 to 5 minutes.

Step-9: Checking the L/C For finally checking the L/C dealing officer check all the documents, which is given. All the work from beginning to end dealing officer covenant with whole process and find out and list the discrepancy if occurred.

45

Step-10: Acknowledgment the account On the basis of credit arrangement with the bank of import financing, the customers account is affected with certain credit.

Step-11: Dispatching L/C At the final stage, the L/C is dispatched through postage mail or telex or SWIFT or so forth. Although this is the generalized process for issuing L/C, for the speed of the process sometimes the typing and checking of documents are done before the offering sheet is signed. Then after signing the L/C it is dispatched. .

3.13. COMMON DISCREPANCIES:

1. Clause (unclean) Bill of Lading. 2. Charter Party Bill of Lading (unless stipulated in the Letter of Credit). 3. On Board notation of in Bill of lading undated/ unauthenticated. 4. Shipment effected from port other than that stipulated in the credit. 5. Goods shipped on deck (unless stipulated in L/C) 6. Full set of bill of lading not presented. 7. Certificate of country of origin not provided. 8. Certificate notifying insurance company of shipment not presented. 9. Wightmans certificate not presented. 10. Cutting/alteration 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 amounts shown in invoice and bill of exchange differ. 15. Shipping marks and numbers differ between documents.

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16. Credit L/C amount expired. 17. Credit (L/C) expired. 18. Documents not presented in time/state bill of lading. 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. Bill of lading, insurance documents or bill of exchange are not endorsed correctly. 25. Absence of signatures, where required, on documents presented. 26. Bill of lading does not evidence whether freight is paid or not. 27. Packing list not submitted. 28. Part shipment/ transhipment effected not being covered by the L/C terms. 29. Notify Party differs/not as per L/C stipulation. 30. Third party bill of lading/short from bill of lading submitted. 31. Inspection certificate not submitted. 32. Unit price not mentioned in invoice. 33. Description of documents on collection schedule with documents presented. 34. Fumigation/Health certificate (Fit for human consumption) not submitted. 35. Forwards Cargo receipt not acceptable (unless provided in the L/C).

3.14. Letter of credit Accounting Procedures:

While dealing with import/export letter of credits the L/C issuing bank /negotiating bank come across several steps/stages involving financial matters which need to be accounted for and recorded in the books of accounts of the respective branches as follows (Applicable under Dhaka Banks Banking System):

Import:
i. At the time of opening Cash L/C: Dr. Assets as per contra (@ B.C. selling rate) Import L/C General

47

Cr. Liability as per Contra Import L/C General Dr. Party's current account Cr. Income Account (Commission on L/C Cash) Cr. Income account (Telex Charges)/SWIFT/P&T. Cr. Stamp in Hand Cr. Income Account (Stationery) Cr. Sundry Deposit (Security Deposit L/C Cash) Cr. Other A/Cs (if required). Cr. Sundry Deposit (vat on L/C com.) Cr. Income A/c (F.C.C) ii. Entries for lodgment of documents against Cash L/C (Sight / Usance): Dr. Liability as per Contra (Cash L/C) Import General Cr. Assets as per Contra (Cash L/C) Import General Dr. Inward Foreign/Local Bills Lodged Cr. Inward Foreign/Local Bills for Collection/in case of usance L/C Dr. Import Bills A/c (B.C. Selling Rate) Cr. Income A/c (Acceptance commission usance Bills) (if usance L/C) Cr. FC Fund Purchased A/c. (B.C. Selling Rate) Cr. Profit Receivable A/c (MPI) Cr. Income Account (Telex Charges) Dr. F.C Deposit (FC Fund Held) A/c. (At notional rate) Cr. F.C Deposit (FC L/C cover) A/c (Party wise) Dr. F.C. Deposit (FC L/C cover) @ Notional rate Cr. IBGA/c H.O. ID iii. For purchase of FC: Dr. IBG, ID, 110 (at notional rate) Cr. FC Fund Held A/c Dr. FC Fund purchased A/C Cr. IBG ID, HO (FC value in Taka)

48

iv. For of cash retirement: Dr. Party's A/c Dr. Sundry Deposit (Security Deposit Cash L/C) A/c. Cr. FC Fund Purchased A/c. Cr. Income Account SWIFT/Telex charges recovery A/c. Dr. FC Deposit (W.F.H. A/c) at notional rate Cr. FC Deposit (WES L/C cover) A/c Dr. F.C. Deposit (WES LC cover) A/c Cr. IB General A/c. II.O. ID v. Alter Retirement of Bills: Dr. Inward Foreign/Local Bills for Collection Cr. Inward Foreign/Local Bills Lodged vi. For adjustment of 1B (Import Bill- Temporary Bank Investment): Dr. Party's A/c Dr. Security Deposit A/c Cr. Import Bills (MIB) Dr. Profit Receivable A/c Cr. Import Bill A/c. (For rebate) vii. For Bank's Investment: Dr. Post Import/HPSM (Investment) A/C Cr. FC fund purchased A/c Cr. Profit Receivable A/c Cr. Income Account Commission on clearance of imported Consignment Cr. Income Account Telex charge recovery A/c. Dr. FC Deposit (FC. FH.) A/c Cr. FC Deposit (L/C Cover) A/c Dr. F.C Deposit (F.C L/C cover) A/c Cr. IB General A/c. H.O. ID Dr. Party's A/c (When realized)

49

Cr. MPIA/c Dr. Profit receivable A/c Cr. Investment Income A/c (At the end of each month). viii. For opening of BB L/C: (a) Charges realization voucher: Dr. Party's Deposit A/c/Sundry Deposit A/c (Marginal Deposit) Cr. Income Account Commission Cr. Income Account P&T/Telex Charges/SWIFT Cr. Stampt in Hand A/c Cr. Income Account Stationery (b) Liability voucher: Dr. Assets as per contra BB L/C (Inland/Foreign) Cr. Liability as per contra BB L/C(Inland/Foreign) ix. On receipt of documents: Dr. Liability as per contra BB L/C (Foreign/Inland) Cr. Assets as per Contra BB L/C (Foreign/Inland) Dr. Assets as per Contra BB Bills(Foreign/Inland) Cr. Liability as per contra BB Bills(Foreign/Inland) x. For back to back Bills Retirement: Dr. F.C. Held against BTB L/c (At the rate at which amount was held) Cr. IB General A/c HO, ID Dr. Party's A/c/Sundry Deposit A/c (Marginal Deposit) Cr. Income A/c(F.C.C) Cr. Income Account (acceptance commission) Cr. Income Account (CCIC; if applicable) Cr. Income Account (Stationery) Cr. Income account (P&T/ Telex Charges) Dr. Liability as per contra (BB Bills) Cr. Assets as per contra (BB Bills)

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 Export:
Entries for Negotiation/Purchase of Export bills (Applicable under Dhaka Banks Banking System): Dr. Cr. Cr. Cr. Cr. Cr. Cr. Cr. FBN/FBP A/c @ OD sight Export Bill (Party wise) F.C. Held against IBB L/C (as applicable) Marginal Deposit A/c (as applicable) Investment Income A/c (PSI) P&T Recovery A/c FCAD-EXP A/c as applicable (as per Bangladesh Bank rule) of FOB value. Party's A/c. -Balance amount. Sundry Deposit A/c (Buying Agent Commission)

i. Negotiation Under Reserve Dr. Cr. Cr. Cr. FBN A/c PC held against BB L/C Marginal deposit A/c (Under reserve) FCAD A/c (10% of FOB value if requested as per Bangladesh Bank's Rule)

ii. In case the documents are sent on collection basis accounting should be as under: Dr. Cr. Outward foreign Bill Lodged A/c. Outward Foreign Bills for collection A/c

iii.Upon receipt of payment of bill amount by the paying bank in the NOSTRO A/C. the following entries have to be passed for adjustment of the investment A/C. Dr. Cr. Cr. Cr. IB General A/c Head Office, ID (by mid rate) Foreign Bills Purchased / Negotiated (FBP/FBN) A/c Income A/c (Exchange F.C) Investment Income A/c (FBP/FBN).

iv. After realization of FBC: Dr. Cr. Outward Foreign Bills for Collection Outward Foreign Bill Lodged

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After realization: Dr. Clearing adjustment A/c (In case Bill realized in TAKA) Dr. Marginal Deposit A/c Cr. Exchange A/c Cr. Investment income A/c (IBP) Cr. Exchange (In case of Foreign Currency). Cr. Investment Income A/c. For Collection of Inland Export Documents: Dr. outward Bill Lodged Cr. Outward Bills for Collection Dr. IBG (HO, ID) A/c (if payment made by FC) Dr. PO/DD (Through clearing) Cr. FC Held against BB L/C (if any) Cr. FC AD (ERQ) A/c (if required) Cr. Investment A/c (MPI/HPSM/BAIM BB) Cr. Income A/c Cr. Party's Deposit A/c

3.15. Time Duration Of L/C Processing:

For the regular clients Dhaka Bank need less than one hour to open another new L/C. When a regular client applies to open another L/C, they just provide photocopies of most documents and the bank officer do not take much long time to check those documents, because in most cases the L/C clients of the banks are regular and old. In case of new client banks issuing L/C and check the documents thoroughly. However, it generally does not take more than two days even for a new client applying to open an L/C and often it takes time to make the client understand the banks requirements.

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Average Time requirement for the basic activities of L/C issuing process Activity Checking Documents Putting L/C No. Preparing Offering Sheet Signing Offering Sheet Typing the L/C Checking the L/C Crediting the account of the customer Total Time* Average Required Time (in minutes) 5 2 10 5 25 8 5 60

Foreign exchange is an important department of DHAKA Bank Limited, Banani branch which deals with import, export and foreign remittances. Foreign Exchange is an International Department of the Bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. This department mainly deals in foreign currency, that's why it is called foreign exchange department.

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This department is playing an important role in enhancing export earning, which aids economic growth and in turn it helps for the economic development. On the other hand, it also helps to meet those goods and service, which are most demandable and not adequate in our country.

3.16. Letter of Credit in Import Financing:

One of the important functions of the commercial banks in the world is to undertake the import of merchandise into the country and payment of foreign exchange towards the cost of the merchandise to foreign suppliers. Bangladeshs import policy requires letters of credit (L/C) for all imports of goods. L/C, as a tool of financing, provides benefits to both the importer and the exporter. Import financing by Dhaka Bank can be shown by the diagram below:

Pre Import Finance L/C (Letter of Credit)

Import Finance Dhaka Bank

Post Import Finance 1. PAD 2. LIM Agreement 3. Forced LIM 4. LTR

However, post import finance is beyond the scope of this report. Thus the following few sections will describe the import L/C processing of Dhaka Bank.

3.17. Letter of Credit in Export Financing:

Export business creates inward remittance. For that reason, government encourages investing in export business and offers incentive like tax and duty free entrance of raw materials in RMG business in our country. As import of one party is an export to the other, L/C also plays a vital role in financing exports. Following diagram shows means of export financing that Dhaka Bank deals with. Pre Shipment Finance 1. Packing Cash Credit (PCC) 2. Back to Back L/C Export Finance Dhaka Bank Post Shipment Finance 1. Negotiation of Export Bills 2. DP/DA 3. Collection of Export Bills

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Post shipment finance has not been included for discussion in this report. Thus the following few sections deal with the means that Dhaka Bank uses for pre shipment finance, i.e. PCC and BTB L/C.

4.1. Analysis of Income from L/C:

In processing L/C, Dhaka Bank earns income through charging various activities relating to it such as L/C opening charge, postage charge including Telex and SWIFT, amendment charge, and miscellaneous charges which include issuance of Bank Certificate, advice etc. as the amount of income of any party is considered as confidential information and the author committed not to disclose the figures, the following section provides only an idea of comparison of income from L/C related activities. In case of Export L/C processing, all most all the Export L/C are BTB L/C.

4.2. Comparison of Sources of Income from Import L/C:

The following chart exhibits a comparison of income at Dhaka Bank, Banani Branch, from different activities relating L/C processing without mentioning the confidential income amounts, during the period of Jan and Feb 2008. Comparison of Sources of Income from Import L/C- (month of Jan and Feb-2008) Sources of Income from Import L/c

L/C Opening Charges Amendment Charges

L/C Postage Charges Other Charges

Figure: Comparison of Sources of Income from Import L/C:

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The diagram shows that L/C opening charge acts as the major source of income from import L/C as it provides more than half of the total. Earnings form other charges constitutes just below one fifth of the banks total income whereas income from amendment and postage charges are just more than one tenth of the banks total income.

4.3. Comparison of Sources of Income from Export L/C:

The following chart exhibits a comparison of income at Dhaka Bank Branch, from different activities relating L/C processing without mentioning the confidential income amounts, during the period of Jan and Feb 2008. Comparison of Sources of Income from BTB Export L/C- (month of Jan and Feb-2008). Sources of Income frome BTB Export L/c

L/C Opening Charges L/C Postage Charges Amendment Charges Other Charges

Figure: Comparison of Sources of Income from BTB Export L/C:

The diagram shows that L/C opening charge acts as the major source of income from BTB Export L/C as it provides more than half of the total. Earnings form amendment charges constitutes just below one fifth of the banks total income whereas income from miscellaneous and postage charges are just more than one tenth of the banks total income.

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4.4. Different Bank, L/C Processing Cost:

The following table shows the major cost that the different bank charges for different steps in L/C processing: Major charges for L/C processing in different Banks L/C opening charges Dhaka Bank Sonali Bank City Bank Ltd. st 1 Quarter .50% .50% .50% Cash Subsequent Qtr. Minimum 1st Quarter BTB Subsequent Qtr. Minimum 1st Quarter Deferred Subsequent Qtr. Minimum 1st Quarter Inland Subsequent Qtr. Minimum .30% Taka 1000 .50% .30% Taka 1000 .50% .30% Taka 1000 .50% .30% Taka 1000 Postage charges Mail Courier Telex SWIFT Tk.100 (Local) Taka 100 Tk.100 (Local) Tk.300 (Foreign) Min. At actual, Min. Taka 1500 Min. At actual, Min. Taka 3500 Min. At actual, Min. Taka 3500 .25% Taka 250 .75% .50% Taka 300 .80% .50% Taka 300 .50% .25% Taka 250 .30% Taka 400 .60% .40% Taka 500 .60% .30% Taka 400 .60% .35% Taka 400

At actual, Min. At actual, Tk.2000 Taka 1500 At actual, Min. At actual, Tk.3500 Tk.3500 Taka 1500 Taka 1500 At actual, Min. At actual,

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Value increased / decreased Maturity extension Others

Amendment Charges Taka 750 Taka 250 Taka 250 Taka 250 Taka 1000 Taka 100 Other Charges Nill Taka 500 Taka 500 Taka 750 Taka 750 Taka 100 Taka 150 Taka 250 Taka 500 Taka 500 Taka 100 Taka 150

Taka 500 Taka 500 Taka 500

L/C cancellation Export L/C advising charge Own party: Other Bank party: L/C transfer Issuance of Bank Certificate Stamp

Taka 500 Taka 750 Taka 1000 Taka 1000 Taka 200 Taka 150

The above table shows that, the charges charged by Dhaka Bank and City Bank Ltd are almost the same in most services. But the cost charged by Sonali Bank is varying in most cases from these two. In almost all cases, Sonali Bank charges lower than the two commercial bank. According to bank officials interviews, this is due to Sonali bank being a stated owned bank and Dhaka Bank and City Bank Ltd being commercial bank.

4.5. Time Requirement of L/C Processing:

Average Time requirement for the basic activities of L/C issuing process:

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Activity Putting L/C No. Preparing Offering Sheet Signing Offering Sheet Typing the L/C Checking the L/C Crediting the account of the customer Total Time (in minutes)

Dhaka Bank 2 10 5 20 5 10 50-60

Sonali Bank 2 10 15 15 8 15 90-120

City Bank Ltd. 1 10 5 15 5 10 50-60

Total time mentioned here is not simple addition of the time required for basic activities. Rather it is provided from the interview with the bank officials. From the table the following decision can be made: Dhaka Bank and City Bank Ltd. as private commercial bank work much Signing Offering Sheet in the Sonali Bank is most time consuming. Putting L/C no. is the least time consuming activity in the process. Typing the L/C is the most time consuming activity among the mentioned. faster than the Sonali Bank as stated owned bank mentioned.

Relevant activities that affect the time structure: Application for forms in company letterhead pad Discussion between bank and the applicant Filling in the forms Dispatching the L/C

4.6. Analysis of the DBL, Bonani Branch Performance of Inclination of L/C:

Number of import L/C issued per month:

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The following table shows the number of import L/C issued per month at Dhaka Bank, Branch, during the period of January to December 2008. Month No. of L/C issued January 43 February 37 March 50 April 63 May 45 June 39 July 30 August 44 September 38 October 32 November 32 December 26 Total 479

70 60 50 40 30 20 10 January February March April May June July August September October November December

Figure: Number of Import L/C Issued Per Month

The table and chart shows that, the highest no. of import L/C opened in the month April and during all other month L/C are opened almost the same number. And the lowest 0 no. of L/C is opened in month December.

Number of Import L/C Issued Per Month:

25 January February March April 15 May June July 10 August September 5 October November December 0

The following table shows the number of Import L/C issued per month at Dhaka
20 Bank Banani Branch, during the period of January to December 2008.

Month January February March April May June

No. of L/C issued 18 12 09 17 10 15

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July August September October November December Total

17 20 25 06 15 14 178
Figure: Number of BTB Import L/C Issued Per Month:

The table and chart shows that, the highest no. of import L/C opened in the month September and the lowest no. import L/C is opened in month October.

NUMBER OF IMPORT L/C ISSUED PER COUNTRY: Dhaka Bank Banani Branch are issued L/C in different. Mainly the bank issued L/C in India, Korea, Malaysia, USA, and Sweden. The following table shows the number of Import L/C issued to different countries at, during the period of January to December 2008. Country India Korea Malaysia USA Sweden No. of L/C issued 61 46 44 59 67

The table and chart shows that, India and USA dominate the import market of L/C of Dhaka Bank. The highest no. of import L/C opened the beneficiary country India.

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Item-wise Import L/C: Fabrics, Yarn, Accessories and others items Dhaka Bank issued back to back Import L/C.The following table shows the number of BTB Import L/C issued to different items at Dhaka Bank Banani Branch, during the period of January to December, 2008 Item Fabric Yarn Accessories Others Total No. of L/C issued 35 40 95 8 178

The table and chart shows that, accessories lead the import market of the Dhaka Bank Banani Branch for the BTB Export L/C issued per item.

5.1. Trend of last Five Years Export, Import, Foreign Remittance &Profit (operation):
The trend or performance of the Dhaka Bank last five years Export & Import sector and also Foreign Remittance and profit (operating) are shown below the table where we can measure or know about the overall performance of the five years of Dhaka bank. Year 2004 2005 2006 2007 2008 Sum Avg. SD Variance Import 28048 30213 46277 49496 65737 219771 43954.2 15430.69 238106275 Export 8881 13505 23268 38081 39038 122773 24554.6 13803.47 190535777 Foreign Remittance 1110 3377 16764 10609 11834 43694 8738.8 6411.498 41107309 Profit 747 893 1183 2010 2533 7366 1473.2 768.0405 589886.2

From the above chart we can see that generally from the 2004 to 2008 the Import & Export volume of the Dhaka bank is increased. On the other hand in 2008 the Import &

62

Export volume and Foreign Remittance is high than the other previous year and the also in year of 2008 profit (operating) is high.

5.2. Growth Rates:

Growth Rate Import Year 2004 2005 2006 2007 2008 SD Import 28048 30213 46277 49496 65737 15430.69 Import Growth Rate 07.72% 53.17% 06.97% 32.81% 22.20%
Import Growth 70000 60000 50000 40000 30000 20000 10000 0 2004 2005 2006 2007 2008

Import Growth

Growth Rate Export Year 2004 2005 2006 2007 2008 SD Export 8881 13505 23268 38081 39038 13803.47 Export Growth Rate 52.07% 72.30% 63.66% 2.51% 31.20%
Export Growth 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2004 2005 2006 Export Growth 2007 2008

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Growth Rate Foreign Remittance Year 2004 2005 2006 2007 2008 SD Fore. Rem. 1110 3377 16764 10609 11834 6411.498 FR Growth Rate 204.23% 396.42% -36.72% 11.54% 197.95%
18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2004 2005 2006 2007 2008

Foreign Remittance Groth

5.3. Correlation Analysis:

Correlation between Import and Profit: Amount in Million Year 2004 2005 2006 2007 2008 Sum. Avg. Import=X 28048 30213 46277 49496 65737 219771 43954.2 x= (X- X ) -15906.2 -13741.2 2322.8 5541.8 21782.8 0 0 x2 253007198.4 188820577.4 5395399.8 30711547.24 474490375.8 952425099 190485020 Amount in Million Year 2004 2005 2006 2007 2008 Sum Avg. Profit=Y 747 893 1183 2010 2533 7366 1473.2 y=(Y- Y ) -726.2 -580.2 -290.2 536.8 1059.8 0 0 y2 527366.4 336632 84216 288154.2 1123176 2359544.6 471908.92 xy 11551082.4 7972644.2 674076.6 2974838.24 23085411.4 46258052.84 9251610.568

Co-efficient of Correlation: r =

xy x * y
2

r = 46258052.84/47405585.11 = 0.98 64

There is a strong positive association between the Import and the Profit. Co-efficient of determination: r2 = 0.96 Correlation between Export and Profit: Amount in Million Year 2004 2005 2006 2007 2008 Sum Avg. Export=X 8881 13505 23268 38081 39038 122773 24554.6 x= (X- X ) -15673.6 -11049.6 -1286.6 13526.4 14483.4 0 0 x2 245661737 122093660.2 1655339.6 182963497 209768875.6 762143109.4 152428621.9 Amount in Million Year 2004 2005 2006 2007 2008 Sum. Avg. Profit=Y 747 893 1183 2010 2533 7366 1473.2 y=(Y- Y ) -726.2 -580.2 -290.2 536.8 1059.8 0 0 y2 527366.4 336632 84216 288154.2 1123176 2359544.6 471908.92 xy 11429189.12 6410977.92 373371.32 7260971.52 15349507.32 40824017.2 8164803.44

Co-efficient of Correlation: r =

xy x * y
2

r = 40824017.2/42406493.11 = 0.96 There is a strong positive association between the Export and the Profit. Co-efficient of determination: r2=0.92

Correlation between Foreign Remittance and Profit: Amount in Million

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Year 2004 2005 2006 2007 2008 Sum. Avg. Year 2004 2005 2006 2007 2008 Sum. Avg.

Fore. Rem.=X 1110 3377 16764 10609 11834 43694 8738.8 Profit=Y 747 893 1183 2010 2533 7366 1473.2 y=(Y- Y ) -726.2 -580.2 -290.2 536.8 1059.8 0 0

x= (X- X ) -7628.8 -5361.8 8025.2 1870.2 3095.2 0 0 y2 527366.4 336632 84216 288154.2 1123176 2359544.6 471908.92

x2 58198589.4 2874889924 64403835 3497648 9580263.04 3010570259 602114051.9 xy 5540034.5 3110452.2 -2328913 1003923.4 3280293 10605790.1 2121158.02

Co-efficient of Correlation: r =

xy x * y
2

r = 10605790.1/84282707.6 = .13 There is a poor positive association between the Foreign Remittance and the Profit Co-efficient of determination: r2 = 0.2

5.4. Regression Analysis:

Calculation of Regression Function of Import: Amount in Million Year 2004 2005 2006 2007 Import (X) 28048 30213 46277 49496 Profit (Y) 747 893 1183 2010 XY 20951856 26980209 54745691 2449854016 X2 786690304 912825369 2141560729 99486960 66

2008 Sum Avg.

65737 219771 43954.2

2533 7366 1473.2

4321353169 6873884941 1374776988

166511821 4107075183 821415036.6

Slop, b =

XY n X Y X n X
2

= (6873884941-5*43954.2*1473.2)/ (4107075183-5*1931971698) = -1.18 Intercept,

a = Y bX
= 1473.2-(-1.18*43954.2) = 53339.16

Regression Equation of Import, Profit (y) = a + bX = 53339.16-1.18X

Calculation of Regression Function of Export: Amount in Million Year 2004 2005 2006 2007 2008 Sum Avg. Export (X) 8881 13505 23268 38081 39038 122773 24554.6 Profit (Y) 747 893 1183 2010 2533 7366 1473.2 XY 6634107 12059965 27526044 76542810 98883254 221646180 44329236 X2 78872161 182385025 541399824 1450162561 1523965444 3776785015 755357003

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Slop,

b=

XY n X Y X n X
2

= (221646180-5*24554.6*1473.2)/( 3776785015-5*602928381.2) = 0.054 Intercept,

a = Y bX
= 1473.2-0.054*24554.6 = 147.25

Regression Equation of Export, Profit (y) = a + bX = 147.25+0.054X

Calculation of Regression Function of Foreign Remittance: Amount in Million Year 2004 2005 2006 2007 2008 Sum Avg. Rore. Remi.(X) 1110 3377 16764 10609 11834 43694 8738.8 Profit (Y) 747 893 1183 2010 2533 7366 1473.2 XY 829170 3015661 281031696 21324090 29975522 336176139
67235227.8

X2 1232100 11404129 19831812 112550881 140043556 285062478 57012495.6

Slop,

b=

XY n X Y X n X
2

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= 336176139-(5*8738.8*1473.2)/ (285062478-5*76366625.4) = -0.148 Intercept,

a = Y bX
= 1473.2-(-0.148*8738.8) = 2766.54

Regression Equation of Foreign Remittance, Profit (y) = a + bX = 2766.54-0.148X

So, if the bank has a profit target of 30.00 Million in next year, The bank is required to generate the following: Regression Equation of Import, Profit (y) = 53339.156 -1.18X Regression Equation of Export, Profit (y) = 147.25+0.054X Regression Equation of Foreign Remittance, Profit (y) = 2766.54-0.148X Target Import, 30 = 53339.16 -1.18X X = 53309.13/1.18 X = 45177.25 Million Or, Target Export, 30 =147.25+0.054X X =117.25/0.054 X = 2171.30 Million And Target Foreign Remittance, 30 = 2766.54-0.148X

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X =2736.54/0.148 X = 18490.14 Million If the bank meet their profit target=30.00 million in next year, they have to imports = 45177.25 million or exports= 2171.30 million and foreign remittance= 18490.14 millon.

6.1. Findings:
We maintain lots of formalities as the reason customers do not able to Import & Export business quickly with other country. Structure of L/C opening procedure and documentation is very complex; it is very difficult for uneducated person to operate Import & Export business. This is the most profitable department in the organization. During L/C opening period, customer business or firm should be observed by Bank. But it dose not occur in reality. Sometimes bank failed to identify any discrepancy in documents that prepared by the exporter. On that time the bank face a great loss if the amount is paid to the exporter. Foreign exchange transaction is associated with foreign currency fluctuation risk when issuing bank prepared for payment to advising bank. DBL do not have foreign exchange department in everywhere for the reason they are not able to expand their industrial clients.

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 DBL give loan against imported merchandise, which is for long period of time. If it create any discrepancy bank face difficulties for both commercial and industrial importer. Sometimes bank do not maintain minimum margin of clients when they ready for payment to exporter. Marketing Policy of the Bank is not strong enough to attract Potential Customers.

7.1. Suggestions:
DHAKA Bank Limited is one of the largest commercial bank in Bangladesh. DHAKA Bank Limited has earned the reputation of top banking operation in Bangladesh. It is persistent in detection of business innovation and improvement. In spite of this from the analysis and observation of the whole process during the internship period, following recommendations have been invent in order to smooth operation of Import-Export Business and to make the L/C processing more proficient and adapted. It should be taken the following steps to be more successful in banking business Skilled manpower in the line of import-export business must be accomplished through proper training, remuneration and job satisfaction. When bank failed to identify any discrepancy in documents, the negotiating bank tries to contact with the party and if they agree to deliver the required documents, the banks gets rid of the huge loss. The decision makers should take resource-based strategy that should mobilize their best resources in the right way in order to achieve goals.

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 The time requirements in the processing of L/C have to be maintained. Make different types of marketing strategy for provide new services and get more customers in this competition market of banking. L/C issuing process should be improve and understandable. To minimize risk legal actions taken against the skip and delinquent customers should be strengthen to discourage the applicants becoming delinquent or skip customers. Bank should introduce more promotional program Dhaka bank limited should introduce E-Banking facilities For minimize the foreign exchange risk, the bank should know properly about the customer. L/C information should be kept in proper and organized manner. The sources of cost especially on communication purposes should be measured and tried to be minimized. Since the whole process of L/C is largely depend on human skill, properly planned training program should be arranged and implemented for the improvement of technical and conceptual skills of the dealing officers. The management should strictly follow group policy before proceeding for any L/C application.

Bangladesh govt. should increase the percentage of incentives to

boost up export.
As per instruction of Bangladesh Bank copy of Bill Of Entry has to be

reported to Bangladesh Bank within 120 days of delivery of the goods. But importers do not submit the bill of entries within stipulated time to the respective branch for their onward submission to Bangladesh Bank. As a result banker facing very awkward position to Bangladesh Bank. In this respect my observation is that immediately after clearance of the goods from the port authority, the C & F agent should submit a copy of bill of entry to the Bank directly.

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 As per Bangladesh Bank regulation Export Proceeds are to be repatriated within 21 days. But it is observed that in some cases repatriation delayed. For which branches are facing problem with Bangladesh Bank. So it should be extended up to 30 days. Dhaka Bank Limited (DBL) should practice a Participant Marginal Process because in this all the Employees get chance for Participating in Problem Recognition and Problem Solving and thi9s will make the Employees feel better which will work as a Motivation Weapon. Also Award System should be activated depending on the Performance Appraisal of the Employees.

7.1. Conclusion:
From the practical accomplishment and execution during the whole period of the practical orientation in DHAKA Bank Limited I have reached a firm and concrete conclusion in a very confident way. The realization will be in harmony with most of the banking thinking. A letter of credit (L/C) is a bank's written promise that it will make a customer's payment to a vendor in spite of the customer. In the Dhaka bank L/C as a method of financing in foreign trade acts as a pre-import financing tool for the importer and a pre-shipment financing tool for the exporter. Presently the bank has been functioning with a network of total 45 branches. Like all other commercial banks, L/C issuance is a very important function in the Dhaka Bank. The most widely used L/C in all braches is irrevocable documentary L/C and the highest number of L/C opened is under Back-to-Back L/C in the Dhaka Bank. DHAKA bank introduced a specialized banking service in Export Import business, with a volume of qualified and experienced human resource. Consumers are more or less satisfied with the present services of the bank. Management should think to start new services and take different types of marketing strategy to get more customers in this

73

competition market of banking. The main philosophy of Dhaka bank is to amplify the income from the L/C like different charges and whole procedure are now more developed and efficient

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