6 Import

Prime Bank Limited a bank with a difference
4.1 Import Department Bangladesh is one of the developing countries in the world. So like other developing countries Bangladesh Imports largely than it Exports. Imports of goods into the Bangladesh is regulated by the Ministry of Commerce in the terms of the Import- Export Act, 1950, various Import policy orders and also public notices issued from time to time by the office of the Chief Controller of Import and Export (CCI&E). Understanding Imports are the foreign goods and services purchases by the customer, firms and government in Bangladesh. The importers are asked by their exporters to open Letter of Credits (L\C), so that their payment against goods is insured. 4.1.1 Sources of financing Import The sources of financing imports are following Cash Foreign Exchange resources of the country. External Economic Aid (Commodity, Aid, Loan or credit and Grant). Commodity Exchange. Barter. Special Trading Agreement.
4.2 Import Policy Under the import policy and export control act, 1950, the government of Bangladesh formulates the import policy through Ministry of Commerce. The existing import policy (2002) has come into July 1, 2002 (it can be reviewed every year if needed).
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubil ee Road Branch, Chittagong as standard)
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4.3
Main features of Import Policy
Different import policy Import facility up to $2000 for actual user (for self consumption not for sale) without permission. $2000-$5000, approval of regional controller of Import and Export (CCI&E) is needed. Above $5000 approval of Chief Controller of Import and Export (CCI&E) is needed. Import facility on the basis of direct payment on foreign countries Import under L\C, L\C must be irrevocable. Import above $5000-L\C is required but in the case of perishable items like food up to $7500 transported by road L\C is not required. Some other cases in which do not require L\C, are
-Books, Magazines, Publications. -Import up to $5000 incase of payment from Bangladesh. -Import under Foreign Aid. -Import of "International Chemical Conference" by the Pharmaceutical Companies with prior approval Drug Administration. -Government sector bodies can import without any license, permit &b IRC (Import Registration Certificate).
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4.4 Import Procedures To Import through prime Bank Ltd. a customer requires1. Bank Account 2. Import Registration Certificate. 3. Tax Paying Identification Number (TIN). 4. Proforma- Invoice Intend. 5. Membership Certificate. 6. Letter of credit Authorization (LCA) from duly attested. 7. One set of Imp (Import) form. 8. Insurance Cover Note with money receipt. 4.5 Import Mechanism To Import, a person should be competent to be importer. According to Import and Export Control Act-1950, the office of Chief Controller of the Import and Export (CCI&E), provides the registration (IRC) to the importer. After obtaining thus person's has to secure a letter of Credit authorization from Bangladesh bank. And then a person becomes a qualified importer. He is the person who requires or instructs the opening bank to open a L\C. He is also called Opener or Applicant of the credit. 4.5.1 Things that are done here
The following things are done in the department: Total supervision of import department (Cash, Back to Back L\C). Foreign Correspondence related to above. Payment of Back-to-Back L\C and endorsement of Export L\C against payment. Follow up Back-to-Back L/c overdue bills. 35
Correspondence regarding Back-to-Back L/C and Cash L/C. Maintenance of due rate diary. Maintenance &b record of related L/C Documents. Audit Compliance. Matching of Bill of Entry with IMP, Follow-up of pending Bill of Entry Quarterly Statement.
L/C opening and Amendment (Back to Back L/C). Endorsement of Export L/C when opening. Balancing of L/C contingent Liability (Back to Back L/C). Follow-up of Sub Judicial Bills and maintaining liaison with Head Office and Foreign Correspondent.
All correspondence related to Back-to-Back L/c with Head Office and Foreign Correspondent.
Supervision of checking Lodgment and Retirement of import documents under Back-to-Back L/C.
Issuance of Certificate and attestation of papers/documents of garments clients as required by BGME, EPB & regulatory bodies.
Checking, Lodgment, retirement of import Documents under Back-to-Back L/C. Issuance of Shipping Guarantee (Back to Back L/C). IMP form fill up (Cash L/C). Inform negotiating Bank about maturity date of Back to back L/C. Quarterly statement of Bonded Ware House. 36
Balancing Accepted liability. Statement of Outstanding Accepted Import Bills under Back-to-Back L/C. L/C opening and Amendment of Cash L/C and Inland L/C. Maintenance and Record of Pass book and IRC. Maintenance and Record of related L/C document. Credit Report. Statement of IRC Renewal fees to CCI&E. Preparation of monthly Foreign Exchange Business position. L/C lodgment (cash). Checking of Cash L/C Documents. L/C Retirement. LCA Issue. BLC Statement. Differed Payment (Cash). Follow-up of outstanding BLC. Correspondent (Cash L/C). Proof sheet of L/C Margin and Contingent Liability. Issuance of Shipping Guarantee (Cash), IMP form fills up (Cash).
4.6 L/C Opening If an importer wants to import some goods from outside the country, at first he has to apply to a Bank for opening a Letter of Credit (L/C).
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Letter of Credit is a written undertaking of a Bank written to the seller and issued at the request of the buyer to pay at sight or a determinable future date. According to import policy, unless or otherwise specified, all import is to be made by opening Irrevocable Letter of Credit (Amendment of Cancellation with the agreement of the Opening Bank, Advising Bank, Beneficiary, and Importer). L/C can be opened against Proforma-Invoice if the exporter has no agent and L/C can be opened against indent if the foreign supplier has indenting agent. 4.6.1 Documents Requires for Opening a L/C
For opening a Letter of Credit an importer is required to have some documents, which are to be submitted to the L/C issuing /popularly known as opening Bank. 1. A valid Import Registration Certificate (IRC). 2. Membership Certificate from the registered local Chamber of Commerce and Industry or valid Trade License. 3. Tax Identification Number (TIN). 4. Letter of Credit Authorization form (LCA). 5. Insurance Cover note for L/C amount. 6. Indents for goods issued by Indenter or Proforma Invoice issued by foreign suppliers. 7. Charge documents duly signed.
8. IMP form duly signed. 9. The ahs to have a Current Account with the Bank. 4.6.2 Procedures involved in L/C Opening
There are few steps involved in L/C opening process. These are: 38
1. At first the L/C opener is required to fill up the prescribed application form for requesting to open an L/C for the favor of L/C opener. 2. After receiving the application form with the other required documents submitted by the opener they are to be thoroughly scrutinized. The points, which shall be scrutinized are describing bellow-
The amount and the description of the goods in the application should be reverent with the indent or Proforma Invoice or import contract.
The amount is covered by the insurance amount. The items are not banned with the country's regulation. The indent produced has the Import Registration Certificate Number and the Indenter's Registration Number. The Indent has indenting Agent's Signature and Importer Signature.
Whether transshipment and partial shipment is allowed.
If all documents along with the applicants are in order, the financial position and credit worthiness of the importer, market demand of the goods are assessed, margin of L/C also determined. The rate of margin depends on the financial condition of the banker, importers status of relation, importers previous performance, nature of goods etc. This margin is to be retained from the importers either in cash or debating the importer's current account wit the bank. The importer is also required to pay the other concerning charges like FCC (Foreign Corresponding Charges), Telex Charge, Handling Charges and Commission etc. After all these steps of L/C is opened and forwarded to the advising bank. 39
4.6.3
Scrutinizing of L/C Application
The Prime Bank Ltd. official scrutinizes the application in the following manner: 1. The terms and conditions of the L/C must be compiled with UCPDC 500 and Exchange Control & Import Trade Regulation. 2. Eligibility of the goods to be imported. 3. The L/C must not be opened in favor of the importer. 4. Radioactivity report incase of the food item. 5. Survey Report or Certificate in case of old machinery. 6. Carrying is not of Israel or of Serbia-Montenegro. 7. Certificate declaring that the item is in operation not more than Five years. 4.6.4 Accounting procedures involved in Letter of Credit (L/C) opening
Two types of accounting procedures are involved in Letter of Credit (L/C). One is Letter of Credit (L/C) opening another is Liability Registering, which includes Liability Amount Margin, foreign Correspondence etc. While opening Letter of Credit (L/C) there are few accounting entries. For Margin Importer ' Account with Bank is debited and Margin Account is credited. For Contingent Liability (L/C Amount) Customer's Liability on Letter of Credit (L/C) cash is debited and Banker's Liability on Cash is credited. For other charges Customer's Current A/c is debited and Commission A/C, Income A/C, FCC A/C and other related A/C is credited. 4.6.5 Advising a Letter of Credit (L/C)
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The advising or notifying Bank is the Bank through which the Letter of Credit (L/C) is advised to the exporter. It is bank situated in the exporting country and it may be a Branch of the opening Bank. It becomes customary to advise a credit to the Beneficiary through an advising bank. 4.6.6 Adding Confirmation
The confirming Bank does adding confirmation. Confirming Bank is a Bank, which adds its confirmation to the credit, and it is done at the request of the Issuing Bank. The confirming Bank may or may not be the Advising Bank. An add confirmation letter contains the following1. Letter of Credit (L/C) No. 2. Letter of Credit (L/C) Amount. 3. Items to be Imported etc. 4.6.7 Letter of Credit (L/C) Transmitting
Letter of Credit (L/C) can be transmitted to the Advising Bank through three methods. There are Telex, courier or SWIFT (Society For World Wide Inter Bank Financial Telecommunication). L/C is sent to advising bank in three copies. The Advising Bank authenticates the original copy of L/C and delivers it to the exporter. The Duplicate is kept with the advising bank. Description of the above indicators in figure
1. Buyers offer issuing Bank to Open Letter of Credit (L/C). 2. Opening Bank sends Letter of Credit (L/C) to advising Bank. 3. Advising Bank transferred Letter of Credit (L/C) to the suppliers.
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4. Suppliers send shipments documents to the Negotiating Bank and Claims on the Issuing Bank. 5. Negotiating bank sends the shipment documents to the advising Bank. 6. Opening Bank transfers the shipment to be buyer/importer. 7. Letter of Credit (L/C) opening Bank purchase Foreign Currency from Bangladesh Bank. 8. Bangladesh Bank credits the Suppliers 's Country's Central Bank A/C. 9. Central Bank then credits the Reimbursement Bank A/C. 10. Opening Bank has an A/C in Reimbursement Bank. Opening Bank requests to pay the required amount to Negotiating Bank from their A/C. 11. Intender acts a Cosigner/Media between Importers & Exporters. Intender must have a certificate of Bangladesh Bank. 4.6.8 Negotiating
The Beneficiary (Export) receives the Letter of Credit (L/C) from Advising Bank. After proper shipments of goods as per terms and conditions of the Letter of Credit (L/C), required documents like commercial invoice, bill of lading and bill of exchange are presented to the Negotiating Bank by the beneficiary for negotiation. If the d0ocuments are in order as per Letter of Credit (L/C) then the Negotiating Bank negotiates the drafts making payment to the beneficiary. Then the Negotiating Bank forwards the drafts along with the shipping documents to the Letter of Credit (L/C) Opening Bank. The Negotiating Bank reimburses the amount paid against the draft from the Reimbursement Bank. 4.6.9 Amendment
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Parties involved in a Letter of Credit (L/C), particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such situation, the credit should be amended. Prime Bank Ltd. transmits the amendment by tested Telex to the Advising Bank. Incase of Revocable Credit it can be amended or cancelled by the Issuing Bank at any moment and with out prior notice to the beneficiary. But incase of Irrevocable Letter of Credit (L/C), it can be neither amended nor cancelled with the consent of the Issuing Bank, the Confirming Bank (if any) and the beneficiary. If the Letter of Credit (L/C) amended, service charge and Telex charge is debited from the party account accordingly. 4.6.10 Examination of Documents Prime Bank Ltd. officials check whether these documents have any Discrepancy or not. Here Discrepancy means the dissimilarity of any of the documents with the terms and conditions of the Letter of Credit (L/C). 4.6.11 Lodgment The Opening Bank receives Import bills, which have been negotiated. After receiving the documents they are to be thoroughly scrutinized before lodgment. 4.6.12 Scrutiny of the Documents First of all must be ensured that full set of documents as mentioned in the L/C has been received. 1. Documents have been negotiated with in the negotiations period. 2. The Bill of Lading,/Air way Bill/ Rail way Receipt is not dated later than the last date of shipment mentioned in the L/C. the L/c has not been amended or subjected to any special instructions, which are to be scrutinized. 43
3. Bill of Exchange. 4. Commercial Invoice. 5. Bill of Lading. 6. Certificate of Origin. 7. Packing List and Others. Bill of Exchange
It has to be verified that the Bill of Exchange has been properly drawn and signed and by the beneficiary according to the terms and conditions of the L/Cs. The amount in the bill is identical with that mentioned in the invoice. The amount drawn does not exceed the amount mentioned in the L/C. the amount in words and figures should be the same. The Bill of Exchange should be properly endorsed. Commercial Invoice 1. It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and condition of the L/C. 2. The beneficiary should properly invoice the merchandise. 3. The merchandise should be invoiced to the importer on whose account the L/C opened. 4. The description of the merchandise and the unit price correspondent with the given L/C. 5. The import license or the IRC number of the importer, indenters registration number LC A number is incorporated in the invoice.
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Bill of Lading
First of all it has to be cleared that the bill of lading showing the shipped on board and it has to be properly endorsed by the bank.
1. The B/L should include the description of the merchandise according to the invoice. 2. The port of shipment and destination, date of shipment, and the name of the consignee are in the agreement with those mentioned in the L/C. 3. The shipping company or their authorized agents properly signed the B/L. 4. The date on the B/L is not stale that means it should not dated in unreasonably long time prior to negotiation.
Certificate of Origin
The merchandise described in the certificate is in accordance with the L/C. Others
There are some other documents which are also attached, with the shipping documents like packing list, PSI (Pre shipment Inspection Certificate), etc. These document also verified carefully before lodgment.
4.7 Step involved in the lodgment When the security of import bill over the steps should be taken for lodgment At first all the particulars of the documents entered in the PAD register and PAD no. seal is given on all the copies of the received documents.
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Convert the foreign currency into Bangladeshi currency. Reverse the contingent liability register. Prepare lodgment voucher. Prepare other voucher. Sending IBCA to the head office. Make intimation the importer.
4.7.1 Accounting effect For reversing the contingent liability contra voucher is debited by the banker liability A/C and credit with customer liability A/C. For PAD, income on exchange there is few credit vouchers. In the debit voucher the debit head is PAD and income and head office A/C is credited. In the credit vouchers the opposite of these entries is made. Now if the respective officer think that the application is fit to open a L/C, the following accounting treatments are givenAccounting treatment Clients A/C Margin on L/C Commission on L/C VAT (15% of commission on L/C) FCC (Foreign Currency Clearing) A/C Registration Fee A/C Telex/ Postage charges A/C Miscellaneous A/C Credit Credit Credit Credit Debit Credit Credit Credit
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After that L/C number and the above entries are given in the L/C register. The contra entries setting the liability of the bank the client are followsAccounting treatment Customers liability Bankers liability Debit Credit.
Than the transmission the L/C is done through tested Telex or Fax to advise the L/C to the beneficiary. If the amount of the L/C exceeds US$ 10,000; the Prime Bank Ltd takes the credit report to the beneficiary (CIB report) to ensure worthiness of the supplying goods. 4.8 Retirement of shipping documents The importers receives the intimation and gives necessary instruction to the bank for the retirement of the disposal of the shipping to clear the imported bills or for the disposal of the shipping document to clear the imported goods from the Custom Authority. Following steps are to be taken for retirement of the documents Steps involved in retirement
The following steps are involved in retirement o Calculation of interest (if any). o Calculation of other charges. o Passing voucher. o Entry in the register. o Endorsement in the Bill of Lading or transport document and in the Bill of Exchange. 4.8.1 Accounting effect 47
On scrutiny if it is found that the document drawn in conformity with the terms of the credit that is the documents in order the Prime Bank Ltd lodge the documents PAD and the following vouchers are passed-
Accounting treatment L/C margin A/C PAD A/C (Margin amount transferred to PAD A/C) Customer A/C PAD A/C (Customer A/C debited for the remaining amount) PAD A/C Prime Bank general A/C Exchange A/C Reversal entries Bankers liability Customer liability (When lodgment is given) After realizing the Telex charge, service charge, profit (if any), the shipping documents are stamped with the PAD number and entered in PAD. Register intimation is given to the customer calling on the bankers counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsement is made on the back of the Bill of 48 Debit Credit Debit Credit Credit Debit Credit Debit Credit
Exchange as Received payment and the Bill of Lading endorsed to the effect Please deliver to the order of M/S, under two authorize signatures of the bank officers (P.A holder) . Then the documents are delivered to the importer.
4.8.2
Payment procedure of the import documents
This is the sensitive task of the import department. The officials have to be very much careful while making payment. This task constitutes the following Date of payment
Usually payment is made within seven days after the documents have been received. If the payment is become deferred the negotiating bank may claim interest for making delay. Preparing Sales Memo
A Sales Memo is made at T.C rate to the customer. As the T.T and O.D rate is paid to the International Division (ID). 4.9 Import performance of Prime Bank Ltd* (Taka in millions) Particulars Import 2002 19564 2003 25441 2004 2005 36747 40303 2006 52639
Import performancre over the years 2002-06

60000 50000 import 40000 30000 20000 10000
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubil ee Road Branch, 0 Chittagong as standard)
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2002
2003
2004
2005
2006
year
* Source: Annual Report of Prime Bank Ltd.
4.10
Import performance of Jubilee Road Branch** (March-September) (Taka in millions)
Month Import
March 5.5
April 187
May 157
June 69
July 248
August September 195 95
Import performance over the month'07 250 200

Imp ort
150 100 50 0
March May
Month
July
September
** Source: Monthly Position Report of Prime Bank Ltd, Jubilee Road Branch, Chittagong, prepared for sending Head office.
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6 Import

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6 Import

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Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Main features of Import Policy

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Whether transshipment and partial shipment is allowed.

Prime Bank Limited a bank with a difference

Scrutinizing of L/C Application

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Prime Bank Limited a bank with a difference

Payment procedure of the import documents

Import performancre over the years 2002-06

Prime Bank Limited a bank with a difference

* Source: Annual Report of Prime Bank Ltd.

Import performance of Jubilee Road Branch** (March-September) (Taka in millions)

August September 195 95

Import performance over the month'07 250 200

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