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Prime Bank Limited a bank with a difference

5.1 Export Export means sending one country to another country for sale export brings the foreign currency for the country higher the export higher the reserve of the foreign currency. The Export section of Prime Bank engaged with various export related activities for encouraging the Exporter. The major function of this section is comprises with purchases, collection & negotiate the export bill, provide the exporter in financing and helps the exporter in different issues. A person desire to export should make application to obtain ERC (Export Registration Certificate) from CCI&E then the person should step in to a bank along with ERC to obtain EXP from the Bank. 5.2 Regulatory / Promotional Organs for Export 5.2.1 National Committee for Export Headed by PM comprising Ministers of Foreign Affairs, Finance, Commerce Industries, Planning Jute & Textile. The committee reviews the export situation and provides necessary direction and resolved problem. 5.2.2 Export Council Consultative body comprising of chambers, exporters associations and institution of public sector. 5.2.3 Export Promotion Bureau (EPB) Main function of EPB: Quota allocation for export of RMG. Issuance of GSP certificate to exporters.

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

5.3 Required Information For obtaining ERC from CCI&E the following documents are required: Nationality & Assets Certificate. Income Tax Certificate. Trade license. Partnership deed (Partnership deed)

5.4 Understanding In the export section two types of L/C are opened. 1. Back-to-Back L/C. 2. Export L/C. 5.4.1 Things done here The following things are done in this department Scrutiny of Export Shipping Documents. Follow up for realization of Export Department. All correspondents relating to Export Department. Compliance of Audit & inspection. Advising of Export L/Cs to the beneficiary. Authentication of L/C and amendment from other Correspondent Bank. Transfer of Export L/C to the 2nd beneficiary & issuance of notice of transfer to L/C issuing Bank. Recording of Export L/C particulars in Export L/C transfer Register. Realization of transfer changes. 53

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

Prime Bank Limited a bank with a difference

Issuance of proceeds realization certificates. Other work as & when directed by the manager. Certificate of Exp Forms. Posting of Tickets. Lodgment of Export Bill (FBP, FDBC, IBP & IBC) Preparation of tickets elating to negotiating of documents. Negotiating of inland Bills. Maintenance of all records related to FBP, FDBC & inland Bills. Balancing lf FBP, FDBC, & A/R Export A/Cs. Preparation of statement & all returns to Bangladesh Bank and Head Office (Weekly, Monthly and Quarterly).

5.4.2 Export Bill Scrutiny General-

o Late shipment o Late presentation o L/C expired o L/C over drawn o Partial shipment or transshipment beyond L/C terms Bill of Exchange-

o Amount of bill differs with invoice. o Not drawn on L/C issuing bank not signed. o Tenor of B/E not identical with L/C.
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

o Full set not submitted invoice. o Not issued by the beneficiary. o Not signed by the beneficiary. o Not made out in the name of the applicant. o Description, Price, Quantity, Sales term of the goods not corresponds to the credit. o Not marked one fold as original shipping marks differs with B/L & Packing List. Packing List-

o Gross weight, net weight, measurement, number of cartoons/ packages differs with B/L. o Not marked one fold as original. o Not signed by the beneficiary. o Shipping marks differs with B/L. Bill of Lading-

o Full set of bill not submitted. o Bill of Lading is not drawn or endorsed to the order of the Prime Bank . o Shipping on Board, Freight Prepaid or Freight Collect etc notations are not marked on B/L. o B/L do not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent signing the B/L.

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

o Shipped on Board Notation not showing name of pre carriage vessel/intended vessel. o Shipped on Board Notation not showing Port of Lading and Vessel Name (incase B/L indicates a place of receipt or taking in charge different from the Port of Lading). o Short from B/L. o Charter of B/L. o Description of goods in B/L not agrees with that of Invoice, Bill of Exchange and Packing List. o Alteration in B/L not authenticated. o Loaded on Deck. o B/L bearing clauses notation expressly clearing defective condition of the goods and the packages. Other-

o Non-negotiable documents not forwarded to buyers or forwarded to buyers L/C terms. o Inadequate number of invoice, packing list, and others submitted. o Short shipment certificate not submitted. 5.4.3 Export finance

Export financing at two stages A. Pre-shipment finance. B. Post-shipment finance. Per-shipment Finance:
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

Per-shipment finance covers facilities extended to the exporters by the bank at the pershipment stage i.e. prior to the actual shipment of goods for Export. Cash for local procurements and meeting related expenses. Procuring and processing raw materials. Inspection fees. Freight charges etc.

Pre-shipment credit facilities are essentially a short term credit, which is to be liquidated by negotiation / purchase of Export Bills covering the particular shipment reshipment credit facilities can be allowed against irrevocable L/C of Foreign Bank considering the credit worthiness of the exporters. Pre-shipment credit is allowed in the following forms: Overdraft against Hypothecation of exportable commodities (LTR). Overdraft against TR(Trust receipt) . Packing Credit.

Post-shipment Finance: Post-shipment credit refers to credit facilities extended to export after actual shipment of goods against shipping documents. It is usually provided in the following ways. Bill negotiation/purchase. Bill for collection. Advance against export bills surrendered for collection.

5.4.4 Bill negotiation / Purchase The most usual method of financing exporters at the post-shipment stage is negotiation of documents under L/C. Here the bank acts as negotiating bank. After the shipment of goods, 57

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

Prime Bank Limited a bank with a difference

the exporters submit the relative documents to the branch for negotiation. The documents generally include the following

Bill of Exchange. Bill of Lading. Insurance Policy. Invoice. Certificate of Origin. Packing List etc.

The documents are to submit with in the period mentioned in the L/C. The documents are sent to the L/C opening branch with a forwarding letter. Then the branch claim reimbursement from the issuing bank or from the reimbursing bank. On negotiation / Purchase of the export bills, the exporters paid the value of the bill (converted into Bangladeshi TK at the ruling bill buying rates). Documents on Collection Basis The documents, which are not negotiable by the branch due to some discrepancies, are sent to L/C opening bank on collection basis. The bank mentions the discrepancies on their forwarding schedule. On the document with the L/C and inform the importer regarding discrepancies found in the documents. If these are acceptable to the importer and or permissible with the exiting Exchange Control Regulation, the documents will be lodged and L/C opening bank will send the payment instruction to the collection bank. 5.5 Back-to-Back L/C

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

In case of a Back-to-Back L/C, a new L/C (an import L/C) is opened on the basis of an original L/C (an Export L/C) under the Back-to-Back concept, the sellers the beneficiary of the L/C it as a security to the advising Bank for the issuance of the second L/C the beneficiary of the Back-to-Back L/C may be located inside or outside the original beneficiary country. Incase of a Back-to-Back L/C, no cash security (no margin) is taken by the Bank, Bank liens the first L/C in case of a Back-to-Back L/C, the drawn bill is an issuance/Time Bill. In Prime Bank, papers / documents required for submission for opening of Back-to-Back L/C: Master L/C. Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC). L/C application & LCA form duly filled in signed. Pro-forma Invoice or Indent. Insurance Cover Note with money Receipt. IMP form duly signed.

In addition to the following papers/documents are also required for export oriented Garment Industries while requesting for opening of Back-to-Back L/C, Textile permission. Valid Bonded Warehouse License. Quota allocation letter issued by Export Promotion Bureau (EPB) in favor of the applicant in case of quota items.

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

In case of the Factory premises is a rented one, Letter of disclaimer duly executed by the owner of the house / premises to be submitted. 5.5.1 Payment of Back-to-Back L/C

Incase Back-to-Back L/C as 60-90-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank. Account treatment for Back-to-Back L/C: When the document is arrived, the following vouchers are passed Customers A/C Commission on acceptance Debit Credit

In case of payment, if the fund is at hand, the accounting entries are Sundry Deposit Margin on Acceptance Customers A/C Debit Credit

If the party is party in foreign currency, B/C, rate is applied in this regard. Intimation Department takes the T .T, O/D rate. If the payment is made to ID in local currency in notional rate, ID follows T.T clean rate. When the party is to be paid, OD Sight rate is followed. If the fund is not available to make the payment, the following vouchers are to be passed. OAP Customers A/C 5.5.2 Reporting to Bangladesh Bank Debit Credit

At the end of every month, the reporting regarding the following information is mandatory. Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import of goods, currency, country etc.
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

Filling of E-3/P-3 schedule for all charges, commission with T/M form. Disposal of IMP form, which includes. Original IMP is forwarded to Bangladesh Bank with invoice & indent. Duplicate IMP is kept with the bank along with the Bill of Entry/Certified Invoice. Triplicate IMP is kept with the bank for Office Record. Quadruplicate is kept for submission to Bangladesh Bank in case of imports where documents are retired.

5.6 Export L/C The other type of L/C facility offered by Prime Bank is Export L/C Bangladesh exports a large quantity of goods and services to foreign households. Readymade garments (both knitted & woven), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lions share of the countrys export. Bangladesh exports most of its readymade garment products to U.S.A & European Community countries. Bangladesh exports about 40% of its readymade garment products to U.S.E. Most of the Exporters who exports through Prime Bank are readymade garments and garments accesories exporter (M/S. Syed Knit Wears Ltd, M/S. DAF Ctg Accessories Ltd. etc). They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers. 5.6.1 Formalities for Export L/C

The export trade of thee country is regulated by the import & Export Control Act, 1950.There are a number of formalities which an exporter has to fulfill before & after shipment of goods. These formalities or procedures are enumerate as follows,
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

o Export Registration Certificate: The exports from Bangladesh are subject to export trade control exercised by the Ministry of commerce through chief controller of import & Export (CCI&E) No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC is to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports. o Obtaining EXP: After having the registration, the exporter applies to Prime Bank with the trade license, ERC, and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the Exporters. o Securing the Order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this. o Signing of the Contract: While making a contract, the following points are to be mentioned, Description of the goods. Quantity of the commodity. Price of the commodity. Shipment. Insurance.

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

Inspection. Arbitration.

The following points are to be looked for The terms of the L/C are in conformity with those of the contract. The L/C is an irrevocable one, preferably confirmed by the Advising Bank. The L/C allows sufficient time for shipment and a reasonable time for shipment and a reasonable time for registration. If the exporter wants the L/C to be transferable, divisible and advisable, he should ensure those stipulations are specially mentioned in the L/C. o Procuring the Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. Registration of sale: This is needed when the item proposed to be export, are raw jute and jute goods. o Shipment of goods: The following are the documents normally involved at the stage of shipment EXP form. Photocopy of Registration Certificate. Photocopy of the contract. Photocopy of the L/C. Customs copy of ERF form for shipment of jute goods and EPC form for raw jute.
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

Freight certificates from the Bank in case of the freight at the Port of Lading are involved. Railway receipt, Berg Receipt or truck Receipt, Shipping instructions, Insurance policy. After those, exporter submits all these documents along with a letter of Indemnity to Prime Bank for negotiation. An officer scrutinizes all the documents. If the document is clean one, Prime Bank purchases the documents on the basis of banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP). 5.7 Foreign Documentary Bill Purchase (FDBP) After purchasing the documents, Prime Bank gives the following entries: FDBP A/C Customer A/C (Before realization of proceeds) Head office A/C FDBP A/C (Adjustment after realization of proceeds) A FDBP Register is maintained for recording all the particulars. The salient contents of a FBDP register are Date, Ref. No (FBDP), Name of the party (Drawer), Drawer, Name of collecting Bank, EXP form no, Export LC no, and etc. 5.8 Foreign Documentary Bills for Collection (FDBC) Prime Bank forwards the documents for collection due to the following reasons: I. If the documents have discrepancies. 64 Debit Credit Debit Credit

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

Prime Bank Limited a bank with a difference

II. III.

If the exporter is a new clients. The banker is in doubt.

Foreign Documentary Bills for collection signify that the export will receive payment only when the issuing bank gives payments. The exporter submits duplicate EXP form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following Accounting entries are given: Head office A/C Clients A/C Government Tax A/C Postage A/C Income A/C profit on Exchange Debit @ T.T Clean. Credit @ O/D sight Credit @ 0.25% of Invoice Value. Credit Credit

After passing the above voucher and Inter Branch Trading Debit Advice is sent for Debiting the Nostro A/C. Prime Bank has 11 Nostro accounts with its reimbursing bank. An FDBC Register is maintained, where first entry is give when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds. 5.9 Export Bill Scrutiny Sheet By the Exporter Bill Scrutiny Sheet the banker scrutinizes the details of a L/C before make the payment. Here the detail refers as Exporters name, Presentation date of documents, L/C No, Expiry date, L/C amount available. Moreover the banker also look after the date within which the documents to be presented, Bill of Lading, Shipment date in the L/C Invoice no and date Export L/C no, Date, issued by, Liabilities position, Discrepancies and calculation of Bill amount (Exports Retention Quota, Commission and Margin).
Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

5.9.1

Settle of Local Bill

The settlement of local bills is done in the following ways: 1. The customers submit the L/C to Prime Bank along with the documents to negotiate. 2. Prime Bank officials scrutinize the documents to ensure the conformity with the terms and conditions. 3. The documents are then forwarded to the L/C opening bank. 4. Payment is given to the customer on either by collection basis or by purchasing the documents. Accounting treatment for purchase of local bill Local Bill Purchase Documentary Party A/C Commission Interest A/C Debit Credit Credit Credit

A LBPD Register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register. 5.10 Mode of Payment Export Bills under L/C The most common methods of payment under a L/C are a follows: Sight Payment Credit

In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporters presentation of the documents.

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

Negotiation Credit

In Negotiation Credit, the exporter has to present a Bill of Exchange payable to him in addition to other documents that the negotiates. Deferred Payment Credit

In deferred Payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved in Prime Bank, payment is given to the party @ D.A 60-90-180 as the case may be. But the Head Office paid @ T.T Clean rate. The difference between the two rates is the Exchange Trading for the branch. Acceptance Credit

In acceptance credit the exporter presents a Bill of Exchange Payable to him and drawn at the agreed tenor (That is on a specified future date or event) on the bank that is to accept it. The signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment. Advising L/C

When export L/C is transmitted to the bank for advising, the bank sends an Advising letter to the beneficiary depicting that L/C has been issued. Test Key Arrangement

Test Key Arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is systematic procedures by which are test number is given and the person to whom this number is given can easily authenticate the same test number by

Foreign Exchange Mechanism: a comprehensive Study of Prime bank Ltd. (considering Jubilee Road Branch, Chittagong as standard)

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Prime Bank Limited a bank with a difference

maintaining that same procedure. Prime Bank has Test Key Arrangement with so many banks for the authentication of L/C messages and for the transfer of funds. 5.11 Inland Letter of Credit (ILC) ILC means L/C within the same country. This type of L/Cs are opened when the seller does not believe the buyer though they are of the same country and also in the cases where the sales contract is of big amount. 5.12 Export Performance of the Prime Bank Ltd* (Taka in Millions) Particulars/ Year Export 2002 12,190 2003 16,490 2004 2005 19,502 28,882 2006 41,801

Export performance over the years 2002-06


45000 40000 35000 30000 25000 20000 15000 10000 5000 0

export in millons

2002

2003

2004 year

2005

2006

* Source: Annual Report of Prime Bank Ltd.

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Prime Bank Limited a bank with a difference

5.13 Export performance of Jubilee Road Branch (March-September)* (Taka in millions) Month Export March 58 April 55 May 48 June 228 July 53 August September 53 67

Export performance over the month'07 250 200


Export

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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