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American International University-Bangladesh (AIUB)

INTERNSHIP AFFILIATION REPORT ON

“Letter Of Credit Procedure of EXIM Bank Ltd.”

An Internship Affiliation Report Presented to the Faculty of Business Administration in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business Administration

Supervised By:
Mr. Roomee Tareque Moudud
Assistant Professor & Director (OPA)
Faculty of Business Administration

Submitted By:
Faiza Irma Chowdhury
ID # 09-14499-2
Major: Accounting & Finance
Date of Submission: 22 July 2012

INTERNSHIP AFFILIATION REPORT ON

“Letter Of Credit Procedure of EXIM Bank Ltd.”

Letter of Endorsement

The Internship Affiliation Report entitled LETTER OF CREDIT PROCEDURE OF EXPORT IMPORT BANK OF BANGLADESH has been submitted to the Office of Placement & Alumni, in partial fulfillment of the requirements for the degree of Bachelor of Business Administration, Major in ACCOUNTING AND FINANCE, Faculty of Business Administration on 14th August, 2012 by Ms. FAIZA IRMA CHOWDHURY, Id # 09-14499-2.

The report has been accepted and may be presented to the Internship Defense Committee for evaluation.

(Any opinions, suggestions made in this report are entirely that of the author of the report. The University does not condone nor reject any of these opinions or suggestions).

______________________
Mr. Roomee Tareque Moudud
Assistant Professor & Director (OPA)
Faulty of Business Administration
American International University Bangladesh

TABLE OF CONTENTS

Chapter 1: Introduction
|CONTENTS |PAGES |
|RATIONALE OF THE STUDY |6 |
|Background |7 |
|Name of the Prominent |8 |
|Mission & Vision of EXIM Bank Ltd |9 |
|Structure of the Organization |9 |
|Major indicator wise performance of the Bank as follows |10 |
|Product and Services |10 |
|Investments of EXIM Bank |11 |
|The Activities of EXIM Bank |11-12 |
|SWOT ANALYSIS OF EXIM BANK |12-13 |
|Objectives |13 |

Chapter 2: ACTIVITIES UNDERTAKEN
|CONTENTS |PAGES |
|My Specific Responsibilities |15 |
|Letter Of Credit |16-18 |
|Letter of Credit Parties Involved |18-19 |
|Types |19-20 |
|Operations Of Documentary Letter Of Credit |20-21 |
|Opening a Letter Of Credit (L/C) |21-25 |
|Accounting Treatment for Opening Import L/C |25 |
|Documents Required for Opening a Back-to-Back L/C |26 |
|Check Points Noted in Master L/C |27 |
|Foreign Documentary Bill Purchase (FDBP) |27 |
|L/C Classification by EXIM for practical purposes |28 |

Chapter 3: CONSTRAINTS/CHALLENGES AND PROPOSED COURSE OF ACTION FOR IMPROVEMENT
|CONTENTS |PAGES |
|CONSTRAINTS/CHALLENGES AND PROPOSED COURSE OF ACTION FOR IMPROVEMENT |30 |

Chapter 4: LESSONS LEARNED FROM THE INTERNSHIP PROGRAM
|CONTENTS |PAGES |
|LESSONS LEARNED FROM THE INTERNSHIP PROGRAM |32 |

Chapter 5: CONCLUDING STATEMENTS
|CONTENTS |PAGES |
|Special Finding |34 |
|Recommendations |35 |
|Conclusion |36 |
|Glossary |37 |
|Bibliography |38 |

I-INTRODUCTION

1.1 Rationale of the study:

Robert Gibbs didn’t achieve what he have achieved today just by attending school and university. Even great minds need practical experience to reach the sky of a successful life. A part of BBA Program, students are given a great deal of opportunity to have a bite of the reality and expose as in the organizational work situation as Internship. Documentary Letters Of Credit are internationally recognized instruments that help ensure the creditworthiness and payment of the overseas parties you're trading with.

It is a great contribution to earn profit, help the economy and financial activities in order to have economic growth of a country. This report will give a concrete concept about the Letters Of Credit Procedure.

With the help of my report with necessary details,
• Importer will be assured that the Exporter will be paid only if all terms and conditions of the Letter of Credit have been met.
• Importer will able to negotiate more favorable trade terms with the Exporter when payment by Letter of Credit is offered.
• The risk of payment relies upon the creditworthiness of the Issuing Bank and the political risk of the Issuing Bank’s domicile, and not the creditworthiness of the Importer.
• Exporter will be able to agree in advance to all requirements for payment under the Letter of Credit. If the Letter of Credit is not issued as agreed, the Exporter is not obligated to ship against it.
• Exporters can further reduce foreign political and bank credit risk by requesting confirmation of the Letter of Credit by a bank.

1.2 Background (Description of the Organization/Company):

Export Import Bank of Bangladesh Limited was established in the year 1999 under the leadership of Late Mr. Shahjahan Kabir, Founder Chairman, who had a long dream of floating a commercial bank which would contribute tot he socio-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard work and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder, who is an illuminated business tycoon in the Garments Business in Bangladesh, became the Honorable Chairman after the demise of the honorable founder chairman. He is also the chairman of Bangladesh Association of Banks (BAB).

This Bank starts functioning from 3rd August, 1999 with its name as Bengal Export Import Bank Limited. On 16th November 1999, it was renamed as Export Import Bank of bangladesh Limited with Mr. Alamgir Kabir as the Founder Advisor and Mr. Mohammad Lakiotullah as the Founder Managing Director respectively. Both of them have long experience in the financial sector of our country. By their pragmatic decision and management directives in the operational activities, this bank has earned a secured and distinctive position in the banking industry in terms of performance, growth and excellent management. Under the leadership of Mr. Lakiotullah, the Bank has migrated all of its conventional banking operation into Shariah Based Islami Banking in the year July 2004.

In the year 2006, Mr. Kazi Mashiur Rahman became the Managing Director of the bank when Mr. Lakiotullah left the bank after completiong of his 7 successful years as MD. Mr. Kazi served in the bank for the next five years. Under his leadership, the bank has been placed on a state of the art centralized IT platform with two modern data centers where worlds renowned core banking software, TEMENOS T24 is running along with some alternate delivery channels like ATM and SMS Banking.

In 25th August, 2011, Mr. Md. Fariduddin Ahmed has joined in the bank as Managing Director. With his long experience in the Shariah Based Islami banking in Bangladesh, EXIM Bank is going to take a new shape where IT-enable banking service will spread in the market.

1.3 Name of the Prominent
The following are the top Management, Founder and the Sponsor Director of the Company.

Late Shahjahan Kabir Md. Nazrul Islam Mazumder (Chairperson) Alamgir Kabir, FCA ( Founder, Chairperson & former Advisor)

|Director |Sponsor |
|Md. Nazrul Islam Mazumder |Mrs. Rabeya Khatoon |
|Mohammad Abdullah |Mrs. Mahmuda Begum |
|Md. Altaf Hossain |Mrs. Nasreen Islam |
|Md. Faiz Ullah |Mrs. Asma Begum |
|Md. Mazakat Harun |Mrs. Sabira Sultana |
|Md. Fahim Zaman Pathan |Mrs. Mamtaj Begum |
|Mrs. Nasima Akher |Md. Shaiful Alam |
|Md. Aminur Rahman Khan |Md. Nurul Amin |
|Mrs. Hamida Rahman |Mrs. Nahida Akhter |
|A.K.M. Nurul Fazal Bulbul |Muhammed Shahidullah |
|Md. Zubayer Kabir |Md. Abdullah Al-Mamun |
|Mrs. Rizwana K. Riza |Mrs. Rubina Shahid |
|Md. Habibullah |Al-Haj Mr. Md Nurul Amin |
|Md. Nur Hussain Sawpan |Md. Abdullah Al-Zahir |

|Independent Director |Muhammad Sekandar Khan |
|Managing Director |Md. Fariduddin Ahmed |
|Company Secretary |Md. Golam Mahbub |

1.4 Mission & Vision of EXIM Bank Ltd.

The Vision is to be the finest bank in the banking arena of Bangladesh under the Shahriah guidelines.

The Missions of EXIM Bank Ltd are stated as the following Maintain Corporate & Business Ethics Become a trusted repository of customers’ money and financial advisor Display team spirit and professionalism Have a Sound Capital Base Provide high quality financial services in export and import trade Provide excellent quality customer services

1.5 Structure of the Organization

Organ gram of EXIM Bank Managing Director Additional Managing Director Deputy Managing Director Senior Executive Vice Presidents Executive Vice President Senior Vice President Vice President Senior Assistant Vice-President Assistant Vice President Senior Principal Officer Principal Officer Executive Officer MTO Officer Junior Officer Assistant Officer

1.6 Major indicator wise performance of the Bank as follows:
a. Deposits
b. Imports
c. Investment
d. Operating Profit
e. Risk Management
f. Shahriah Complaince - we must be very sincere and meticulous in observing and implementing Shahriah principles in all our transactions and confidence of our clients and the people at large.

1.7 Product and Services

a. Mudaraba Saving Deposit
b. Al-Wadia Current Deposit
c. Mudaraba Short Term Deposit
d. Mudaraba Term Deposit Receipt
e. Mudaraba Monthly Saving Scheme (Money Grower)
f. Monthly Super Saving Scheme
g. Mudaraba Multiplus Saving Scheme
h. Mudaraba Student Saving Deposit
i. Mudaraba Monthly Saving Scheme
j. Mudaraba Monthly Hajj Deposit Scheme
k. Mudaraba Monthly Income Scheme

1.8 Investments of EXIM Bank
The investment portfolio of the bank comprises of diversified areas with all nationally identified thirst areas of business and industry. The main investment businesses are focused on the following areas: Ready Made Garments Hospitals & Clinics It Related Business Agricultural and Agricultural Developments Items Fishing and Fishing Business Promotion Telecommunication Transportation and Communication Forestry and Furniture Construction Business and Housing Development Leather and Leather Goods Plastic and other synthetics Entertainment Photography Ceramic Hotel & Tourism Warehouse and Container Services Printing and Packaging Gunning and Bailing Pathological Laboratories Cold Storages Horticultural-Flower growing and marketing Food and Oil Processing Plants Other Admissible trading and intermediaries

1.9 The Activities of EXIM Bank are divided into the following Departments

a. General Banking Department
• Accepting different types of Deposits
• Account Opening
• Cheque Book Issuing
• Transfer of an Account
• Debit Card Issuing
• Closing of an Account

b. Remittance Department
• Issuing and Paying of Demand Draft
• All related Correspondence with other Branches and Banks
• Compliance of Audit and Inspection
• Balance of Local Demand Pay Order
• Maintenance of record and proof sheet
• Payment of incoming IT
• Issuing en-cash of Pay Order
• Issuing local Drafts
• Issuing outgoing IT, Issuance of ICA, IBA and IBDA

c. Clearing Department
d. Advance or Loan Department
e. Foreign Exchange Department
f. Letter of Credit Procedure

1.10 SWOT ANALYSIS OF EXIM BANK

SWOT Analysis is used to measure views of a single issue from different patterns. From historical data and practical observation, I have found the following Strengths, Opportunities, Weaknesses and Threats under the SWOT Analysis of EXIM Bank Limited, Gulshan Branch.

Strengths:
• Not engaged in unfair business practice
• Well-known reputed bank in the market
• Concentrated market
• Officers are highly educated and experienced
• Deposit is larger then advance
• Attractive credit and deposit schemes than competitive markets
• Well-furnished and Air-Conditioned Bank
• Strictly complies of government banking rules, regulations and acts.

Weaknesses:
• Small market shares in banking business
• Short tome experience in the banking sector
• Growth is slower than other competitive banks
• Training programs to officers are not so effective and adequate
• Lack of advance technology utilization in all aspects

Opportunities:
• Can provide more attractive and deposit facilities and credit facilities
• Take incentives to provide high quality services
• Can increase the advertising of the bank to highlight latest services of EXIM
• Can adopt high technology based inter-branch networking system

Threats:
• The number of competitors in banking sectors are increasing day by day, both local and international banks
• Governments increasing rules and regulations are not so inspiring.
• Government tendency of imposing tax and VAT is becoming stricter

1.11 Objectives:
In this report I have attempted to give an overview of Export Import Bank of Bangladesh Ltd in general. The following are the main objectives: To familiarize the history and operations of Export Import Bank of Bangladesh Ltd. To show the Letter Of Credit Procedures’ mechanism and product offerings in different modes of Export Import Bank of Bangladesh Ltd. To show overall documentation of the Letter Of Credit Procedures’ system of Export Import Bank of Bangladesh Ltd. To show the differences with conventional banking regarding Letter Of Credit Procedures’ aspects. To identify the strength and weakness of the overall Letter Of Credit Procedures’ system of Export Import Bank of Bangladesh Ltd. To identify the problems related to the Letter Of Credit Procedures’ of Export Import Bank of Bangladesh Ltd. To recommend actions that may be necessary to redesign and improvement in the Letter Of Credit system of Export Import Bank of Bangladesh Ltd.

II-ACTIVITIES UNDERTAKEN

I have started my internship in EXIM Bank Ltd, Gulshan Branch on 10 May 2012. During my internship, I have enjoyed working there, meeting new people and most importantly I have learnt and seen the reality of the working life in the business world. This is a practical orientation which is necessary for the development and preparation of a student in the working world.
Even though the work of authorities are not much given to the internees, yet the EXIM Bank gives the opportunity for the newly graduates to guide them by letting them work in different

2.1 My Specific Responsibilities:
The first few weeks I was assigned to participate in General Banking (GB). I spent most of the time gathering knowledges from desk to desk, where each officers had different responsibilities to take care of. A very intellectually intriguing, Mr. Kazi Muhammad Didarul Alam (SPO), was my supervisor.

Responsibilities at GB:
• Opening account for new customers and being a helping hand in this process
• Finding the FD, PSS and old account opening forms. Filling the form according to the requirements and collecting the necessary papers, i.e.:
• National ID Card photocopy/Passport photocopy (if no National ID Card & Foreign Passport Holder)
• 2 Passport Size Photos
• Nominees’ Photo & National ID Card photocopy
• Signature, wherever it is necessary
• Attach the necessaries on to the form
• Advice the customer to pay a certain amount in the Cashier.
• Fill up the cash receipt slip to help the customer
• Bringing out the cheque books/debit cards for the customers and verifying them
• Writing the Pay Order (PO) voucher
• Counting the voucher of GB
• Receiving the cheques and putting 4 different types of seals for clearing
• Preparing the bill for the branch’s expenditure for particular day everyday
• Entering the information onto the register book for records
• Making solvency certificated
• Typing other documents given by my In-Charge
The work in GB was a 50-50 on hard work and effort. I wouldn’t say it was a piece of cake but it wasn’t rocket science either, I have enjoyed it there very much.

Later I was assigned in the Letter of Credit Department to gather knowledge on the procedures, which was also my report all about. As most of the work were taken care of the main authorities assigned to deal with the Letter of Credit Procedures, I had played very small yet knowledgable role here. I have closely observed and assisted his department in whatever way it was possible.

2.2 Letter Of Credit:
A Letter of Credit (L/C) is a document issued by the bank guaranteeing a client’s ability to pay for goods or services. A bank or finance company issues a L/C on behalf of an importer and buyer, authorizing the exporter or seller to obtain payment within a specified timeframe once the terms and conditions outlined in the (L/C) are met. L/C is a conditional commitment to pay certain amount after a certain period and some contains are fulfilled. It is useful when the importer or buyer is not well known and when exchange restrictions exists or are possible. Proper L/C have the following basic components:

i. Applicants: The party applying for the L/C, usually the importer in a grain transaction. ii. The Issuing Bank: The bank that issues the letter of credit and assumes the obligations to make payment to the beneficiary, usually the exporter. iii. Beneficiary: The party in whose favor the letter of credit is issued, usually the exporter is a grain transaction. iv. Amount: The sum of money, usually expressed as a maximum amount, of the credit defined in a specific currency.
v. Terms: The requirements, including documents that must be met for the collection of the credit vi. Expiry: The final date for the beneficiary to present against the credit.

The Uniform Customs & Practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (2007) Revision, Publication No.600 defines Documentary Credit:

“Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.”
Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of the rules of UCPDC and international standard banking practice. According to the definition of “Credit”, when an issuing bank determines that a presentation (of documents) is complying, it must honor. Honor means:
a) To pay at sight, if the credit is available by sight payment,
b) To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment,
c) To accept a bill of exchange (draft) drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

Article 15b of UCP-600 says that when a confirming bank determines that a presentation is complying, it must or negotiate. In case of complying presentation, a nominated bank may also honor or negotiate (article 15c). It thus appears that credit is not only available at issuing bank, it (credit) can also be made available at confirming bank or nominated bank (appointed by issuing bank).

Moreover, any bank can be a nominated bank in case of a credit available with any bank. (Article 2 and 6a of UCP-600) At this point, it is also imperative to define “Negotiation”. According to the article 2 of UCP-600.

Negotiation 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.

The above terms such as sight payment, deferred payment, acceptance and negotiation, are in fact, reflecting terms of payment of credit. Terms of payment or maturity date of payment (when issuing bank o confirming bank or nominated bank is going to make payment) is therefore, an essential characteristics of a credit.

Article 6b of UCP-600 states, a credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.

It thus follows from the above discussion that a credit:
i. Is an irrevocable/definite undertaking of an issuing bank to honor a complying presentation, ii. Must indicate with which it is available, and iii. Must indicate the terms of payment.

2.3 Letter of Credit Parties Involved:
We’ve provided you with a comprehensive list of the parties involved in a letter of credit transaction. This page helps you understand the possible players in your scenario.
• Advising Bank: Denotes the bank giving notification of the terms and conditions of a letter of credit to the beneficiary(seller). The advising bank also takes reasonable care to check the apparent authenticity of the letter of the credit, which is advises.
• Applicant: The party who applies to the opening(issuing) bank for the issuance of a letter of credit.
• Beneficiary: The party in whose favor the letter of credit has been established. The beneficiary is the party who demands payment under the letter of credit.
• Confirming Bank: A bank that at the request of the issuing bank, assures that drawings under the credit will be honored (provided the terms and conditions of the credit have been met).
• Drawee Bank: The ban on which the drafts specified in the credit are drawn and from which payment is expected.
• Issuing Bank (Opening Bank): The bank, which issues the letter of credit on behalf of the applicant.
• Paying Bank: The bank authorized in the letter of credit by the issuing bank to honor sight or deferred payments under the terms specified in the credit. (If this bank is the advising bank then it is obligatory to pay against complying documents.)
• Presenting Bank: The bank that forwards the documents directly to the issuing bank to obtain settlement.
• Reimbursing Bank: The bank authorized by the issuing bank to reimburse the drawee bank or other banks submitting claims under the terms of the credit.
• Transferring Bank: A bank authorized by the issuing bank as specified in the credit that can transfer the issuing bank’s documentary credit from one beneficiary to another at the request of the first beneficiary.

2.4 Types:
Article of 3 of UCP-600 says that a credit is irrevocable even if there is not indication to that effect. It therefore, indicates that (under UCP-600) there is only one type of credit, named Irrevocable Letter of Credit.

Other Documentary: I. Confirmed Documentary Credit: A confirmation of a documentary credit by a bank (confirming bank) upon the authorization or request of the issuing bank constitutes a definite undertaking of the confirming bank, in addition to that of the issuing bank, provided that the stipulated documents are presented to the confirming bank or to any other nominated bank on or before the expiry date and the terms and conditions of the documentary credit are complied with either to honor or to negotiate.
II. Revolving Credit: A Revolving Documentary Credit is one by which, under the terms and conditions thereof, the amount is renewed or reinstated without specific amendments to the documentary credit being required. The Revolving Documentary Credit may revolve in relation to time or value. A documentary credit of this nature may be cumulative or non-cumulative.
III. Transferable Credit and Transferred 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”). Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.
IV. Back to Back Credit: The back to back credit is a new credit opened on the basis of an original credit in favor of another beneficiary. Under the back to back concept, the seller as the beneficiary of the first offers it as ‘security’ to the bank for the issuance of the second credit. The beneficiary of the back to back credit may be located inside or outside the original beneficiary’s country. V. Standby Credits: The Standby Credit is a documentary credit or similar arrangement, however named or destined, which represents an obligation to the beneficiary on the part of the Issuing Bank to:
a. Repay money borrowed by the applicant, or advanced to or for the account of the applicant;
b. Make payment on account of any indebtedness undertaken by the applicant; or
c. Make payment on account of any default by the applicant in the performance of an obligation.

2.5 Operations of Documentary Letter of Credit:
The following five major steps are involved in the operation of a documentary letter of credit:
i. Issuing a Letter of Credit: Before issuing L/C, the buyer and the seller located in different countries conclude a ‘sales contract’ providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank - the issuing bank - to issue a credit in favor of the seller (beneficiary). Instruction/Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the ‘conditions’ contained in the application form, the issuing bank then proceeds for opening the credit to be addressed to the beneficiary. ii. Advising a Letter of Credit: Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature(s) of the officer(s) of the issuing bank and ensure that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export. In such act of advising bank does not undertake any liability. However, an advising bank may also utilize the services of another bank (“second bank”) to advice the credit and any amendment to the beneficiary. iii. Confirmation and Amendment of Credit: The beneficiaries are not always willing to rely on the credit standing of the issuing bank - particularly when bank is unknown to the beneficiary. Consequently, a beneficiary may request that the applicant instruct the issuing bank to have its credit confirmed by a confirming bank, usually in the beneficiary’s country. Moreover, parties involved in L/C, particularly the seller and the buyer, can not always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. However, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. iv. Presentation of Documents: The seller being satisfied with the terms and conditions of the credit, proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatching of goods fulfilling other terms and conditions of L/C to the issuing or nominated bank on or before the stipulated expiry date of the credit. After receiving all the documents, the issuing or nominated bank then examines the documents against the credit. If the documents are found complying, the bank will honor or negotiate.
v. Settlement: Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. These are:
• Settlement Payment: Here the beneficiary/ presenter presents the documents to the nominated/issuing bank and the bank then scrutinizes the documents. If satisfied, the nominated/issuing bank makes payment to the beneficiary and in case this bank is other than issuing bank, then sends the documents to the issuing bank. If the issuing bank is satisfied with the requirements, payment is obtained by the nominated bank from the issuing bank.
• Settlements by Acceptance: Under this agreement, the beneficiary/presenter submits the documents to the nominated/issuing bank accompanied by a draft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.
• Settlement by Negotiation: This settlement procedures starts with the submission of documents by the beneficiary/presenter to the nominated bank accompanied by a draft drawn on the issuing bank or any other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank will purchase the documents and/or drafts, advance or agree to advance funds to the beneficiary on or before reimbursement is due. This bank then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed manner.

2.6 Opening a Letter of Credit(L/C)
Bank provides guarantee to importer through Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its “Letter of Credit”. The process of opening L/C regarding to import & export through EXIM Bank, Gulshan Branch are the following:
a) Interview of probable L/C opener: At first in case of import L/C opening opener must give an oral interview to the responsible officers of EXIM Bank. If the officers are satisfied with opener’s motive of import, type of import goods, quality of imported goods and marketability of goods than they will give approval to opener to further steps.
b) Applications for L/C limit: Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer submits an application to the Department of EXIM furnishing the following information:
• Nature of business
• Required amount of limit
• Payment terms and conditions
• Goods to be imported
• Offered security
• Repayment schedule
• Full particulars of bank account maintained with EXIM, Gulshan Branch.
c) The L/C Application: After getting the importer, they applies to the bank to open a letter of credit on behalf of them with required papers. Documentary Credit Application Form:
• Tax Identification Number Certificate
• VAT Registration Certificate
• Membership Certificate of recognized Trade Association as per IPO
• Pro-forma Invoice: it states description of the goods including quantity, unit price, etc.
• L/C Form: EXIM provides a printed form for opening of L/C (MF-fx 13) to the importer. This form is known as Credit Application form. A special adhesive stamp is affixed in the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage.
• L/C Authorization Form (LCAF) duly signed by the importer.
• The insurance cover note: the name of issuing company and the insurance number are to be mentioned on it.
• IMP form duly signed by the importer.
• Forwarding for Pre-Shipment Inspection (PSI): importer sends forwarding letter to exporter for PSI, but all types of goods do not require PSI.
d) Time Limit for opening L/C: L/C(s) should be open within 180 days from the date of issuance of LCAF or from the date of registration of LCAF with Bangladesh Bank (BB).
e) Terms of L/C: Full description of the goods along with quantity and unit price to be incorporated in the L/C and shall take all precautions to quote the correct H.S. Codes of the goods. Prices to be quoted on CER or FOB basis according to the P/Invoice or Indent. No import shall be made on CIF basis without prior approval from the Ministry of Commerce. All L/C’s should provide for payment for payment to be made against full sets of on board(shipped) transport documents drawn and/or endorsed to cover by the credit to a destination in Bangladesh.
f) Shipment Validity & Expiry: All L/Cs must specify shipment validity as per terms of the P/Invoice or indent or L/C application. However, shipment validity under any circumstances shall not exceed 9(nine) months from the date of issuance of LCAF or registration LCAF with BB accepting capital machinery and spare parts shipment of which shall be made within 17 (seventeen) months. All L/Cs must stipulate an expiry date and a place for presentation of documents for payment/acceptance.
g) Amendments: The EXIM, Gulshan Branch may allow amendments to the L/Cs only upon requests of the L/C applicants that do not violate foreign exchange regulations and import control regulations. Necessary charges and/or margin (where L/C value is increased by subsequent amendments) also to be realized/recovered from the customer before amending the L/Cs.
h) Transmission of L/C to Beneficiary through Advising Bank: In this step the transmission of L/C is done through tested telex or fax to advise the L/C by EXIM to the advising bank. The advising bank verifies the authenticity of the L/C. EXIM has corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take liability if otherwise not requested.
i) Presentation of the Documents:
• The seller being satisfied with the terms and conditions of the credit makes shipment of the goods as per L/C terms.
• After making the shipment of the goods in favor of the importer, the exporter submits the documents to the negotiating bank.
• After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to EXIM.
• EXIM Bank received seal to be affixed on the forwarding schedule.
• EXIM Bank crossed he bill of exchange & transport documents immediately to protect loss or fraudulent.

• EXIM checks the following documents:
a. Bill of Exchange
b. Invoice
c. Bill of lading or Airway Bills
d. Certificate of Origin
e. Packing List
f. Weigh List
g. Shipping advice
h. Non-negotiable copy of bill of lading
i. Pre-shipment inspection report
j. Shipment Certificate

j) Lodgment of Documents: If the documents are found in order or the discrepancies if any, are subsequently accepted by the applicant, the branch will record the particulars of the documents in the PAD Register.
k) Retirement of Document: EXIM advise Importer about the date of lodgment of document with full particulars of shipment to retire the documents against payment or to dispose the import documents according to prearrangement, if any. Subsequent reminders are also to be issued every week till retirement of the bill. Such bills will be considered and be reported as overdue if the importer fails to retire the documents within 21 days of arrival of the relative import consignments at the port of destination.
l) Endorsement of Non-negotiable Copy Documents:
• For clearance of cargo: In the event of non-receipt of import documents relating to goods, which have already reached the port, the customer may ask the bank to provide a Shipping Guarantee/NOC to enable them to clear the goods from the customers. The Shipping Guarantee maybe given on a basis of a written undertaking from the clients by EXIM. The S/G should state, inter alias, that they will in due course accept the original documents in spite of discrepancies, if any and bear the exchange loss on account of fluctuation of exchange rates between the dates of guarantee to actual date of lodgment of original documents, when received.
• EXIM will check the non-negotiable copy documents with the L/C terms and make entries of particulars of copy documents in the Shipping Guarantee Issue Register (MB fx-06)
• EXIM will recover Taka equivalent of F.C value of N/N copy documents and charges from the customer.
• EXIM will ensure return of the shipping indemnity/guarantee from the shipping company by delivering original shipping documents to the importer after receipt of original documents from the payee bank.
• EXIM will mark cancellation on the shipping indemnity/guarantee returned by the shipping company through the importer and file it in the respective L/C file
• For customer Assessment Purpose: At the request of the importer, EXIM may endorse Non-negotiable copy documents for custom assessment purpose. The branch will certify the value of copy F.C on the invoice copy and moreover, certify the transport documents copy under single authorized signature. Endorsement charge is to be realized as per schedule of charges of the bank.
• Cancellation of L/Cs: An irrevocable L/C cannot be cancelled without the agreement of the beneficiary and the confirming bank, if any. • The EXIM, at the request of the importer may approach the L/C advising bank for cancellation of the L/C and such cancellation will only be effective upon consent of the beneficiary advised tot he branch through the L/C advising bank. However, the EXIM may cancel the L/C without the consent of the beneficiary. Advising bank and confirming bank. if any, if the L/C expires and the EXIM receives no shipping documents within 15days of expiry of the L/C. the branch should send a message to the concerned bank advising such cancellation and closure of L/C file due to expiry of the same. The EXIM then cancels the Reimbursement Authorization, which has been provided to the Reimbursement bank while opening the L/C. The Branch will reverse L/C contra liabilities, refund margin and recover charges from the L/C applicant as per schedule of charges.

2.7 Accounting Treatment for Opening Import L/C:
When the officer thinks the application is fit to open a L/C, giving the following entries - creates the following charges - Table showing accounting treatment at the time of L/C Opening:
|Particular |Debit/Credit |Charges in Take (Tk) |
|Customer’s A/C |Debit |- |
|L/C Margin A/C |Credit |Commonly 0-100% (0= good clients & 100=Bad or |
| | |Doubtful Clients) |
|Commission A/C on L/C |Credit |0.09% |
|VAT |Credit |15% on commission |
|SWIFT Charge |Credit |1000-3000 |
|Stamp |Credit |150 |
|Miscellaneous |Credit |150 |

2.8 Documents Required for opening a Back-to-Back L/C:
In EXIM Bank, following papers/documents are required for opening a Back-to-Back L/C:

Master L/C
Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)
L/C Application and LCAF duly filled in and signed
Pro-forma Invoice or Indent
Insurance Cover Note with money receipt
IMP Form duly signed

In addition to the above documents, the following are also required to export oriented garment industries while requesting for opening a Back-to-Back L/C:

Textile Permission
Valid Bonded Warehouse License
Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favour of the applicant for quota items
In case the factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted.

A checklist to open Back-to-Back L/C is as follows:
Applicant is registered with CCI&E and has bonded warehouse license;
The master L/C has adequate validity period and has no defective license;
L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C;
Usage Period will be up 180 days

2.9 Check Points Noted in Master L/C:
Following sensitve points of the Master L/C are carefully checked by the officials of EXIM. They are:

Issuing Bank is not reputed
Advising credit by the advising bank without authentication
Port of Destination Absent
Inspection Clause
Nomination of specific shipping/ Airline or nomination of specified vessel by subsequent amendment
Bill of lading endorses bank, endorses to 3rd bank, endorses to buyer or 3rd party
No specific reimbursing clause
UCP clause not mentioned
Shipment/Presentation period is not sufficient Original documents to be sent to buyer or nominated agent
FCR or HAWB consigned to applicant or buyer
“Shipper’s load and count is not acceptable” clause
L/C shall expire in the country of the Issuing Bank
Negotiation is restricted

2.10 Foreign Documentary Bill Purchase (FDBP):
Most of the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, EXIM puchases the bill and collects the money from the exporter. EXIM subtracts the amount of bill for PC and BTB payment and gives the rest amount to the client in cash or by crediting his account or by the pay order.
For this purpose, EXIM maintains a separate register named FDBP Register. This register contains the following information:

Date
Reference Number (FDBP)
Name of the drawee
Name of the collecting bank
Conversion Rate
Bill amount both in figure & in Taka
Export form number
Export L/C number

2.11 L/C classification by EXIM for practical purposes:
L/C’s that are generally deals in EXIM irrevocable type of documentary credit. The L/C terms are used in EXIM practical practice in quite different from theoretical classification of documentary credit. So L/C classifiations used by EXIM in practical purpose are follows:
In case of practical purpose EXIM defines import L/C as cash L/C which are used to import goods as cash payment basis. Cash L/C are classified in to groups:

1. Deferred Cash L/C: Deferred Cash L/C is applicable when payment delayed upto maximum 90 days. EXIM uses (02) as code for Deferred Cash L/C.
2. At Sight Cash L/C: When payment is made within 7 days after receiving documents that is called At Sight Cash L/C. EXIM uses (01) as code for foreign At Sight Cash L/C and (99) as code for local.

In case of BTB L/C for practical use EXIM categories in three aspects such as:

3. Foreign: Foreign BTB L/C is used goods are imported from outside Bangladesh. Exim uses (06) as code for foreign BTB L/C.
4. Local: Local BTB L/C is used goods are imported inside Bangladesh. EXIM uses (04) as code for local BTB L/C.
5. EPZ: BTB L/C for EPZ is also treated as foreign L/C by EXIM because goods are imported for EPZ are used for further export and owners of EPZ oriented industries are generally foreign. EXIM uses (12) code for EPZ oriented BTB L/C.

In case of export L/C, EXIM use the term of Master L/C and provides different advantages against it as PC and BTB L/C etc. The documentary credits where EXIM plays advising bank, where EXIM uses term Foreign Documentary Bill Purchase (FDBP).

III-CONSTRAINTS/CHALLENGES AND PROPOSED COURSE OF ACTION FOR IMPROVEMENT

It was a very interesting experience while working at the EXIM bank. The people there were very nice, friendly, talented and helpful. The things that I have noticed and observed are:
Work is never left pending for the next day unless it is absolutely necessary
Bank can be more flexible on customer service. It can increase its own ATM network. Actually service diversification is mandatory to survive in the competitive atmosphere.
The work process could be made faster with better computers, opertating systems, networking and better banking software.
Lending process is more time consuming. All the necessary steps are needed to be processed through head office. If it was possible to minimize consumer would have been benefited,
More than 95 employees are working in the Gulshan Branch, where most of the employees are involved in Letter of Credit Procedures.
Credit quality depends on close follow-up and monitoring of loans. The follow-up and monitoring of loans should be more strong.
EXIM Bank has an interactive corporate culture. The working environment is very friendly, interactive and somewhat informal. There are no hidden barriers or boundaries while communication between the superior and the subordinate. This corporate culture provides as a great motivation factor to the employees.
There is always a rush of customers so there is no standard on what the employees do throughtout the day. The work activites are alwaus set and divided for each of the employees. This is the way it should be, but when Isaw it firsthandedly, it was remarkable. Each and every employee has a certain set of responsibilites. He/she carries out those responsibilities throughout the day. It is also easy to assign duties that way. Even though this is the case, I often saw other staff members helping each other.
Commercial Banks generally do not interfere with the use of the borrowed money, but it takes care to ensure that the money lent is used only for purposes.
EXIM Bank maintains or follows rules and regulations according to the Shariah Based Islamic bank.
Customer satisfaction level of EXIM Banl Level is worth acceptable or wonderful
EXIM Bank IT section is mostly advanced, which is helpful for Banking transaction & Letter of Credit Procedure and other departments of banking.

IV-LESSONS LEARNED FROM THE INTERNSHIP PROGRAM

The things that I have learned at EXIM Bank are:

Meaning of responsibility
Necessity of commitment
Punctuality and Regularity
Ability to interact with different sorts of people

In theoretically we learned in our finance major course, specially Bank Management about the credit risk. During my internship program, I saw how bank face foriegn exchange rate and risk and how they manage them and minimize the risk through diversification

Learned about various types of L/C and different requirement/document for each type of L/C Opening. Also what types of documents to keep against each L/C.
Learned how they classified the L/C and how much provision they keep under each L/C.

V-CONCLUDING STATEMENTS

5.1 Special Finding:

After working in EXIM Bank, Gulshan Branch, I have collected and gathered the data, analyzed and with my limited experience, I have noticed few things. Regarding those, I have generated some information that I would like to share in my Recommendation Section:
• Letter of Credit Department has sensitive issues as it has to provide different information through BB to Bangladesh Government. So EXIM Bank, as ADs strictly follows the regulation instructed by BB and related regulations acts. Sometimes it views that the officers of this department are giving priority to those matters that to be informed in BB and other internal procedures are followed by regulations.
• The procedures to open documentary credit are full of hard & fast rules and regulations (as per Bangladesh Bank). Compared to the other banks, EXIM is not as flexible as they are to open documentary credit to attract customers.
• In some cases EXIM recording process is done on shortcut method, i.e. for some internal transactions limited vouchers is passed. Such as no vouchers is passed for amendment in foreign exchange department of EXIM.
• The total process of recording and keeping documents of letter of credit department is highly integrated or combined through registers, faxes, bills, etc.
• All of the officers on this department of Gulshan Branch are having computer facilities, which are fast, the activities of letter of credit department has satisfied the customers.
• Though this department provides SWIFT facilityies, but to maintain continuous relation with the head office for letter of credit and related dealings it does through the technological support.
• The information of letter of credit department of EXIM shows positive trend of export, import amd remittance.
• Letter of Credit department has highly adhere with procedures; rules and regulations provided by the Bangladesh Government, so officers of this department must have adequate knowledge about what the govrnment has asked to follow.
• EXIM Bank do give adequate facility for interns.

5.2 Recommendations:

• High administrative control should be exercised in EXIM Bank. Proper delegation of authority should be establised so every officers of every department should be confined with their own responsibility and duty, whihc will bring fluency in operation.
• The process opening documentary credit and steps followed by EXIM to settlement of documentary credit should be liberalized as much as possible. If process is liberalized according to regulations it will attract customers.
• The procedures followed by EXIM for open documentary credit up to settlement is lengthy and some cases are not as per committed. The whole procedures should be integrated to provide more efficiency hat will increases satisfaction of the customers.
• Letter of Credit department of EXIM Bank should provide adequate computerized network facilites that will ultimately provide supports to all officers of this department and as well as improve quality of customer service by increasing swiftness of activities.
• EXIM should provide different facilities and incentives to customers who are related with letter of credit transactions/billings and also increase quality of serivces that will attract the customers and that will increase letter of credit transactions/billing of EXIM.
• As letter of credit transactions/billing are guided by strict rules and regulations, so all officers under this department must be properly trained and given adequateknowledge so that they could apply relative regulations on practical positive attitude about work is buildup that will increase the quality of service provided by them.

5.3 Conclusion:

Bank is the most common type of financial intermediary in today’s globalized world. Banks play important constructive role int he economy. Banking sector of bangladesh quite positively contributing to its economy. In today’s globalized world, it’s impossible to stay without transacting among two countries, i.e. letter of credit given to customers and banks are the only safe way transacting international transactions. The different nationalized and privatized banks are providing services among them, letter of credit services are important for globalize transactions.

As a commercial bank of Bangladesh EXIM Bank Limited is providing different services along with letter of credit services. EXIM is trying to established a stable position in competitive market and providing positive contribution to economy through different services as well as letter of credit services. Letter of Credit department facilities not only include export-import and private transactions, but also help to encourage economic development of Bangladesh.

The new mode of planned advance facilites that will be enforced in future by EXIM Bank Limited for improving services quality. I hope, EXIM Bank Limited has great chance of being one of the leading banks of Bangladesh by enforcing its availability of opportunities and highly contributing to the economic development of Bangladesh in future.

5.4 Glossary:

|BB |Bangladesh Bank |
|DD |Demand Draft |
|LIM |Loan Against Import |
|PAD |Payment Against Documents |
|LTR |Loan Against Trust Receipts |
|T.T |Telegraphic Transfer |
|PO |Pay Order |
|IBCA |Inter Bank Credit Advice |
|IBDA |Inter Bank Debit Advice |
|BE |Bills of Exchange |
|L/C |Letter of Credit |
|ID |International Department |
|B/L |Bill of Lading |
|FBBP |Foreign Documentary Bills for Purchased |
|ERC |Export Registration Certification |
|CCI&E |Chief Controller of Import and Export |
|IRC |Import Registration Certificate |
|LCFA |Letter of Credit Authorization Form |

5.5 Bibliography:

1) Official Website: www.eximbankbd.com
2) Official Website: www.Bangladeshbankbd.com

3) Prospectus od EXIM Bank Ltd.
4) International Financial Management by Jeff Madura (7th Edition)
5) The Management and Policy by Robinson (10th Edition)

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