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A WORKING REPORT ON BASIC BANK LIMITED AND A STUDY OF UNDERLYING SHORTCOMINGS IN BANKING PRACTICES THAT LED TO
THE HALLMARK SCAM
by
Rehenoma Neherin ID# 0921312
An Internship Report Presented in Partial Fulfillment of the Requirements for the Degree Bachelor Business Administration
INDEPENDENT UNIVERESITY, BANGLADESH NOVEMBER, 2012
A WORKING REPORT ON BASIC BANK LIMITED AND A STUDY OF
UNDERLYING SHORTCOMINGS IN BANKING PRACTICES THAT LED TO THE HALLMARK SCAM
by
Rehenoma Neherin ID# 0921312
has been approved November, 2012
---------------------------------------------
Mr. Abdullah Al Aabed Lecturer
School of Business INDEPENDENT UNIVERESITY, BANGLADESH
Letter of Transmittal
November 29, 2012
To
Mr. Abdullah Al Aabed
Lecturer
School of Business
Independent University, Bangladesh
Subject: Submission of BBA Internship Report
Sir, I am a student of Independent University, Bangladesh. Here I am submitting my
Internship report as the part of my internship (BBA 499-A) and would like to thank you
for your guidance and supervision in its completion. I completed my Internship at Basic
Bank Limited from the 16th September to 28th November, 2012. My working report is
based on Foreign Exchange and Credit, and my report topic is “A working report on
BASIC Bank and a study of underlying shortcomings in banking practices that led
to the Hallmark Scam”
I Hope you will assess my report considering the limitation of the study. I shall be highly
encouraged if you are kind enough to receive this report.
Thanking you. Sincerely yours,
……………………… Name: Rehenoma Neherin ID No: 0921312
Table of Contents
Contents Page no:
Acknowledgement i
Executive summary ii
CHAPTER: One
1.1 Introduction 1
1.2 Origin Of The Report 1
1.3 Objective of the Study 2
1.4 Scope of the report 2
1.5 Methodology 2
1.6 Limitations 3
1.7 Timeline 3
CHAPTER: Two
Literature Review 4
CHAPTER: Three
Working Experience in BASIC Bank 6
CHAPTER: Four
OVERVIEW OF BASIC BANK LIMITED
4.1 Background 7
4.2 Capital Position 7
4.3 Functions 8
4.4 Organization Strategy 8
4.5 Objectives of the BASIC Bank 9
4.6 Organization Goals 9
4.7 Orientation of BASIC Bank (Gulshan Branch) 9
4.8 At a Glance of BASIC Bank Limited 10
Page no:
CHAPTER: Five
Foreign Trade Operations of BASIC Bank
5.1 Role of BASIC Bank in Foreign Trade Activities 11
5.2 Regulation 11
5.3 Commonly used Documents 12
5.4 Foreign Trade Departments 13
5.4.1 Import 13
5.4.1.1 Procedure of Import Operation 14
5.4.1.2 Graphical Analysis of Import Business 17
5.4.2 Export 18
5.4.2.1 Procedure of Export Operation 18
5.4.2.2 Export Finance Instrument 20
5.4.2.3 Graphical Analysis of Export Business 23
5.4.3 Foreign Remittance 23
CHAPTER: Six
Credit Management in BASIC Bank
6.1 Overview 24
6.2 Credit Policy 24
6.3 Types of Credit and Advances 24 6.3.1 Industry Credit Scheme 25
6.3.2 Micro Credit Scheme 25
6.3.3 Commercial Credit Scheme 25
6.4 Documentation of the Loan 26
6.5 Security against Advances 26
6.6 Credit monitoring and review 27
6.7 Procedure for getting approval of Loan 28
Page:
CHAPTER: Seven
Hallmark Scam
7.1 What is Hallmark Scam 29
7.2 How Hallmark Scam occurred 30 7.3 Impact on our Economy 31
7.4 Changes in Regulation due to Hallmark Scam 31
CHAPTER: Eight
Findings, Recommendations & Conclusions
8.1 Recommendations 32
8.2 Findings of the study 32
8.3 Conclusion 33
Reference 34
Bibliography 35
Appendix 36-41
i
Acknowledgement
It was a great pleasure to prepare Internship report on the various aspects of Foreign Exchange
activities and operations by The BASIC Bank Limited. I would like to thank and convey my
gratitude to honorable Supervisor, Mr. Abdullah Al Aabed, lecturer, Independent University,
Bangladesh (IUB), for letting me to prepare this report and I would also like to express my
sincere appreciation to him for his wholehearted support and guidance.
I am also grateful to the management of The BASIC Bank Limited for offering me the Internship
training. My special thanks to Mr. Shiper Ahmed, Deputy General Manager (DGM Branch),
Mr. Imrul Islam, Assistant General Manager, Ms. Noor A Saba, Assistant Officer, Foreign
Exchange Department of The BASIC Bank Limited and the staffs who have given me the
practical knowledge about the Banking operations.
I am also owed to each person who I bothered inside and outside of Basic Bank Limited,
Gulshan Branch, in carrying out this report.
ii
EXECUTIVE SUMMARY
Importance of banking system in a country is increasing day by day. It is quite impossible for
any country to develop in industrial and commercial sector without sound banking system in
modern economic era. Foreign exchange operation is one of the significant functions of the bank.
It plays a vital role in overall economy of the country. Bank collects information from numerous
sources relating to cost and revenue from foreign exchange operation. Through export, import,
and foreign remittances Foreign Exchange department of the banks earns their profit. Banks is
the intermediary of all export, import, and remittance activities.
Globalization of national economies has given a boost to international trade. The seller and the
buyer in an international trading transaction must agree for a product or its quality, price etc.
enter into a sales contract, spelling out precisely shipping and delivery details, terms of payment,
required documentation and other related issues including dispute settlement procedure and legal
framework available. The impact on trade transactions currency policies of the importing and
exporting countries and risks associated with them, fraud possibilities in the transaction or in
documents are also necessary. A country cannot long continue to have a deficit on foreign
current account but a favorable balance of payments on current account may conceal a heavy
adverse balance of payments with one individual country or group of countries.
1
1.1 Introduction Generally by the word “Bank” we can easily understand that the financial institution deals with
money. But there are different types of banks. In general, Commercial banks are the primary
contributors to the economy of a country. Both general public and the government are dependent
on the services of banks as the financial intermediary. As, banks are profit-earning concern; they
collect deposit at the lowest possible cost and provide loans and advances at higher cost.
The prosperity of a country depends upon its economic activities. Like any other sphere of
modern socio-economic activities, banking is a powerful medium of bringing about socio-
economic changes of a developing country.
The functions of the bank are now wide and diverse. They provide both short-term and long-term
credits. The customers come from all walks of life, from a small business to a multi-national
corporation having its business activities all around the world. The banks have to satisfy the
requirements of different customers belonging to different social groups. The banking business
has, therefore, become complex and requires specialized skills. The banking can, therefore, be
conceived as “a sector of economy on the one hand and as a lubricant for the whole economy
on the other.”
1.2 Origin of the report In today’s world, education is the tool to understand the real world and apply knowledge for the
betterment of the society as well as business. From education the theoretical knowledge is
obtained from courses of study, which is only the half way of the subject matter. Practical
knowledge has no alternative. For that reason, an opportunity is offered by Independent
University, Bangladesh for its potential business students to get three months practical
experience, which is known is as “Internship Program”. For the competition of this internship
program, the author of the study was placed in a bank namely, “The BASIC Bank Limited”.
This paper is titled “A working report on BASIC Bank and a study of underlying shortcomings
in banking practices that led to the HALLMARK SCAM” originated from the fulfillment of the
BBA program. For the internship program, each student is attached with an organization. My
internship was at The BASIC Bank Ltd., Gulshan Branch, Dhaka. During my internship, I had to
prepare a report under the supervision of Mr. Imrul Islam, Assistant General Manager.
2
1.3 Objectives of the Study To present an over view of The BASIC Bank Ltd.
To analys Foreign Exchange Transaction procedures maintained by the BASIC Bank Ltd.
To know about the current credit and export import regulation of BASIC Bank Ltd.
To know about the Hallmark scam and its impact on banking sector.
Impact of Hallmark scandal on our economy.
Changes in regulation due to Hallmark Scam.
1.4 Scope of the Report The study would focus on the following areas:
1. Foreign exchange department, mainly on local exports bills.
2. Loan disbursement process of Basic bank limited.
3. Changes in banking regulation due to hallmark scam.
4. The impact of Hallmark scam on our economy.
1.5 Methodology This report was prepared on the basis of experiences gathered during the period of internship. For
preparing this paper, I used both Secondary and Primary data as follows:
Collection of Primary Data Many of the data and information were collected from my practical experience and queries from
the executives while doing my internship at The BASIC Bank Ltd. Information and data
regarding Overview of the Basic Bank Ltd., interest rates & charges, Foreign Exchange
operations, performance measurement in Import & export, Foreign Exchange policies, changes in
banking policies due to hallmark scam etc. were collected from this sources.
Collection of Secondary Data Data regarding the Credit operations, hallmark scam & its impact and Performance Evaluation of
The BASIC Bank Ltd. were collected from secondary sources like: Annual Reports, Brochures,
3
Manuals and Publication of The BASIC Bank Ltd., Bangladesh Bank Library and Newspaper etc.
were the major sources of secondary data.
1.6 Limitations The main problem faced in preparing the paper was the inadequacy and lack of availability of
required data. There is some limitation for preparing this report. These barriers, which hinder my
work, are as follows:
This paper has focused on the most sensitive part of the organization. So the bank
authority hesitated to disclose important information to maintain business secrecy.
Only 3 months time is not enough to complete such a study in a well-structured way.
As we are working on a recent topic enough data is not available and very few articles
have been published.
With all of this limitation I tried my best to make this report as best as possible. So readers are
requested to consider these limitations while reading and justifying any part of my study.
1.7 Timeline
Sep 16,2012 Orientation
Sep 17-20, 2012 General Banking
Sep 23- Nov09, 2012 Foreign Trade
Nov 10-15, 2012 Credit & advance
Nov 16, 2012 Proposal submission & report on organization
Nov 17-20, 2012 Collection of data
Nov 20-22, 2012 Analysis of data & Draft submission
Nov 23-28, 2012 Data interpretation & preparation of final report
4
2. Literature Review Letter of credit (also documentary credit, or more formally documentary letter of credit,
hereinafter L/C) is a well-known payment method in international trade. This instrument has two
fundamental principles: the autonomy or independence principle and the doctrine of strict
compliance. Such principles intending to facilitate international transactions make L/C easy to be
abused by fraudsters. Traders from developing countries who are lack of sufficient experience
and knowledge in L/C transactions are often the targets of L/C fraud (Xiaorong and Ruiping,
2005). The Executive Director of the ICC Commercial Crime Services, Pottengal (2009)
emphasised that L/C fraud in international transactions has become increasingly complex and
new schemes have developed. Each year traders or banks lose huge amounts of money due to
international L/C fraud.
Early available texts, like Mead (1922), make fewer distinctions between the kinds of letters of
credit. Giving more details of the types of L/Cs, in his eminent and long standing work, King
(2001) explains the types of credit by also making a classification, referencing the obligations of
the banks (revocable versus irrevocable) to the method of payment (sight, deferred, acceptance,
negotiation), and to other specific features of the credit (transferable, revolving, back-to-back, red
clause[anticipatory], standby, open or special), as well as to the manner in which the credit is
issued and to other classifications.
After the classification, it is also emphasized by King (2001) that the many descriptions today
haveh no exactness of meaning. There is no point in giving labels to credits unless the labels are
of universal application and are reasonably descriptive of the credit to which they are attached.
Another book by Bhogal and Trivedi (2008) makes the following classification: clean letter of
credit, documentary letter of credit, circular or traveler letter of credit, revocable letter of credit,
irrevocable letter of credit, irrevocable confirmed letter of credit, revolving letter of credit, red
clause letter of credit, transferable letter of credit, transferable credit – limitations, back-to-back
letter of credit, deferred payment letter of credit, standby letter of credit, skeleton letter of credit,
omnibus letter of credit, straight letter of credit.
Bishop (2004) classifies the credits as follows: revolving credit, installment credit, red clause
credit, green clause credit, the advance payment credit, transferable credit, back-to-back credit,
part payment credit. He also adds that, as a method of payment, this instrument has no equal; it is
completely flexible, versatile and accepted universally. Although it is only a conditional
5
guarantee, its value to an exporter, who is facing the risks involved in trading with a foreign
country, is undoubted. In essence, the documentary credit is an undertaking given by a bank (the
issuing bank) on behalf of its customer (the applicant) to make payments to a named exporter (the
beneficiary) upon the presentation of the stipulated documents relating to the supply of goods or
services.
In addition to that complexity of the standard L/C applications, there is one more issue which
only a small portion of the L/C practitioners are aware of. The matter is related with the L/Cs
issued by corporate institutions. In the L/C world, there is a question which is raised of whether
an L/C may be issued and handled by a non-bank corporation. Although the matter is somewhat
marginal, the subject is becoming more important since the world’s financial deregulation is
gradually deteriorating the barriers between different categories of business, financial
organizations and instruments.
The rationale behind using the classic letters of credit is well explained and documented; the
exporter is not satisfied with the reputation of a foreign buyer, credit reports are usually sketchy,
without full information. When the buyer is a midsized company, which is not known
internationally, then this is another tackle. The risk level and financial position of the country also
might be in question. At the end, it is clear that, through L/C, a bank substitutes its own
commitment to pay for that of its customer, that is, the buyer (Venedikian and Warfield, 2000).
The final point is that a “letter of credit” is a bank guarantee of the buyer. This cliche´ is like a
rule in every L/C practitioner’s mind.
As Palmer (1999) emphasized, the promise to pay under a letter of credit and a guarantee are only
worth as much as the worth of the bank giving them. That led to the inevitable link between trade
finance as an industry and bank risk analysis in the emerging markets. When the issuing party is
not a bank then this guarantee is only worth as much as the worth of the party giving it.
Fraud prevention and detection must operate hand in hand (AICPA, 2009). To prevent fraud
measures to reduce motivation, limit chances and restrict the ability of offenders to commit fraud
have to be taken (AICPA, 2009). Proactive fraud prevention has to be conducted, and it covers
good division of responsibilities, supervision of staff, monitoring work performance, and all those
measures intended to ensure dishonest people cannot access the system, or even if the systemis
accessed that a proper control is in place (COSO, 2004). Further factors that help to prevent fraud
can be anti-fraud policies, procedures, training and fraud awareness (Naill, 2006). Nevertheless,
6
preventive measures may require some investment in advance and cannot provide complete
protection.
It can be criticised as being impractical for banks to check the authenticity of any documents or
the signatures on such documents, due to the large number of shipping companies and agents in
the world and the vast number of documents presented to banks in L/C transactions. It is also
doubtful whether a safeguard can be provided as expected, even if the paying bank conducted
some investigation, because it may be possible for the paying bank to check the existence of the
ship and the seller, but it may not be possible to determine whether the goods were loaded on that
ship and the nature or quality of the goods (UNCTAD Report, 1983). Thus, it was further
suggested that banks carry out investigations on some documents on an ad hoc basis; but such an
approach did not seem to be a satisfactory answer (UNCTAD Report, 1983).
3. Working report on BASIC Bank I have joined BASIC Bank, Gulshan Branch at 16th September, 2012 as an intern. After joining BASIC Bank I worked in three departments. These are,
General banking Foreign exchange Credit and advance.
In general banking department I learnt how to open a bank account, writing a payorder, issuing a check book. Here I came to know about the general service and products available in BASIC Bank.
As my topic of internship report is related to Foreign Exchange Department, I worked here for the longest period. Firstly I worked at import section. Here I came to know about Letter of Credit (L/C). I learned the procedure of issuing a L/C, the payment procedure against the L/C .
Then I worked at export department. Here I came to know about Back to Back L/C, issued EXP, advised L/C, created loan against Back to Back L/C, realized the loan payment, issued reminder for bank due to overdue.
At last I worked on Credit and Advance or few days, where I learnt the procedure for giving loan to the client.
I have tried to discuss these points more elaborately later on the following repot.
7
4.1 Background of the Bank Bank of Small Industries and Commerce Bangladesh Limited (BASIC) is a banking company
registered under the Companies Act 1913. It was incorporated under this Act on the 2nd of
August, 1988. The bank started its operation from the 21st of January, 1989. It is governed by the
banking Companies Act 1991. The bank was established as the policy makers of the country felt
the urgency for a bank in the private sector for financing Small Scale Industries (SSIs). The
government of Bangladesh took over 100 percent ownership of BASIC on 4th June 1992. Thus
the bank is state-owned. However the Bank is not nationalized; it operates like a private bank as
before.
BASIC is unique in its objectives. It is a blend of development and commercial banks. The
Memorandum and Articles of Association of the Bank stipulate that 50 percent of loanable funds
shall be invested in small and cottage industries sector.
BASIC Bank is operated by a team of skilled highly qualified, experienced and enthusiastic
working forces headed by the well conversant Managing Director of the Bank who has about
three decades prolong close attachment in different horizon of Banking.
4.2 Capital Position
Authorized capital Tk. 5000.00 million Paid up capital Tk. 2357.59 million Total Reserve and Surplus up to 31.12.2011
Tk. 3124.17 million
The Bank is required to transfer 20 percent of its net profit before Tax to Capital Fund as per the Banking Companies Act 1991.
8
4.3 Functions The Bank Offers:
Term loans to industries especially to small-scale enterprises.
Full-fledged commercial banking service including collection of deposit, short term trade
finance, working capital finance in processing and manufacturing units and financing and
facilitating international trade.
Technical support to Small Scale Industries (SSIs) in order to enable them to run their
enterprises successfully.
Micro credit to the urban poor through linkage with Non- Government Organizations
(NGOs) with a view to facilitating their access to the formal financial market for the
mobilization of resources.
In order to perform the above tasks, BASIC Bank works closely with its clients, the regulatory
authorities, the shareholders (GOB), banks and other financial institutions.
4.4 Organization Strategy Financing establishment of small units of industries and business and facilitate their growth
Small Balance Sheet size composed of quality assets.
Steady and sustainable growth.
Investment in a cautious way.
Adoption of new banking technology.
To employ funds for profitable purposes in various fields with special emphasis on
small scale industries.
To undertake project promotion on identify profitable areas of investment.
To search for newer avenues for investment and develop new products to suit such
needs.
To establish linkage with other institutions which are engaged in financing micro
enterprises.
To cooperate and collaborate with institutions entrusted with the responsibility of
promoting and aiding SSI sector.
9
4.5 Objectives of the BASIC Bank As mentioned earlier, BASIC’s priority is in promoting and financing development of
small and cottage industries.
Besides, the Bank is to provide full range of commercial banking services including
collection of deposits, such as current, savings, STD, and FDR; short term trade
finance, handling of import and export business.
BASIC offers Micro credit to the urban poor through linkage with NGO’s with a view
to facilitating their access to the formal financial market.
4.6 Organization Goals BASIC Bank is always ready to maintain the highest quality of services by upgrading banking
technology prudence in management and by applying high standard of business ethics through its
established commitment and heritage. Among many goals of BASIC Bank, one of them is to
maximize profit through optimum utilization of resources by providing best customers service.
4.9 Orientation of BASIC Bank Limited (Gulshan Branch)
BASIC Bank Limited, Gulshan Branch is located in 112, Gulshan Avenue, Gulshan, Dhaka-
1212. The branch consists three divisions (General Banking, Loans and Advances and Foreign
Exchange) and I worked in Foreign Exchange division. The In-charge of the branch is Deputy
General Manager and the lower rank is assistant officer
10
4.10 At a Glance of BASIC Bank Limited NAME BASIC BANK LIMITED
Registered office Bana Shilpa Bhaban 73, Motijeel Commercial Area Dhaka-1000, Bangladesh.
Head Office Sena Kalyan Bhaban(6th floor) 195, , Motijeel Commercial Area Dhaka-1000, Bangladesh.
Logo
Name of the chairman of the Board
Mr. Sheikh Abdul Hye Bacchu
Name of Managing Director Mr. Kazi Faqurul Islam
Number of Branches 56
Services provided Deposit scheme, Credit facility and foreign exchange services
Banking software used CASTLETM
Technology used Member of SWIFT
E-Mail [email protected]
Website www.basicbanklimited.com
SWIFT BKSIBDDH
Number of Authorized Dealer 15
Table 1: At a Glance of BASIC Bank Limited.
11
5.1Role of BASIC Bank Ltd. in Foreign Trade
Financing Activities BASIC BANK LIMITED operates foreign trade through its branches. To operate foreign trade
business effectively and efficiently, the Bank is developing day by day with a wide network of
correspondents throughout the world. BASIC BANK LIMITED is equipped with all modern
technology & provides following international banking services.
Plays a vital role in import, export and other foreign trade in the country.
Provides fastest service to the exporter and importer through its SWIFT service.
Offers competitive price for importers and exporters.
Provides support to the exporter and importer by extending working capital, pre-shipment,
post shipment facilities.
5.2 Regulation of Foreign Trade Local Our foreign trade transactions are being controlled by the following rules & regulation:
Foreign Exchange Regulation Act 1947.
Bangladesh Bank issues foreign trade circular from time to time to control the export,
import & remittance business.
Ministries of commerce issues export & import policy giving basic formalities for import
& export business.
Sometime CCI&E issues public notice for any kind of change in foreign trade transaction.
Bangladesh bank published two volumes in 1996. This is compilation of the instructions
to be followed by the authorized dealers in transitions relation to foreign exchange.
12
International
There are also some international organizations, influencing our foreign trade transactions. Few
of them are discussed below:
International chamber of commerce (ICC) is a world non- government organization of
thousands of companies. ICC issues some publications like UCPDC, URC, and URR etc.
which are being following by all the member of countries.
World trade organization (WTO) is another international trade organization. General
agreement on tariff and trade (GATT) was established in 1984, after third completion of
its eight rounds, the organization has been abolished and replaced by W.T.O. thus
organization play the vital role in international trade, through its 124 member countries
5.3 The most commonly used documents in
foreign Trade Operations Letter of credit
Bill of exchange
Bill of lading
Commercial invoice
Pro- forma invoice
Certificate of origin of goods
Inspection certificate
Packing list
Insurance Policy
Dock Receipt
Clean report of finding or CRF
13
5.4 Foreign Trade Department of BASIC BANK LIMITED
Foreign Trade means exchange of foreign currency for the trade purpose between two countries.
In other words, Foreign trade deals foreign financial transactions related to trade or business.
Foreign Trade Department has two sections. They are-
Import
Export
Remittance
5.4.1 Import Import of goods from outside Bangladesh is regulated by the Ministry of Commerce in
accordance with Import & Export (Control) Act, 1950 and the notification issued there under. In
terms of the importers, Exporters & indenters (Registration) order, 1981 no person can import
goods into Bangladesh unless he is registered with the Chief Controller of Import & Export
(CCI&E) or Exempted from the provision of the said order. When buying goods from overseas
suppliers, the clients will wish to receive the goods as ordered in the right quantity, on time and at
the designated place. They will also wish to make payments only after receipt of the required
documents including the title of goods. BASIC BANK LIMITED can solve their needs by issuing
a documentary credit on their behalf named letter of credit. By using a Letter of Credit, the bank
will only make payment after receipt of titles and other documents that should fully comply with
the terms of the credit. The clients can enjoy a safer and cheaper alternative to making advance
payment or deposits.
14
5.4.1.1 Procedure of Import Operations of the Bank
Procedures those are followed by the BASIC BANK LIMITED are as follows:
Know the Customers: As LC or Letter of Credit means the banks guaranty to the exporter from
the importer that, they will pay properly to the exporter after receiving the proper goods and
related documents. When, a new applicant comes to the bank for opening LC after the agreement
between applicant (Importer) and seller (Exporter) about terms and condition then the bankers try
to know the information i.e. whether he is honest or not, what is his background, what is the type
of his business, etc
L/C Issuing: This is the first terms to import issuing the L/C. For opening L/C is contain a
required documents which is given below:
L/C application form which contains the details about applicant and beneficiary.
IMP form is containing H.S code (Harmonize system code), it implies to categories of
product. Quantity of goods, Invoice value, Registration no. of L/C authorization form with
Bangladesh Bank Registration unit. And the carrier name like air or boat and other terms
and conditions.
LCA form (Letter of credit authorization) which includes different rules and regulation
about the imported items and imports.
Agreement form that includes details contract between the parties.
Charge Document
After complete all above mentioned appropriately then have to fulfill other papers and documents
with verify of the self signature and after that submit it to bank.
Fig: Advising a Letter OF Credit
Importer (L/C Applicant)
L/C Opening Bank
Application Issue L/C Advice
L/C Beneficiary L/C Advising Bank / Confirming Bank
15
CF-7 and LCAF (Letter of Credit Authorization Form): CF-7 is the form by which the
agreement between Bank and the Applicant is occurred. This is the application and agreement for
confirmed irrevocable without recourse to drawers’ letter of credit
LCAF (Letter of Credit Authorization Form) this is also an agreement form where some more
information about LC are placed, like- IRC Number, Year of Renewal, Source of Financing, List
of items and their HS(Harmonize System) Codes, etc.
Sending LC Opening Request to CPC (Central Processing Centre) & L/C Transmitting: As
I have mentioned it before that, the BASIC BANK LIMITED uses centralize system for the
purpose of opening L/C so the AD (Authorized Dealer) branches send the opening request of LC
after processing all the documents through e-mail. The AD branches calculate the margin,
commission, VAT, SWIFT charges, other charges, etc and place it in the mail. They also send the
scanned copy of the original documents with the mail. After getting the mail, the head of Foreign
Exchange in CPC confirm the LC information by talking with the in-charge of foreign exchange.
Then the CPC open and transmit the LC to-
First two copies sent to the advising bank original for beneficiary and second copy for
advising bank.
One copy to Head office.
One copy is sent to the importer
One copy is sent to the Bangladesh Bank
One copy is sent to the C.C.I.&E ( Chief controller of Imports and Exports)
One copy is retained as office copy.
Exporter receives the L/C through the advising bank. Receiving L/C, exporter produce the goods
as per the requirements and ships it before due date. If any amendment is required, exporter
contacts with the importer. If the importer agrees to do so, the issuing bank then amendment the
L/C.Amendment can be done for various reasons under the guideline of foreign exchange the
reason is given below:
Extension of date of shipment.
Extension of draft amount within L/C limit.
Change of specification of commodities, price or quantity to be imported.
16
After shipments of the goods, the exporters prepare the required documents and submit it to
advising bank for payment. Later than shipment, exporters submit the following documents for
negotiations.
Bill of exchange
Bill of Lading
Insurance policy
Inspection certificate.
Commercial invoice
Packing list
Clean Report of Findings or CRF.
The advising bank carefully checks the documents provided by the exporter against the credit,
and if the documents meet all the requirement of the credit, then the bank will arrange to make
payment against L/C and will send the importer the document arrival notice.
Lodgment: Lodgment means payment of import bills or transfer of funds for import bills. Here
L/C issuing bank will arrange to make payment against L/C through reimbursement bank or any
other way. Through SWIFT a telex message is transmitted to the advising bank ensuring that
payment has made. After scrutinizing the import-negotiating document, if no discrepancy is
found then it treated to be accepted after the end of five banking days for the day of receipt of the
document.
But if there is any discrepancy in the documents, then the BASIC BANK LIMITED send
message to the importers about the discrepancy. The common discrepancies are- late presentation
of the documents, mismatch between pro-forma invoice and commercial invoice, etc. If there is
no discrepancy in the documents, then the payment of the LC must be made to the exporter
within 5 days after receiving of the documents.Steps involved in lodgment,
At first all the particulars of the document are entered in BLC (Bill under letter of credit)
register BLC no. seal is given on all the copies of the document.
Convert the foreign currency into Bangladeshi currency.
Prepare the lodgment voucher.
Send IBCA to the head office.
17
Entry is made to L/C monitoring cell of Bangladesh Bank through its website.
Retirement of Documents: After lodgment the issuing bank will send the importer intimation.
On intimation the importer calls on the bank’s counter requesting retirement of the shipping
documents against payment to the debit of their account by the bill amount and other charges
payable.
Steps involved in retirement are:
Calculation of interest if any.
Entry in the register.
Endorsement is made on the back of the bill of exchange as received payment.
Release the Shipment from the Port: BASIC BANK LIMITED arranges all the documents
properly and endorses them for the shipment. The importer also need clearance certificate from
the bank. And the bank will give clearance after getting the Bill Of Entry, which shows the
shipment has really entered in Bangladesh. In this way the importer get clearance from bank and
can release the shipment.
5.4.1.2 Graphical Analysis of Import Business of BASIC BANK LIMITED:
Particulars 2011 2010 2009 2008
Import Business
(figure in million
taka)
47087.80
42205.90
33976.60
27359.77
Analysis: Table is showing the import
business income statement from 2008
to 2011. The import is gradually up
rising. From the table we see that
export increased from 2008 to 2011.
18
5.4.2 Export
Generally the goods and services sold by Bangladesh to foreign households, businessmen and
Government are called export. The export trade of the country is regulated by the imports and
Exports (control) Act, 1950. The exports from Bangladesh are subject to export trade control
exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (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 Export Registration Certificate (ERC). The
ERC is required to renew ever year. The ERC number is to be incorporated on EXP forms and
other documents connected with exports.
5.4.2.1 Procedure of Export Operations of the Bank
Procedures those are followed by the BASIC BANK LIMITED are as follows:
Export Permit Form (EXP): After having the registration, the exporter applies to get EXP from
bank. If the bank is satisfied, an EXP is issued to the exporter.
Securing Export Order: To secure export order the exporters may contact local chamber
commerce of potential buyers, the export promotion bureau, After successful negotiation on
price, specification, quality etc. exporter (seller) accepts the order from importer (buyer). Both the
parties agree on terms and conditions of the sale. Indent Invoice is the outcome of the agreement
between exporter and importer. This is prepared by the exporter.
Receiving Letter of Credit: After making contract the issuing bank prepares a Letter of Credit
including all instructions concerning the shipment and sends the LC to the exporter's bank or
BASIC BANK LIMITED, requesting the confirmation. Then the exporters receive Letter of
Credit through BASIC BANK LIMITED
Advising L/C: When export L/C is transmitted to the bank for advising, the bank sends an
advising letter to the beneficiary show that, L/C has been issued.
Shipment of Goods: While shipment and after shipment the exporter should obtain or prepare
the following documents:
EXP Form
Photocopy of registration certificate
19
Photocopy of the contract
Photocopy of the L/C
Freight certificate from the bank in case of payment of the freight at the port of lading is
involved.
Bill of Lading, Railway receipt, Postal receipt, Air way bill or Truck receipt
Packing list
Certificate of origin
Shipping instructions
Insurance policy.
Graphically: (source: previous report)
OR
BUYER/ IMPORTER
SELLER/ EXPORTER/
BENEFICIARY
INDENTOR
Pres
ent D
ocum
ent
ISSUING BANK
ADVISING BANK/ NEGOTIATING
BANK
Adv
ises
and
/or
conf
irm
s L
/c
Issue L/C
Forward Document
Makes Payment
Instruction to Pay or Reimburse
REIMBURSING BANK
Subm
it D
ocum
ents
Mak
es P
aym
ent
Makes Paym
ent against D
ocument
20
The exporter then presents the documents to the BASIC BANK LIMITED, informing full
compliance with terms and conditions of LC. Then the bank reviews the documents carefully so
that no discrepancy can be occurred. If they are in order, the documents are airmailed to the
issuing bank for review and passing necessary documents to buyer. The importer gets the
documents needed to claim the goods.
Some common discrepancies in export documents:
Delay of goods shipment from the date declared in LC.
Delay of document submission from the expiry date of LC.
Consignee/ notify party differ from the party in LC.
FCR presented instead of Bill of Lading.
Bill of Lading shows “freight collect” instead of “freight prepaid”.
‘Shipped on board’ not marked on the Bill of Lading.
Description of the goods differs from the LC.
Unit price differ from the LC.
Pre-shipment inspection certificate absent.
Certificate does not cover credit terms.
Certificate not signed by authorized person.
Not showing inspection of the goods at named place.
Telex acknowledging receipt and giving acceptance on sample, not presented etc.
Payment Receiving Process:
If there is no discrepancy in the documents that have sent to the issuing bank then the issuing
bank returns accepted draft and informs the importer about arrival of the documents. Then the
importer pays to his bank. This payment should be made within 5 days after the arrival of the
documents. Then the BASIC BANK LIMITED has to issue Proceed Realization Certificate
(PRC) of export LC to the exporter for getting cash assistance. Thus, the collection procedure of
payment is made.
5.4.2.2 Export Finance Instruments at BASIC BANK LIMITED
BASIC BANK LIMITED advances in export trade at both pre-shipment and post-shipment
shipment stages. The pre-shipment facilities are usually required to finance the costs to execute
21
export orders, such as: procuring & processing of raw materials, packaging and transportation,
payment of various fees and charges including insurance premium etc. While post-shipment
facilities are directed to finance exporter’s various requirements, which are required to be settled
immediately on the back drop that usually, settlement of export proceeds takes some time to
complete.
Pre-Shipment Credit: Pre-shipment credit is given to the exporters, for the activities prior to
shipment of goods for export. Some example of Pre-shipment credit: Cash for local procurement
of raw materials and its related expenses, Procuring & Processing of goods for export, Packing
and transportation of goods for export, Payment of insurance premium, Inspection fees, Freight
charges etc.
Pre-Shipment Credits are in following Forms:
Short term loan (STL
Packing Credit(PC
Back to Back Letter of Credit:
Among them Back to Back L/C is a type of pre shipment finance by way of opening L/C in
favor of a local or foreign supplier for purchase of raw materials or the finished merchandise,
as the case may be, to execute export order. Under this arrangement bank finance exporters by
way of issuing back to back letter credit on behalf of exporter for procurement of raw
materials and accessories favoring the manufacturer/supplier home and abroad against lien of
export LC and collateral security. The benefit of a L/C (the Master L/C) may be made
available to a third party where the primary beneficiary uses the master L/C as security
collateral to obtain another L/C (the secondary credit) in favor of the actual supplier. The
secondary credit is known as back-to-back L/C.
A Back-to-Back L/C involves two separate L/C.
One opened in favor of the first or primary beneficiary, and
One opened for the account of the first beneficiary in favor of a second beneficiary who is
supplying the goods.
The first beneficiary of the Master L/C becomes the applicant for the back-to back L/C. Back-to-
Back L/C is commonly known as Buying L/C, whereas Master Export L/C is known as Selling
22
L/C. What percent of export L/C’s value is permitted to open a back-to-back L/C its depend upon
the nature of the goods and getting information from the commerce ministry.
Fig: Shows the Back to Back Credit Procedure
Post-Shipment Finance:Usually the exporter cannot afford to wait for a long time for payment
to local Manufacturer / supplier and other financial obligations. Resulting which the exporters
need post shipment credit facility. Some Form of Post-Shipment Credit Facility are-
Negotiation of Documents under LC
Purchase of Bills
Advance against Bills for Collection
Export Development Fund (EDF)
23
5.4.2.3 Graphical analysis of Export Business Of BASIC BANK LIMITED
(Figure in million taka)
Particulars 2011 2010 2009 2008
Export Business 33061.10 23998.80 19887.70 22270.87
Analysis:
Table is showing the export business
income statement from 2008 to 2011. This
amount is less then Import business. But the
export business in gradually up rising. Here
the export is gradually up rising. From the
table we see that export increased from
2008 to 2011, but in 2009 in decreased due
to global recession.
5.4.3 Foreign Remittance
BASIC Bank is the member of Money Gram and SWIFT networks. Using these services of this
global network, non-resident Bangladesh nationals can send money from abroad to their home
country within a few minutes without any risk.
24
6.1 Overview The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in
a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In other words,
credit is the ability to command goods or services of another in return for promise to pay such
goods or services at some specified time in the future. For a bank, it is the main source of profit
and on the other hand, the wrong use of credit would bring disaster not only for the bank but also
for the economy as a whole.
6.2 Credit Policy of BASIC BANK LIMITED One of the most important ways, a bank can make sure that its loan meet organizational and
regulatory standards and they are profitable is to establish a loan policy. Such a policy gives loan
management a specific guideline in making individual loans decisions and in shaping the bank’s
overall loan portfolio. In Basic bank limited there is perhaps a credit policy but there is no credit
written policy. 6.3 Types of loans and advances offered by
BASIC Bank
The making of loan and advance is always profitable to a bank. The BASIC Bank Limited has
made so far efficient use of the deposit and has the classified rates under control. The Bank
disburses loan in different form.
Classification of Advance, Commercial and Industrial Credit:
1. Industrial Credit Scheme.
25
2. Micro Credit Scheme for the poor.
3. Commercial credit.
6.3.1 Industrial Credit Scheme
BASIC Bank Ltd is providing short, medium and long term loans and other financial assistance
for promotion of industrial sectors. The Memorandum and Articles of Association of the bank
stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector.
Thus the bank’s priority remains with promoting and financing small scale industries in the
country.
6.3.2 Micro Credit Scheme for the poor
The board of Directors of BASIC Bank in pursuance of the objectives of the Bank and
recognizing the need for helping the low income people formulated Micro Credit Scheme for the
poor.
6.3.3 Commercial Credit
Overdraft (OD)
Cash Credit (CC):
Loan (General):
Bills Portfolio:
Term Loan:
Letter of Credit:
Back to Back Letter of Credit:
Export Cash Credit:
Local Bill Purchase (LBP):
Payment Against Documents (PAD):
Loan trust receipt (LTR):
Foreign Bill Purchase (FBP):
26
6.4 Documentation of the Loan
Demand promissory note: Here the borrower promises to pay the loan as and when
demand by bank to repay the loan.
Letter of arrangement.
Letter of continuity.
Letter of hypothecation of goods and capital machinery.
Stock report: This report is used for OD and CC. In this report, information about the
quality and quantity of goods hypothecated is furnished.
Memorandum of deposit of title deed of property duly signed by the owners of the
property with resolution of Board of Directors of the company owning the landed.
Personal guarantee of the owners of the property.
Guarantee of all the directors of the company.
Resolution of the board of directors to borrow fund to execute documents and completes
other formalities
Form no. XVII/XIX for filling charges with the register of joint stock companies under
relevant section.
Letter of Revival
Letter of lien for advance against FDR.
6.5 Security against Advances The different types of securities that may be offered to a banker are as follows:
(a) Immovable property
(b) Movable property:
Pratiraksha Sanchaya Patra, Bangladesh Sanchaya Patra, ICB unit certificate, wage earner
development bond.
Fixed Deposit Receipt
Shares quoted in the Dhaka Stock Exchange and Chittagong Stock Exchange.
Pledge of goods
27
Hypothecation of goods, produce and machinery
Fixed assets of manufacturing unit.
Shipping documents.
6.6 Credit Monitoring and Review It is the last step in credit policy and procedure framework of BASIC BANK LIMITED. Credit
monitoring and review is very important, because it ensures proper utilities and repayment of
bank fund. Credit monitoring and review feature of BASIC BANK LIMITED is concerned was
assessing the quality of different type of loan.
Periodic review and follow up should, inter-alia aims at ensuring:
That conduct (Turnover, regularity of repayment etc) of the borrowing accounts during
the period under review has been satisfactory or as expected.
The account is not having excess over limit
The terms and condition of the sanctioned letter are strictly followed.
The value of the collateral security is adequate.
There is not any unfavorable situation in market, economy and political conditions, which
may endanger the reliability of the borrower account.
The analysis of the borrowers business performance and comparison of the projected and
actual to find any deviations.
28
6.7 Procedure for getting approval of a loan The following procedure is applicable for giving loans to the customer.
Duly filled-up First Information Sheet (FIS)
Application for Credit Line
Collecting CIB report from BB.
Making Credit Line Proposal
Project Appraisal
Head Office Approval
Sanction Letter
Documentation
Disbursement
Monitoring and Follow-Up
29
7.1 What is Hallmark scam?
Hallmark is the recent largest banking scam in Bangladesh, which occurred due to regulatory
inefficiency of commercial banking sectors. It is a pointer to the fact that if you do not tighten the
regulatory belt of the banks, serious problems could creep in. Source suggests, this particular
business house is assumed to have resorted to fraudulent loan. A fraudulent loan is one in which
the borrower is a business entity controlled by a dishonest bank officer or an accomplice; the
“borrower” then declares bankruptcy or vanishes and the money is gone. The borrower may even
be a non-existent entity and the loan merely an artifice to conceal a theft of a large sum of money
from the bank. This can also be seen as a component within mortgage fraud. However, it is being
assumed that Hallmark has embezzled an awesome amount of TK 300-400 billion through fake
and fictious documents from a particular branch of Sonali Bank at Ruposhi Bangla Hotel.
Ruposhi Bangla Hotel branch of Sonali Bank responsible for illegally disbursing a loan of Tk
2,686.14 crore to Hallmark Group .Shonali Bank’s Ruposhi Bangla Hotel’s branch showing fake
documents from the bank. The forgery of the Hall Mark Group in the Ruposhi Bangla Branch of
Sonali Bank was going on for two years now and the illegalities were first detected in three
branches by a GM in January 2012. The recommended inspection although orally approved by
the MD in January could not be started until April allegedly due to resistance of a DMD. The
manager of Ruposhi Bangla branch was to be transferred in the normal process two years ago but
stayed on until recently to perhaps facilitate the Hall-Mark Group forgery; his extension could not
have been without the explicit consent of the top management of Sonali Bank. Whatever plea
may be cited, top management of Sonali Bank is primarily and mainly responsible for the Hall-
Mark Fraud. If it was under duress from its Board or the powerful politicians, an MD or DMD
worth her / his salt should have handled it firmly within the framework of law unless she / he was
a party to the loot. On paper, the Board of the bank is responsible for policy formulation and the
management headed by the MD is responsible for managing the affairs of the bank under the law,
rules, regulations and policy decided upon by the Board. Thus the Board's liability is of
secondary order.
30
7.2 How hallmark scam occurred
Hallmark scam mainly occurred due to fake documentation and influence of the higher
authorities of the Shonali bank Ruposhi Bnagla Branch. Generally an Importer( applicant) opens
a L/C against a Proforma invoice, than importer collect document from the exporter and submit it
to the bank. After receiving document bank issue an acceptances to the exporters bank. On the
other hand exporter submit this master L/C to the bank and open an back to back L/C. It is a type
of pre shipment finance by way of opening L/C in favor of a local or foreign supplier for
purchase of raw materials or the finished merchandise to execute export order. The benefit of a
L/C (the Master L/C) may be made available to a third party where the primary beneficiary uses
the master L/C as security collateral to obtain another L/C (the secondary credit) in favor of the
actual supplier. The first beneficiary of the Master L/C becomes the applicant for the back-to
back L/C. On the basis of acceptances and proper document advising bank of back to back LC
provide 50% to 80% loan to its beneficiary. The Bank issuing Back to Back LC will obtain
repayment through the master credit which is deposited to the issuing Bank of the Back to Back
LC.
In the case of Hallmark scam, Hallmark group created fake companies as an applicant and open
Back to Back LC in Sonali Bank by not submitting any master LC through the influence of the
higher authorities. They also submitted fake documents of 47acers of land as mortgage.
Beneficiary of back to back LC took loan from his bank against this LC. But as Sonali Bank
didn’t have any master LC or any other security they could not repay their loan, even though they
gave acceptance.
In this way they took a loan of Tk 2,686.14 core from Shonali Bank, Ruposhi Bangla Branch.
This fraud was identified by Bangladesh Bank audit. Then it came to our media on July 2012.
31
7.3 Impact on our Economy
Usually, banks collect money from depositors and provide loan to business entities and other
borrowers. After this huge Sonali Bank scam common people might lose their trust in the banks.
They will not find it secure to keep their money in the banks. Many of them may even be tempted
to withdraw their deposits in fear of a collapse of the banking sector like the share market
collapse. If common people shy away from the banks this may cause shortfall of money in our
banking sector as well as other financial sectors like investment, trade and commerce. If people
withdraw money from banks then entrepreneurs would not get money from banks to invest in
productive sectors. Since banks are very important institutions in financial intermediation in
economic activities, the lack of trust in banks has a pervasive effect on the whole economy.
Confidence of the International Institution is decreasing. As a result we are suffering from
insufficient investment.
Thousands of workers of hallmark group have lost their jobs and passing hard time for their
livings .(14th nov, newage)
7.4 Changes in Regulation due to hallmark scam
1. Tax is implied over local L/c after hallmarks scams.
2. Most of the commercial banks are now maintaining a ‘cautious policy’ in purchasing
inland bills.
3. They are putting emphasis on the enforced regulation
4. Now a days one banking staff must inspect the inventory of the applicant company
5. Internal audit has been increased
6. Documentation has been increased
7. Regulation has been made to transfer each employee after a certain period
8. Inspection of Bangladesh bank has been increased.
32
8.1 Recommendation In the backdrop of one of the worst banking scandals, the following steps may be considered:
1. Those who are in charge of economic management may adopt the golden rule of "speak
less do more" and "if talk do it in one voice;"
3. The monitoring system of Bangladesh Bank should be strengthened further and its audit
and inspection teams should be empowered to work independently
4. People who have experiences in finance, economics, management of financial institutions
and people who are not involved directly in politics, not loan defaulters, and people with
honesty and integrity, should be nominated to the Boards of all the state owned banks as
well as in the private banks.
5. The regular audit teams, special audit teams, and supervision teams of all the government,
non-government and specialized banks should be trained to be better skilled. Banks
should hire independent external auditors to get better insights into the state of affairs of
all the banks in Bangladesh.
6. Significant reforms are necessary in financial and banking management which, have been
long overdue. Finance and banking reforms commission may be set up;
7. Duties, responsibilities and powers of the Board and the management of a bank must be
clearly delineated and enforced.
8.2 Findings of the study After Hallmark scam Bangladesh Bank issued an order to banks, before sanctioning any loan bank should justify the submitted documents or securities physically. But in reality bank does not take any step yet.
33
8.3 Conclusion From the practical implementation of customer dealing procedure during the whole period of my
practical orientation in BASIC Bank Limited I have reached a firm and concrete conclusion in a
very confident way. I believe that my realization will be in harmony with most of the banking
thinkers. It is quite evident that to build up an effective and efficient banking system to the
highest desire level computerized transaction is necessary condition but not the sufficient
condition. For proper functioning of the banking systems, corporate governance is desired at
highest level.
Reviewing the report and from the experience of the three months with the bank under internship
program. I can say that BASIC Bank Limited, is a potential and promising bank in the banking
sector in Bangladesh. As desired, its functions and activities in the economy are being aligned
with the objectives set by the Government of Bangladesh since its inception.
After getting Authorized Dealer’s license from the authority of Government of Bangladesh,
BASIC Bank Limited finds Customer Relationship Management as a profitable and challenging
business. Though, income from loans and advance shows the highest amount/percentage of total
income, some loans and advances are indirectly created from foreign exchange section, such as
PAD, LTR, Local Documentary Bills Purchased (LDBP), Foreign Documentary bills Purchased
(FDBP) which shows high level of income generating avenues from BASIC Bank Limited.
Banking business is a business of trust. Public deposit their savings in banks assuming that the
banks would protect their savings through productive lending. A scam of Hallmark kind could
have triggered panic among depositors leading to a herd-like withdrawal of deposited money
from the institutions concerned.
The party of the power has to take the scam seriously lest the scam affects its popularity in the
eyes of the public who voted them into power. The Government has not created the scam but
generally it is the government who gets the blame from the public for this kind of scam. Finally,
the central bank should further strengthen its supervision and monitoring divisions.
34
References
AICPA (2009), “The basics of fraud risk management”, Business Brief, Vol. 1 No. 4, The American Institute of Certified Public Accountants, available at: http://fmcertre.aicpa.org/NR/rdonlyres/33E55856-1A41-4D02-BBA8 CD5B51724E4C/0/Fraud_Risk_Management_Business_Brief.pdf (accessed 28 April 2009).
Bhogal, T.S. and Trivedi, A.K. (2008), International Trade Finance A Pragmatic Approach, Palgrave Macmillan, New York, NY.
Bishop, E. (2004), Finance of International Trade, Elsevier Butterworth-Heinemann, Burlington, MA.
COSO (2004), Enterprise Risk Management – Integrated Framework: Application Techniques, The Committee of Sponsoring Organizations of the Treadway Commission, Jersey City, NJ, pp. 93-104.
King, R. (2001), Gutteridge and Megrah’s Law of Bankers’ Commercial Credits, Europe Publications, London.
Mead, C.A. (1922), “Documentary letters of credit”, Columbia Law Review, Vol. 22 No. 4,pp. 297-331.
Niall, C.F. (2006), “Corporate investigations”, Journal of Financial Crime, Vol. 13 No. 3, pp. 348, 365-366.
Palmer, H. (1999), International Trade and Pre-Export Finance: A Practitioner’s Guide,
Euromoney Institutional Investor PLC, London.
Pottengal, M. (2009), “Trade finance frauds”, Speech and Material in the 3rd Annual Conference on Letters of Credit, Organized by ICC Austria, Vienna, 14 May.
UNCTAD Report (1983), “Review and analysis of possible measures to minimize the occurrence of maritime fraud and piracy”, TD/B/C.4/AC.4/2, pp. 32-6 (para. 112, 21 September).
Venedikian, H.M. and Warfield, G. (2000), Trade Financing, Wiley, New York, NY.
Xiaorong, G. and Ruiping, N. (Eds) (2005), Research on Internationalization of Punitive Regulations on Financial Crimes, 1st ed., Law Press China, Peking, pp. 224 and 237.
35
Bibliography Ali, Syed Ashraf (1995), Foreign Exchange and Finance of Foreign Trade, First
Edition, Lita Academics, Dhaka
Annual Report of BASIC Bank Limited(Published-2011)
Bangladesh Chronical, Oct 10,2012.
Charulata.
Daily star, Aug 14,30, 2012.
Daily star, Sep 2-7,16, 2012.
Daily star, Oct 4,7, 2012.
Dhaka courier, Sep 14.2012.
Different reading materials of Bangladesh Institute of Bank Management, Dhaka
Export Policy’2010-2011
Export-Import (Control) Act’1950
Financial Express, Sep 3-5,29,30,2012
Financial Express, Oct 8 ,2012
Financial Express, Nov 09,2012
Guidelines for foreign exchange transaction of Bangladesh Bank (Volume 1 & 2).
Import Policy’2010-2011
Monthly Statement of BASIC Bank Limited.
New Age, Sep11,2012
UNB Connect, Sep 04,2012.
http://www.basicbankbd.com
http://www.bangladeshbank.com
36
Bank position at a glance
37
Concepts of Foreign trade Activities
Before discussing the Import and Export section of the bank, some concepts related to foreign
trade should be clarified. Important concepts of foreign trade as per UCPDC 600 are discussed
below:
Applicant/Opener/Importer/Buyer: All of these names are using for the same purpose.
Applicant means the party on whose request the credit is issued.
Opening Bank/Issuing Bank: A bank is issue credit on behalf of applicant to the opposite party.
Exporter/Seller/Beneficiary: Beneficiary means the party in whose favor a credit is issued.
Advising bank: It is the bank in the Exporter’s (Normally the exporter’s bank), which is usually
the foreign correspondent of Importer’s bank through which the L/C is advised to the supplier. If
the intermediary bank simply advises/notifies the L/C to the exporter without any obligation on
its part, it is called “Advising Bank”.
Conforming bank: If the Advising Bank also adds its own undertaking to honor the credit while
advising the same to the beneficiary, he becomes the Confirming Bank, in addition, becomes
liable to pay for documents in conformity with the L/C’s terms and conditions.
Negotiating bank: The bank that negotiates the bill of exporter drawn under the credit is known
as negotiating bank. If the advising bank is authorized to negotiate the bill drawn by the exporter
he becomes the negotiating bank.
Reimbursing bank: Sometimes a foreign bank does not really on the issuing bank because lack
of reorganizations that is why the foreign bank wants to support the other renowned bank’s.
When the other renowned bank to make sure the foreign bank to get back their payment through
the issuing bank, then it is called the reimbursing bank, for this guarantee the reimbursing bank
will get charges.
Letter of Credit: An undertaking by the bank to make payment to the seller subject to
submission of documents drawn in strict compliance with the stipulated terms giving title to
goods to the buyer/ bank.
38
Bill of exchange: A bill of exchange is an instrument in writing containing an unconditional
order sighted by the maker directing a carting person to pay a certain person sum of money only
to on to the instrument. Checking points of this document are:
The bill of exchange is drawn by the beneficiary as mentioned in the LC duly signed and
dated.
The amount is identical with the amount of Commercial Invoice.
The amount mentioned in figure and words are consistent.
The bill of exchange is in order and/or endorsed properly.
Bill of Lading: Bill of lading is the bill give given by the shipment company to the client. This
document serves as evidence of ownership of the goods being exported, and also specifies the
responsibilities of the transporting company. Checking points of this document are:
The Bill of Lading is issued/endorsed to the order of Negotiating Bank.
Bill of Lading is clean, showing “Shipped on Board” notation, marked ‘Freight
Prepaid” [For CFR Basis] and ‘Freight Collect” [For FOB Basis], not short form,
Blank back or pre dated.
The Bill of Lading appears the merchandise covers in Commercial Invoice.
The port of Shipment, Destination, Shipment Date, Name of consignee,
Shipping Mark [if any] appears on the Bill of Lading are as per LC term.
Bill of Lading is signed by the carrier company or his agent.
Commercial Invoice: A commercial invoice is document used in foreign trade. It is a document
required by customs to determine true value of the imported goods, for assessment of duties and
taxes. It clearly indicate the
1. Date and terms of sale,
2. Quantity, weight and/or volume of the shipment,
3. Type of packaging,
4. Complete description of goods,
5. Unit value and total value, and
6. Insurance, shipping and other charges. A commercial invoice must also include a
statement certifying that the invoice is true, and a signature.
39
Pro-forma Invoice: A pro-forma invoice is a document that states a commitment from the seller
to provide specified goods to the buyer at specific prices. It is often used to declare value for
customs.
Certificate of Origin of Goods: A Certificate of Origin is a document which states the country
where the goods were actually manufactured. In certain cases, all the goods may not originate
from one country. The raw materials and the processes may be from another country. In such
cases, if more than 50 per cent of the goods originate from one country, that country is
determined to be the country of origin. Checking points of this document are:
The Certificate is issued by the concerned authority of exporting country as stated in
the LC [usually such Certificates are issued by the Chamber of Commerce & Industry
of exporting country].
Beneficiary’s Certificate: The certificate issued by the beneficiary stating the particulars as
stated in the LC.
Inspection Certificate: A certificate of inspection is also called an inspection report or an
inspection certificate. It certifies that the goods meet the required specifications in terms of
quality and quantity when it left the port of departure. Checking points of this document are:
The Certificate is issued by the competent authority as approved for that country.
The Inspection Certificate can also be issued by the beneficiary/manufacturer if
allowed in the LC.
The Certificate is signed-sealed certificate the contents as required and issued prior to
shipment of the goods.
Packing List: This highly involved document provides a detailed description of the contents
being shipped. It covers the material in each individual package, providing information such as
individual net, legal, tare and gross weights and measurements for each package. Checking points
of this document are:
The Certificate is issued and prepared by the beneficiary as per instruction given in the
LC.
Insurance Policy: Some international transactions require the exporting firm to provide
insurance on the shipment.
40
Dock Receipt: This paper is the international carrier's acknowledgment that goods have been
received. It serves to transfer responsibility for those goods from the domestic to the international
carrier.
Clean report of finding or CRF: This is issued by the Pre Shipment Inspection Company wants
to inspect the quality and quantity of the goods is done before the shipment of the goods.
Concepts of credit activities:
Overdraft (OD): It is a continuous advance facility. By this agreement, the banker allows his
customer to overdraft his current account up to his credit limits sanctioned by the bank. The
interest is charged on the outstanding amount not on the sanctioned amount.
Cash Credit (CC): By this agreement, a banker allows his customer to borrow money up to a
certain limit. . BASIC Bank charges interest on the daily outstanding balance of the account.
Loan (General): It is given against personal guarantee, hypothecation of goods and land and
building.
Bills Portfolio: : Branch purchases demand bills of exchange that are called “Draft”
accompanied by documents of title to goods for a certain period maturing on a future date and not
payable on demand or sight.
Term Loan: BASIC Bank is advancing both short and medium term credit to the industrial
sector on the basis of their capital structure, constitution and liquidity consideration. It is given
against land and building along with machinery, personal guarantee of directors and
hypothecation of raw materials.
Export Cash Credit: Advance allowed as ash credit for processing goods for exports. The
advance is usually adjusted from export proceeds. The term PC (Packing Credit) is also used for
such advance.
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Local Bill Purchase (LBP): Advance allowed against bills drawn under an inland L/C opened
and accepted by a local bank. Such local L/C is usually opened as back to back L/C against
export L/C.
Payment against Documents (PAD): The bank that establishes the letter of credit is bound to
honor its commitment to pay for import bills when these are presented for payment. In fact, the
amount stands as advance to the importer, which is adjusted by delivery of documents against
payment or by allowing post import finance.
Loan trust receipt (LTR): Sporadically bank grants the importer to pay back the money after
seal the products. The goods are handed over to the importer under trust with the arrangement
that sale proceeds should be deposited to liquidate the advances within a given period. The
borrower agree to take delivery of the merchandise as the banks agents and the bank remains
owner of the goods and they will holding the goods on behalf of the bank as trustees until
complete repayment of the debts to the bank. Usually the loan is granted on the basis of trust and
is allowed 60-90 days time to make payment.
Foreign Bill Purchase (FBP): Post export credit allowed against export bills. If the bills are
drawn as per terms of the L/C, the bank purchases the same and pay equivalent amount of the bill
to the credit of the client’s account. The advance is adjusted on realization of export proceeds
through foreign agent.
