Internship Report on

Internship Report on

L/C Operation of

Janata Bank

Internship Report on

Career Plan and development

Submitted to

Mr. Md Moqbul Ahmed

Assistant Professor

Department of Management Information Systems

University of Dhaka

Dhaka

Prepared by

Mohammad Mohiuddin

SL No-15

MBA 2nd Batch

Department of Management Information Systems

University of Dhaka

Date of Submission

30th September 2006

Letter of Transmittal

30th September 2006

Moqbul Ahmed

Assistant Professor

Department of Management Information Systems

University of Dhaka

Dhaka

Dear Sir,

I hereby present the internship report entitled Career Plan and Development, which is an integral part of the MBA program.

I have tried my best to gather the most complete information available in order to prepare this report. I have prepared this report using the experience that I have gained during my internship. As you will see, my observations pointed out to the relevant information about Foreign Trade especially Letter of Credit.

I appreciate having this task. If you need any kind of assistance in interpreting this report or further explanation, I will be glad to provide it accordingly.

Sincerely yours,

Mohammad Mohiuddin

Sl No - 15

MBA Program 2nd Batch

Department of Management Information Systems

University of Dhaka

Table of Contents

ContentsPage No.

Executive SummaryVIII

INTRODUCTION TO THE INTERNSHIP REPORT

Origin of the Report

Objective

Scope

Limitation

Research Design

Report Organization

CHAPTER 1 : GLOBAL AND BANGLADESH ECONOMY

Global Economy

Bangladesh Economy

Banking Sector

CHAPTER 2 : OVERVIEW OF THE JANATA BANK

History of the Bank

Functions of the Bank

Branch network

Management system

Products and Services

Import-Export Business

CHAPTER 3 : L/C OPERATION : A THEORITICAL REVIEW

Letter of Credit : Definition

Advantages of L/C

Parties to a Letter of Credit

Uniform Customs and Practices of L/C

Regulatory Provisions Regarding L/C

BIBLIOGRAPHY

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List of Tables

ContentsPage No.

Table-1 : Information of ICC& UCPDC

Table-2 : Major charges in different steps for L/C processing

Table-3 : Avg. Time requirement for the basic activities of L/C issuing

Table-4 : Month-wise income from Import L/C

Table-5 : Month-wise income from BTB Export L/C

Table-6 : Major charges for L/C processing in different Banks

Table-7 : Avg. Time requirement in different Banks

Table-8 : Number of Import L/C Issued Per Month

Table-9 : Number of BTB Export L/C Issued Per Month

Table-10: Number of Import L/C Issued Per Country

Table-11: Number of Import L/C Issued Per Item

Table 12: Import, Export and Profit of 2001 to 2005

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List of Charts

ContentsPage No.

Chart-1 : Operational Flow of the Import-Export Process

Chart-2 : Flow Chart mentioning Steps in issuing an L/C in Janata Bank

Chart-3 : Comparison of Sources of Income from Import L/C

Chart-4 : Comparison of Sources of Income from BTB Export L/C

Chart-5 : Month-wise income from Import L/C

Chart-6 : Month-wise income from BTB Export L/C

Graph 7: Number of Import L/C Issued Per Month

Graph 8: Number of BTB Export L/C Issued Per Month

Graph 9: Number of Import L/C Issued Per country

Graph 10: Number of Import L/C Issued Per Item

Graph 11: Import, Export and Profit of 2001 to 2005

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Preface

An individual can expect to have a good understanding and knowledge on the various methods of operations performed by the Janata Bank in case of Trade Finance operations, i.e., Import and Export , going through this report. Everything is tried to include here in precise form. This report is to be used only for the academic purpose. I have collected all the necessary and relevant data and information from various primary and secondary sources. The data and information is truly and strictly confidential and no one can use its components in full or partial. I would like to give thanks to everyone who has helped and encouraged me in the process of preparation of this report.

Acknowledgement

First of all I would like to thanks to the all mighty for special blessing in completing the report. This project work is an accumulation of many peoples effort. So, with my honesty I would like to show my gratitude to them who helped me through kind advice, suggestions, directions and co-operations in preparing this report.

I am thankful to the Department of Mis, University of Dhaka for giving me such exposure to the practical business world. My warmest thanks go to Mr. Md. Abul Kashem, Assistant Professor of Dhaka University.

I am thankful also to my class-mates for their help in preparing this report.

Finally, I am thankful to my internal supervisor Mr. Md. Abul Kashem, Assistant Professor of Dhaka University, for his appropriate suggestions, moral support and invaluable co-operation from time to time in completing the internship program and submitting the report.

However, the responsibilities of errors and omissions in the report, if any, lie with me.

Md. Majidul Hosain

Executive SummaryThis internship report is prepared on the basis of one year long theoretical knowledge and one months long practical experience at the Dilkusha Corp. Branch of Janata Bank. This internship program and preparation of this report helped me a lot to learn about the practical environment and situation of a financial institution and also make up a bridge between the theoretical and practical aspects.

Bank provides the means and mechanisms of transferring resources over the country. Currently it is playing an important role in Foreign Trade. Higher import demands in china and continued higher domestic consumption in USA sustained the growth momentum resulting 10.2 % increase in world trade volume.

Janata Bank has already established a world wide network and relationship in international Banking through its 4 (four) overseas branches and 1221 foreign correspondents. The Bank has earned an excellent business reputation in handling and funding international trade particularly in boosting export & import of the country. The Bank finances exports within the frame-work of the export policy of the country. It is one of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made Garments) sector.

In order to avoid differences in interpretation of letter of credit terms, the International Chamber of Commerce has formulated a set of rules to guide banks in the use of documentary letter of credit, although the first attempt in this direction was made as early as 1933, the latest version is contained in publication No. 290 which has come into operation from October 1, 1975.

In processing L/C, Janata Bank earns income through charging various activities relating to it such as L/C opening charge, postage charge including Telex and SWIFT, amendment charge, and miscellaneous charges which include issuance of Bank Certificate, advice etc. L/C opening charge acts as the major source of income from import L/C.

In February the income from import L/C was highest and afterwards the income is decreasing gradually. And again in October the income raises suddenly. In April the income from BTB Export L/C is highest and afterwards the income is decreasing gradually. The charges charged by Sonali and Janata Bank are almost the same in most services but PCB charges more than NCB.

The highest no. of import L/C opened in the month march and most of the L/C is opened during month February to June. The highest no. of BTB Export L/C opened in the month February and most of the L/C is opened during month January to May. China and India dominate the import market. Accessories dominate the import market.

Correlation analysis shows that there is a high degree of negative correlation exists between Import and Profit; a low degree of positive correlation exists between Export and Profit, and a very low degree of negative correlation exists between Foreign Trade and Profit.

The initial part of the report contains the global & Bangladeshs economy, Janata Banks history, operations & activities, financial condition and services. The main part of the report includes theoretical overview of L/C, L/C related operations practiced in Janata Bank, analysis of gathered information and finally recommendations depending on analysis.

INTRODUCTION

TO THE INTERNSHIP REPORTOrigin of the Report:

As a mandatory part the MBA Program, all the students of the faculty of Business Studies, University of Dhaka have to undergo a three month long internship program with an objective of gaining practical knowledge about current business world. After this internship program each and every students have to submit an internship report mentioning their activities during the internship program.

Ive started my internship at the Janata Bank, Dilkusha corporate branch, Dilkusha on 3rd January 2006 and at the end of the program I am submitting my internship report focusing on the contribution of Export-Import Business to the overall performance of bank especially on profitability perspective.

Objective:

The main objective of this report is to reflect the practical knowledge that the author gained during his internship and to relate the one year long theoretical learning of MBA Program. Besides this broad objective, the followings were given emphasis-

Define Letter of Credit and different stages of L/C processing

Analyze the entire process of L/C issuing in Janata Bank

Identify the sources of income from L/C operations in Janata Bank

Identify the general behavior of the L/C issuance

Scope:

A comprehensive knowledge on the organization and a thorough knowledge on the Export-Import operation of the organization have come under the scope of the report.

The report is limited only to Import-Export Business of the Janata Bank, Dilkusha Corp. Branch in last 4 years and L/C operations during January 2005 to December 2005.

Limitation:

The organization maintains confidentiality in providing some relevant information, so the author could not incorporate those.

Information regarding L/C is not maintained in a structured manner and they are so though to gather.

The project covers only 12 months data gathered from the Dilkusha Corp. Br. of the Janata Bank. It may not represent the overall scenario.

Research Design:

Data collection: Both primary and secondary data is used for this report writing.

Primary Data: Most of the information was collected from primary sources. This includes the interviews with the managers and officials of the bank.

Secondary Data: This includes a number of books, journals, handbooks, annual report and websites.

Research Approach and Instrument: In this research informal questionnaire was used to interview the bank officials instead of structured questionnaire. Observation and experience of month long internship served as a major source of information.

Sample unit and sample size: Only the L/C issued from January 2005 to December 2005 in the Dilkusha Corp. Branch of Janata Bank is taken as the sample unit and the sample size includes all those L/Cs.

Report Organization:

The report is organized as follows:

The initial part of the report includes the global & Bangladesh economy and overall organization; which describes overall global and national situation, banking sector as well as the history, background, operations & activities, financial conditions and the products & services offered by the Janata Bank at a glance.

The later part is the main project part, which includes five chapters describing theoretical overview, practice in Janata Bank, behavior analysis, recommendations regarding L/C operation and overall profitability point of view.

CHAPTER 1: GLOBAL AND BANGLADESH ECONOMY

CHAPTER 2: OVERVIEW OF THE JANATA BANK

CHAPTER 3: L/C OPERATION : A THEORITICAL REVIEW

CHAPTER 4: L/C OPERATION : PRACTICED IN JANATA BANK

CHAPTER 5: L/C OPERATION : ANALYSIS

CHAPTER 6: RECOMMENDATION AND CONCLUSION

APPENDIX AND BIBLIOGRAPHY

Global Economy

The year 2004-2005 was eventful in the world scenario. Events like natural disaster, political instability, surging oil price, declining exchange value of US Dollar had great impact on world economy. Despite these impediments, world economy had grown by 4% during the year of 2004-2005. Among the major factors in this growth were the on going economic boom in china, surges in economic activities in Japan and the USA. During this period European high income countries experienced less growth rate and slower economic recovery. Higher import demands in china and continued higher domestic consumption in USA sustained the growth momentum resulting 10.2 % increase in world trade volume.

According to the global outlook 2005, a report published by World Bank, GDP growth rate was 6.00 % in south Asian countries except India, compared to 5.6% in the previous year. Productive growth in industrial sectors of Bangladesh & Pakistan, development of services & agricultural sector of Nepal and Srilanka were the major contributors to such growth.

The experts believe that global economic growth might slow down in 2006 and 2007. Several factors may contribute to the expected slower growth. Some of the notable causes for slower will be the investment cycle in the USA may reach its peak, the world demand may grow much higher than supply resulting in substantial increase in prices of oil and other essential commodities. As a result it may imply a decline in income. Central banks around the world may continue to take more neutral stance in their monetary policies, which may hinder the investment. Besides this chinas effort to achieve a sustainable pace of growth should contribute to lesser demand in the medium term. Moreover predictions are that chinas aggressive presence in the world trade may a continuous opportunity for improvement.

Bangladesh Economy

During the year 2004-2005 the growth rate of GDP was 5.52% as against 5.20% of previous year. Rising oil price and price hike in essential commodities could not weaken the growth rate. Steady growth in the industrial and service sector contributed to this achievement.

Growth rate in agricultural sector declined to 2.41% in financial year 2004 as against 3.29% of previous year. Despite favorable weather conditions there was significant reduction of growth in crops and horticulture sub sector. As a result in financial year 2004 the growth of agriculture sector was hampered. The forestry and fishing sub-sector marked a sharp growth due to increase in domestic demand. While growth rate remained unchanged in animal farming sector.

Overall growth in the year 2004-2005 was substantial. Exports increased by 16.1% to US $7603 million against US $6548 million of financial year 2003-2004. Ready made garments sector had substantial contribution to this growth.

Import increase by 12.9% in financial year 2004-2005 over the previous year. Sugar import increased by 6.3%, edible oil increased by 29.1%, fertilizer by 37.8%, capital goods by 5.1%, plastic and rubber articles by 30.5%. While import of rice declined significantly.

At the same time wage earners remittance by Bangladeshis working abroad increased by 9.7% resulting current account surplus of 0.20 billion. Consequently foreign currency reserve increased significantly. Anti money laundering measures also contributed significant increase in foreign remittance and foreign exchange reserve.

Broad money (M2) growth stood at 13.8% in financial year 2004-2005, higher than the projected growth of 12.2% but lower than 2003-2004 growth o f15.65%. Despite various adversities economic growth was substantial.

Banking Sector:The banking sector of Bangladesh played an important role towards economic growth of Bangladesh. From the beginning of financial year 2003 Bangladesh Bank took initiatives in reforming financial sector. Steps for prevention of money laundering, loan write off policy and effective measures to gain accountability and transparency made banking operations more acceptable. As a result, the image of banking sector has been elevated. Bangladesh Bank also identified five core risks areas for management of the banks and provided necessary guidelines for implementation. Those are: Foreign Exchange Risk Management, Asset Liability Management, Prevention of Money Laundering, Credit Risk Management, Internal Control and Compliance. This initiative will bring overall discipline in the sector and enhance operational profit.

History of the Bank

www.janatabank-bd.comJanata Bank established under Bangladesh Bank (Nationalization) Order 1972, is one of the leading Government Owned Commercial Banks in Bangladesh. The Bank's Authorized and Paid-up Capital as on 31st December 1994 was Tk. 800.00 crore and Tk. 259.40 crore respectively. Reserve Fund of the Bank as on 31st December 1994 was Tk. 12.20 crore. The Bank is governed by the Bangladesh Bank (nationalization) Order 1972 and also by its own internal regulations.Functions of the Bank

Janata Bank provides complete range of services to its customers both domestic and foreign. Rendering of General Banking Facilities & Utility Services, Deposit Mobilization, providing various Credit Facilities including Working Capital to Industries, Investment, Outward & Inward Remittances, Financing Import & Export etc. are the major functions performed by Janata Bank. In order to provide better services to its Customers and Correspondents Janata Bank is now more organized to handle sophisticated operations through a well trained and efficient Manpower. Recently Janata Bank has entered into computer operations to provide prompt and efficient services to the Customers.

Janata Bank has been involved in Micro financing since 1973 through its vast branch network spread all over the country. Bank has launched these micro credit programs/projects on its own initiative and also in collaboration with local and foreign agencies.

Branch network

Janata Bank is one of the largest Nationalized Commercial Bank of Bangladesh. Presently the bank has been functioning with a network of total 904 branches. The Bank has been functioning with a net work of Total 897 Branches including 4 Overseas Branches in U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44 Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances.

Management system

The Bank's present Board of Directors comprises of One Chairman and Six Directors appointed by the Government.

Products and Services

Financing IT sector

Financing of industry

Ready cash

Windows for SMEs

Loan to travel agencies

Loan to diagnostic center

NRB escrow account

NRB gift cheque

Import-Export Business

Janata Bank has already established a world wide network and relationship in international Banking through its 4 (four) overseas branches and 1221 foreign correspondents. The Bank has earned an excellent business reputation in handling and funding international trade particularly in boosting export & import of the country. The Bank finances exports within the frame-work of the export policy of the country. It is one of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made Garments) sector.

Janata Bank always aims to increase its foreign exchange business. The Bank has been doing international banking with all major Banks of the world. It has been, however, handling bulk of the international businesses with the following multinational Banks:

Citibank N. A.

American Express Bank Ltd.

Standard Chartered Bank

HSBC.

The Chase Manhattan Bank

Through quite a good number of Authorized Dealer Branches and 1221 nos. foreign correspondents world wide Janata Bank has been extending full range import and relevant finance facilities.

To boost up country's Export, Janata Bank has been providing different kinds of assistance to exporters. Some of which are as under:-

Providing Pre-Shipment andPost-ShipmentFinance, Export Guarantee and bonding facility etc.

Concessional rate of interest for exports Finance.

Back to Back L/C under bonded Warehouse facility

Sight & Unasked L/C against Firm Contract for import of raw materials.

Sight L/C under EDF

Exporter's Retention Quota A/C both interest bearing and non-interest bearing.

Export incentive Program.

Banking at Export Processing Zone

Scope for establishment of export oriented industry by 100% foreign investment and by joint-venture

The sole bank to disburse Government Export Promotion Fund against export of Computer Software & Data Entry Processing

Providing services to the exporter by utilizing most modernized technology like Swift, Reuters, Internet, Fax etc. Any latest business information will be available at their website; http://www.janatabank-bd.com/

Consultancy and advisory services by an expert group of officials.

Special export financing program towards computer software, data entry and service.

Facilities Offered:

Opening of L/C at competitive/ reasonable margin and commission

Concessional rate of interests on import finance to the prime customers & interest rebate facilities.

Import Items:

Capital Machineries and Industrial raw materials.

Fuel & Lubricants.

Intermediate goods.

Consumer durable, spare parts and equipments.

Consumer goods: Baby food, Petroleum, CDSO (Crude Degummed Soyabean Oil), Oilseeds, Cement, Construction Materials, Fertilizer, Chemicals, etc.

Salient Features:

A Firm or Company having valid ERC, necessary infrastructural and technical facilities and sufficient skilled man power related computer.

Member of BASIS or BCS.

Having Computer Literacy or related professional background.

Preference to the firm/company having prior experience

Satisfactory performance Certificate/Acceptance Letter from Counterpart abroad.

Valid Export Orders are in hand.

Letter of Credit

A letter addressed by a bank, at the insurance and responsibility of a buyer of merchandise, to a seller, authorizing him to draw drafts to a stipulated amount under specified terms and undertaking conditionally or unconditionally to provide eventual payment for drafts.

Letter of credit is a documentary credit of a bank. This is a kind of pre-shipment financing. Through this letter bank assures the exporter to give acceptance of his/her bills or pay the value of the bill when importer fails to do so. In international trade, there is the peculiar of distance and unfamiliarity between parties concerned exporter and importer. If the importer fails to pay price, the exporter will find it difficult or too costly to recover the amount. The importer is generally required to open a letter of credit with a certain bank having branches or agent thereto in both the importing and exporting countries. Thus the importer proves his creditworthiness to the foreign exporter by obtaining a letter of credit from the bank and sending the same to the foreign dealer.

Trade between countries is mainly financed through letter of credit. The international chamber of commerce has defined a letter of credit as:

Any arrangement however named or prescribed whereby a bank (the issuing bank) acting at the request and in accordance with the instructions of a customer (the applicant of the credit), is to make payment to or to the order of a third party (the beneficiary ) or is to pay, accept or negotiate bills of exchange (drafts) drawn by the beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or negotiated, by another bank, against stipulated terms and conditions.

Letter of Credit is quite literally a letter that extends a line of credit to an individual or business entity. A bank on behalf of one of its customers writes it. A letter of credit is a banking mechanism that allows importers to offer secure terms to exporters.

Every Letters of Credit contain these elements:

A payment undertaking given by the bank (issuing bank)

On behalf of the buyer (applicant i.e.; importer)

To pay a seller (beneficiary i.e.; exporter)

A given amount of money

On presentation of specified documents representing the supply of goods

Within specific time limit

These documents conforming to terms and conditions set out in the letter of credit

Documents to be presented at a specified place.

Thus when a stipulation is incorporated in the sale contract that the goods shall be paid by a bankers letter of credit , the seller need not to worry whether the goods will be cleared by the buyer on arrival at the destination and the buyer need not block up his funds by making payment in advance. As a matter of fact, a commercial letter of credit substitutes the creditworthiness of the banker issuing the letter of credit since it is a promise by the bank to pay or accept the bill, provided the exporter (the beneficiary) fulfills the terms and conditions set out in the credit.

Advantages of Letter of Credit

L/C as a means of finance international trade provides benefits to both the exporter and the importer.

Advantages of L/C to the exporter:

Eliminates credit risk

Reduces ambiguity regarding transaction because terms are specified in the L/C

Facilitates pre-shipments financing through packing cash credit or Back to Back L/C

Advantages of L/C to the importer:

Ensures that the goods sent by the exporter comply with the specifications

Facilitates financing.

Parties to a Letter of Credit:

The buyer, the seller, the issuing bank, the notifying bank, the negotiating bank, the confirming bank and the paying bank are the parties to a letter of credit.

Buyer/importer: the buyer/importer, who is applies to the bank for the opening of a letter of credit

Seller/exporter: the seller/exporter is the beneficiary of the letter of credit

Issuing Bank: the bank, which issues the letter if credit at the request of the buyer, is the issuing bank. The buyer gives instructions regarding the terms and conditions of the credit.

Notifying Bank: the correspondent bank situated in the same place as that of the seller, which advices the credit to the beneficiary. But the notifying bank does not commit itself to any liability under the credit. Generally, the services of a notifying bank are utilized when the credit is advised to the seller through a cable message.

Negotiating Bank: the bank which negotiates the bills or drafts under the letter of credit. Generally, the same bank acts as the notifying and the negotiating bank.

Confirming Bank: usually, the seller insists that a bank in his own country must confirm the credit. Such a bank is known as the confirming bank. The advantage of this confirmation from the sellers point of view lies in the fact that he is assured of payment as soon as the shipment documents are presented his own centre. It may be noted that, the primary liability lies with the confirming bank, once the credit is confirmed by it, provided the seller fulfills the terms and conditions of the credit.

Paying Bank: the bank on which the bill or draft is drawn. It can be the issuing bank, the notifying bank or the confirming bank.

The following section will gives a more detailed overview of how these parties participate in the L/C operations.

A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms and conditions set out in the Letter of Credit. A Letter of Credit is also commonly referred to as a Documentary Credit.

Uniform Customs and Practices of L/C

In order to avoid differences in interpretation of letter of credit terms, the International Chamber of Commerce has formulated a set of rules to guide banks in the use of documentary letter of credit, although the first attempt in this direction was made as early as 1933, the latest version is contained in publication No. 290 which has come into operation from October 1, 1975.

It may, however, be pointed out here that the uniform customs and practice for documentary credits are not law as such. The parties have voluntarily agreed to apply the set of rules. Banks in 153 countries adhere collectively to the rules laid down in uniform customs and practice. Bank in another 23 countries adhere individually to them. Banks in these countries expressly state that the letters of credit issued by them are in accordance with uniform customs and practice, publication no. 290.

UCPDC-500 is a set of rules formulated by International Chamber of Commerce (ICC) to apply to all transactions in Letters of Credit carried out by banks. The purpose of the rules is to bring about uniformity in the form of Letters of Credit and the practice and Procedures adopted by banks in handling the instruments. Banks all over the world handle letters of credit, and variations in forms and procedures and the civil and commercial laws of different countries may cause confusion in their dealings with one another. In order to provide common understanding about the interpretation of the terms and terminology, a uniform code is very essential. Therefore, the International Chamber of Commerce formulated the Uniform Customs and Practice, which is universally accepted, and Letters of Credit transactions everywhere are subject to this set of rules.

These uniform customs and practice for documentary credit were first published in 1933. Revised versions were issued in 1951, 1962, 1974 and 1983. The last version of the Uniform Customs and Practice for documentary credits was adopted by the ICC council in 1993 and published as ICC publication no. 500 in may 1993.

The following table provides brief information of ICC & UCPDC-500

Table- 1 :

Information of ICC& UCPDC

ICC(International Chamber of Commerce) world business organization

Founded1919

Membership and AssociationThousands of members companies and associations of over 153 countries.

PurposeTo promote international trade, investment system and market economy worldwide.

ICC publication UCPDC-500, URR-525, URC-522 etc.

UCPDCUniform Customs and Practice for Documentary Credits.

ApplicationImport and export through L/C

1st publication1933

Revised versions were issued1951, 1962, 1974, 1983 and 1993

Latest versionUCPDC (Rev. 1993)

Effective from (in force)January 01, 1994

Number of Articles49

UCPDC-500 containsDefinition, liabilities and responsibilities of all parties involved in L/C, Rules and Guidelines for L/C operation (issue, advise, negotiation and reimbursement).

Source : Secondary Data

Regulatory Provisions Regarding L/C

Local Rules:

Guidelines for foreign exchange transaction regulation on import (guideline-chapter-XV)

The Import/Export Act 1950

Import policy for the concerned year

Customs duty, VAT, SRO, Tariff

Rate of exchange and its application

Fe Circular, IBD Circular

Public notice issued by CCI&E Office

Uniform Rules:

UCUDC-ICC Publication No. 500

URC-ICC Publication No.522

URR-ICC Publication No.525

INCOTERM-ICC Publication No.560

Harmonized Commodity Description & Coding System (H.S. Code)

Operational Flow of the Process:

The complete Import and Export process in includes the following stages. Both the importer and exporter are involved in this flow. Some tasks are done by importers side and some are done by exporters side and some are done by others. The process is very much like the following:

Chart-1:

Operational Flow of the Import-Export Process

Description of the Flow:

1. Establish a buying and selling contract between the buyer and the seller.

2. Submission of application with necessary documents to the bank to issue an L/C

3. L/C issue and advise it to the advising bank

4. Issue reimbursing instruction to the reimbursing bank

5. Advise the L/C to the exporter by the advising bank after verification of the L/C

6. Asking for the confirmation of the L/C to the importer

7. Issuing request letter by the issuing bank to the confirming bank (as per exporters requirement) toe confirm the L/C

8. Issuing confirmation by confirming bank

9. Shipment of the goods

10. Submit required document to the negotiating bank for negotiation

11. Negotiate the bill by the negotiating bank and make payment to the exporter

12. Claim to the issuing bank or reimbursing bank for payment

13. Payment reimbursed by the issuing bank or reimbursing bank

14. Ask the importer to collect the documents from the bank

15. Collect documents from the issuing bank by paying the banks dues.

Janata Bank has already established a world wide network and relationship in international Banking through its 4 (four) overseas branches and 1221 foreign correspondents. The Bank has earned an excellent business reputation in handling and funding international trade particularly in boosting export & import of the country. The Bank finances exports within the frame-work of the export policy of the country. It is one of the pioneers in promoting back to back Letter of Credit for the RMG (Ready Made Garments) sector. In Janata Bank, only authorized branches are allowed to open an L/C.

Considered Factors of the L/C Applicant:

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

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

Volume of business: the volume of business is also a major factor to be considered.

Post-import retirement: Post-import retirement is another factor that will have to be considered for opening L/C.

Detailed analysis of financial condition: Detailed analysis of financial condition of the applicant is required for the process, especially for a new applicant.

And finally the personal relationship of the applicant with the bank or its high officials plays a vital role in opening L/C.

Documents required while applying for L/C:

In credit operation, all parties deal with documents, and not with goods, services and/or other performance to which documents may relate. Thus documentation has foremost important in all types of L/C processing and operations. The following documents are required for opening L/C with Janata bank for a new applicant.

Trade License (up to date)

Import Registration Certificate (IRC) (up to date)

Tax Identification Number (TIN) (up to date)

VAT Registration Certificate (up to date)

Membership Certificate of a bona fide trade body (up to date)

Chamber Membership Certificate

L/C Application (in letterhead pad of the client)

LCA (L/C Application) form-duly filled in and signed by the importer

IMP Form- duly filled in and signed by the importer

Charge documents

Suppliers Credit Report

Applicants Credit Report

Other necessary papers depending on the nature of import.

Forms provided by Janata Bank:

After scrutinizing the above mentioned documents carefully, the authorized officer delivers the following forms to be filled in by the applicant of L/C.

L/C Application Form:

L/C Application Form is a sort of an agreement between the customer and the bank on the basis of which letter of credit is opened. Janata bank provides a printed form for opening of L/C to the importer. A special adhesive stamp of value TK. 150 is affixed on the form in accordance with the stamp act currently in force. Usually, the importer expresses his decision to open the L/C quoting the amount of margin in percentage. In filling up the form, the importer has to provide the following information:

Full name and address of the importer

Full name and address of the beneficiary

Draft amount

Time bar within which the documents should be presented

Sales type (CIF/FOB/C&F)

Brief specification of commodities, price, quantity, indent No. etc.

Country of origin

Import license No.

IRC No.

Account No.

Documents No.

Insurance Cover Note/Policy No., date, amount

Name and address of insurance company

Whether the partial shipment is allowed or not

Whether the transshipment is allowed or not

Last date of shipment

Last date of negotiation

Other terms and conditions (it any)

Whether the confirmation of the credit is requested by the beneficiary or not

The L/C application must be completed / filled in properly and signed by the authorized person of the importer before it is submitted the issuing bank.

L/C Authorization Form:

The Letter of Credit Authorization Form (LACF) is the form prescribed for the authorization of opening Letter of Credit / payment against import and used in lieu of import license. The authorized dealers are empowered to issue LCA Forms to the importers on the basis of licensing of the Import Policy Order in force to allow import into Bangladesh. If foreign exchange is intended to be bought from the Bangladesh Bank against an LCAF, it has to be registered with Bangladesh Banks Registration Unit located in the concerned area office of the CCI&E. The LCA Forms available with authorized dealers are issued in set of five (5) copies each. First copy is exchange control copy, which is used for opening of LC and effecting remittance. Second copy is the custom purpose copy, which is used for clearance of imported goods from custom authority. Third and fourth copies of LCAF are to be sent to concerned area of CCI&E office by authorized dealer/Registration Unit of Bangladesh Bank. Fifth copy is kept as office copy by authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF) contains the following-

Name and address of the importer

IRC No. and the year of renewal

Amount of L/C applied for (both in figure and in word)

Description of item(s) to be imported

ITC number / HS Code number

Signature of the importer with seal

List of goods to be imported

Import Permit Form

Import Permit Form contains the following-

L/C authorization form no.

date

value in taka

registration of LCAF

quantity of goods

invoice value

country of origin

port of shipment

name of the steamer

indenters address

Communication media:

Communication between the parties and bank involved in the process is very important for the efficiency of L/C operation. Janata Bank has the facility to use the following communication media:

postage for mailing

courier

cable / telex

L/C Issuing Process:

The generalized process of L/C issuing in Janata Bank is explained below. For a business customer approached for the first time, the process will start with opening an account with the bank.

Step 1: Application in companys letterhead pad

First of all, the person shall have to submit an application written or printed in the companys letterhead pad. In the application he/she will have to mention the name of the products to be imported, margin and so on. The applicant shall have to apply for the required forms of the bank.

Step 2: Discussion between Janata Bank and the party:

After receiving the application form, the Bank pays attention to the issues mentioned below.

The products that are going to be imported are considered. Because there are restrictions by the government on some products.

The quoted rates are specially analyzed as there also some restrictions by the government.

Step 3: Collecting forms and depositing those with necessary documents:

In this step, the applicant collects the L/C application form, LCA Form and IMP Form from the bank. These forms are to be filled up by the client. The forms and all other necessary documents are then deposited at the desk of the dealing officer.

Step 4: Checking Documents:

All the documents are checked out by the dealing officer. He/she checks specially the quoted rates, the terms and conditions of the indent or pro forma invoice and the validity of the documents. Generally the person from whom the forms are collected is engaged in checking out the documents.

Step 5: Putting L/C No:

After checking the documents and L/C No. is given. Generally the officer who checks the documents puts the L/C No.

Step 6: Preparing offering sheet:

The offering sheet is prepared by the dealing officer. Usually the officer who checks the documents prepares the offering sheet.

Step 7: Singing offering sheet:

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

Step 8: Typing the L/C:

After the approval of opening L/C is given, the L/C is typed in a structured format.

Step 9: Checking the L/C:

A final check is done to find out any discrepancies after the typing is completed. This is done by the dealing officer who is generally in charge of the whole process.

Step 10: Crediting the account of the customer:

On the basis of credit arrangement with the bank of r import financing, the customers account is affected with certain credit.

Step 11: Dispatching L/C:

At the final stage, the L/C is dispatched through postage mail or telex or SWIFT or so forth.

Although this is the generalized process for issuing L/C, for the speed of the process sometimes the typing and checking of documents are done before the offering sheet is signed. Then after signing the L/C it is dispatched.

Chart-2:

Flow Chart mentioning Steps in issuing an L/C in Janata Bank

Letter of Credit in Import Financing

One of the important functions of the commercial banks in the world is to undertake the import of merchandise into the country and payment of foreign exchange towards the cost of the merchandise to foreign suppliers. Bangladeshs import policy requires letters of credit (L/C) for all imports of goods. However, in certain condition goods can be imported without L/C but within a limit of US $25,000 annually per importer. L/C, as a tool of financing, provides benefits to both the importer and the exporter. Import financing by Janata Bank can be shown by the diagram below:

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

Import L/C The Process:

The whole process of L/C in Janata Bank completes in three stages:

L/C issuance

Lodgment

Retirement

L/C Issuance: This is the step where the importer opens an L/C with the bank. This is the main part the report will focus on and will be discussed in detail later.

Lodgment: On receipt of the documents from the negotiating bank, the L/C issuing bank will make entry the particulars of the documents in the Inward Foreign Bills Register and prepare the voucher by converting the foreign currency into Bangladeshi Taka. This stage is known as the Lodgment of import bills.

Retirement: On receipt of the copy of lodgment from the bank, the importer will deposit the required amount and take delivery of the shipping documents. This stage is known as the Retirement of Import Bills.

Check list for Import L/C:

Janata Bank uses a checklist to verify the overall issuing process of import L/C. The check list contains the following:

Written request of importer for issuing L/C is obtained

L/C application form duly filled in, signature of importer / guarantor is taken and verified, affixing adhesive stamp with proper value & defaced.

IMD form obtained

LCAF duly filled in, signed by the importer & verified by Banks official with proper seal

Copy of indent / pro forma invoice is duly signed & accepted

Insurance cover note obtained covering minimum B category risk

Evidence of payment of VAT registration fee through Form-Ga (VAT registration certificate)

IRC / pass book is valid

Opening of L/C is duly approved by competent authority, as per designated power

Margin, commission, and other charges are realized as per prescribed rates properly and timely

Proof regarding obtainment of TIN (Tax identification No.)

Valid membership certificate issued by member organization of FBCCI

Contra liability entries are passed on the same day of opening of L/C

Margin is realized on the same day of the opening of L/C

Commission and other charges are realized on the same day of the opening of L/C

L/Cs is advised promptly within 24 hours time

Amendments of L/C in respect of time, value or items are effected in accordance with written request of L/C openers and charges thereof realized

L/C copy along with LCAF is sent to the office of the CCI&E within fifth of every month covering the entire previous month

Registration of indenter is valid. Indenter must incorporate Bangladesh Bank permission no. in indent

VAT is being deducted on L/C commission and sent to competent authority of Janata Bank

Balancing of liabilities and margin is done periodically

Letter of Credit in Export Financing

Export business creates inward remittance. For that reason, government encourages investing in export business and offers incentive like tax and duty free entrance of raw materials in RMG business in our country. As import of one party is an export to the other, L/C also plays a vital role in financing exports. Following diagram shows means of export financing that Janata Bank deals with.

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

Packing Cash Credit (PCC):

PCC is a short term credit with a fixed repayment date granted by the bank to an eligible exporter. This loan is generally given on the basis of irrevocable L/C, but sometimes it can be given without L/C on the basis of agreement which is given to valued constituents or exporters.

PCC is given for the following purpose:

To buy raw materials

To process raw materials

To pay freight

To pay insurance

To pay inspection fees

To pay packing charge

Documents verified for granting PCC:

After the L/C is submitted to the bank counter, the bank starts to process all the documents as per the L/C terms and conditions. Before sanctioning the PCC, the following points are verified in Janata Bank:

Check whether the L/C is issued by the reputed bank (1st class bank).

Obtain the credit report of importer, especially when the applied loan amount is large.

L/C expiry date is checked and PCC is not allowed after that date.

Stock report must be submitted regularly to the bank

Loans are given for the period from the time of purchasing raw materials up to shipment of goods.

Back To Back L/C:

Back to Back L/C may be defined as an L/C which is backed by another. In Bangladesh, this type of L/C is being used in the form of pre-shipment finance especially against export order of ready-made garments. BTB L/C is the highest processed L/C in Janata Bank. Due to extensive use of BTBLC, Bangladesh Bank has introduced a special chapter in its Guidelines for Foreign Exchange Transaction.

BTB L/C is opened against lien of another credit. It is an L/C where the beneficiary is procuring goods from suppliers and like the suppliers to get the benefit under the credit. Beneficiary may need to purchase the raw materials and accessories and make the payment by opening a second L/C favoring the ultimate supplier. To do this, the beneficiary requires Janata Bank to open another L/C in favor of the supplier on the original credit. Such an ancillary L/C is known as Back to Back L/C.

The original or master L/C forms the security based on which the bank undertakes the risk under BTB L/C. BTB L/C is issued in conformity of the terms and conditions as stipulated in master L/C. In our country, BTB L/C is generally opened for reprocessing purpose to manufacture exportable merchandise. The value of BTB L/C is restricted up to a maximum amount of FOB value of the master Export L/C.

Documents Necessary for Export L/C:

As soon as the seller / exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank. Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. generally the documents observed by the bank are as follows:

Bill of Exchange

Commercial Invoice

Bill of Lading

Air Way Bill

Rail Way Receipt

Insurance Policy

Certificate of Origin

Certificate of Manufacture

Inspection Certificate

Packing List

Clean Report of Finding (CRF)

Check List for Export L/C

Like import L/C, Janata Bank officials use a checklist to make the L/C operation flawless also for Export L/C. The points of the Export L/C checklist are as follows:

Authenticity of Export L/C established

If advised by another local bank bona fide of L/C established through paper communication which is documented

In case of 2nd beneficiary L/C, KYC of both beneficiary established and documented

BTB L/C pro forma invoice apparent legitimacy established by connected papers

Possible in-house L/C or BTB L/C transaction eliminated

Exporter or BTB L/C opener is not a first time client

L/C opener has established adequate collateral security with the bank

Present L/C value is not disproportionate to past business record of the client

CIB report is clean

Market report is good

BTB L/C is within the production capacity of the RMG unit/exporters unit

Quota availability and validity

Sufficient lead time is available to ensure export in time

No track record of forced payment of BTB L/C due to shortage of funds

Value addition requirement as per IPO in force.

Source: Primary Data

Amendments to Letter of Credit:

An amendment to L/C means to make a change to the terms of the credit. After opening a L/C either beneficiary or applicant sometimes observes that the terms and conditions laid down in the credit are not complete to serve their purpose. They need some changes or alteration to the credit to make it workable. This is done by the way of issuance of amendment to the L/C.

At the request of the applicant, as the issuing bank Janata Bank only can issue amendment to the L/C. there can be more than one amendment to a credit. All the amendments form an integral part of the original credit. L/C amendments are to be communicated by authenticated telex, SWIFT or mail. If there is more than one amendment to a credit, all the amendments must bear the consecutive serial number so that the missing of any amendment can be identified by the advising bank or the beneficiary.

If the L/C is an irrevocable one, the amendment can not be done without the consent of both the partied; i.e. he beneficiary and the applicant. Janata Bank as the issuing bank can make amendments but if the beneficiary does not accept the amendment, it will not be effective. If the L/C is revocable, the applicant can make any amendment to the L/C at any time he desires and such amendment will be effective if the credit is not executed.

Janata Bank generally asks for amendment on the following points:

Extension of shipping date

Extension of expiry date

Increase or decrease of L/C value

Increase or decrease of quantity of goods

Change in description of merchandise

Name and address of the beneficiary

Inserting of new clause

Change the mode of transport

Change of the loading port or destination

Change of certain terms and conditions of L/C

Terms of delivery; i.e. FOB, CFR, CIB

Inspection clause

Bank charge in different steps during L/C processing:

The following table shows the major cost accounts that the bank charges for different steps in L/C processing:

Table-2:

Major charges in different steps for L/C processing

L/C opening charges

Cash1st Quarter

Subsequent Qtr.

Minimum.5%

.25%

Taka 250

BTB1st Quarter

Subsequent Qtr.

Minimum.75%

.5%

Taka 300

Deferred1st Quarter

Subsequent Qtr.

Minimum.8%

.4%

Taka 300

Inland1st Quarter

Subsequent Qtr.

Minimum.5%

.25%

Taka 250

Postage charges

MailTaka 100

CourierAt actual, Min. Taka 1500

TelexAt actual, Min. Taka 1500

SWIFTAt actual, Min. Taka 1500

Amendment Charges

Value increased / decreasedTaka 250

Maturity extensionTaka 250

Others Taka 100

Other Charges

L/C cancellationTaka 500

Export L/C advising chargeOwn party: Taka 250

Other Bank party: Taka 500

L/C transferTaka 500 + Actual Telex Charge

Issuance of Bank CertificateTaka 100

Stamp Taka 150

Source: Primary Data

Required Time duration in L/C Processing:

In most cases the L/C clients of the banks are regular and old. For that reason, the bank generally has all the required documents for opening L/C of the clients. When a regular client applies to open another L/C, they just provide photocopies of most documents and the bank officials do not take much long time to check those documents. Even often a regular client first informs his intention to open another by phone and Banks officials start the process; although this highly depends on nature of personal relationship of the client with the back. For a regular client it generally lakes less than an hour to open another L/C. however, in case of new client banks officials engaged in L/C issuing process check the documents thoroughly and often it takes time to make the client understand the banks requirements. However, it generally does not take more than two days even for a new client applying to open an L/C.

Table-3:

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

ActivityAverage Required Time (in minutes)

Checking Documents10

Putting L/C No.2

Preparing Offering Sheet12

Signing Offering Sheet15

Typing the L/C15

Checking the L/C10

Crediting the account of the customer15

Total Time*90-120

Source: Primary Data

Total time mentioned here is not simple addition of the time required for basic activities. Rather it is provided from the interview with the bank officials.

Relevant activities that affect the time structure:

Application for forms in company letterhead pad

Discussion between bank and the applicant

Filling in the forms

Dispatching the L/C

Analysis of Income from L/C:

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

Comparison of Sources of Income from Import L/C:

The following chart exhibits a comparison of income at Janata Bank, Dilkusha Corp. Branch, from different activities relating L/C processing without mentioning the confidential income amounts, during the period of January to December, 2005.

Chart-3:

Comparison of Sources of Income from Import L/C

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

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

The following chart exhibits a comparison of income at Janata Bank, Dilkusha Corp. Branch, from different activities relating L/C processing without mentioning the confidential income amounts, during the period of January to December, 2005.

Chart-4:

Comparison of Sources of Income from BTB Export L/C

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

The following chart exhibits a comparison of month-wise income at Janata Bank, Dilkusha Corp. Branch, from Import L/C with mentioning the confidential income amounts, during the period of January to December, 2005.

The chart shows that in February the income was highest and afterwards the income is decreasing gradually. And again in October the income raises suddenly.

Month-wise Income from BTB Export L/C:

The following chart exhibits a comparison of month-wise income at Janata Bank, Dilkusha Corp. Branch, from BTB Export L/C with mentioning the confidential income amounts, during the period of January to December, 2005.

The chart shows that income is increasing and decreasing gradually in wave form. In April the income is highest and afterwards the income is decreasing gradually.

Analysis of Charges in L/C Processing of Different Banks

The following table shows the major cost that the different bank charges for different steps in L/C processing:

Table-6:

Major charges for L/C processing in different Banks

L/C opening chargesJanata BankSonali BankCity Bank Ltd.

Cash1st Quarter

Subsequent Qtr.

Minimum.5%

.25%

Taka 250.5%

.25%

Taka 250.5%

.3%

Taka 400

BTB1st Quarter

Subsequent Qtr.

Minimum.75%

.5%

Taka 300.75%

.5%

Taka 300.6%

.4%

Taka 500

Deferred1st Quarter

Subsequent Qtr.

Minimum.8%

.4%

Taka 300.8%

.5%

Taka 300.6%

.3%

Taka 400

Inland1st Quarter

Subsequent Qtr.

Minimum.5%

.25%

Taka 250.5%

.25%

Taka 250.6%

.35%

Taka 400

Postage charges

MailTaka 100Taka 100Tk.100(Local) Tk.300(Foreign)

CourierAt actual, Min. Tk.1500At actual, Min. Taka 1500At actual, Min. Taka 1500

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

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

Amendment Charges

Value increased / decreasedTaka 250Taka 250Taka 500

Maturity extensionTaka 250Taka 250Taka 500

Others Taka 100Taka 100Taka 500

Other Charges

L/C cancellationTaka 500Taka 500Taka 500

Export L/C advising charge

Own party:

Other Bank party:Taka 250

Taka 500Taka 250

Taka 500Taka 750

Taka 1000

L/C transferTaka 500 + Actual Telex ChargeTaka 500Taka 1000

Issuance of Bank CertificateTaka 100Taka 100 Taka 200

Stamp Taka 150Taka 150 Taka 150

Source: Primary Data

The above table shows that, the charges charged by Sonali and Janata Bank are almost the same in most services. But the costs charged by CBL vary in most cases from these two, although not a great degree. In almost all cases, CBL charges higher than the two NCBs. According to bank officials interviews, this is due to CBL being a PCB and Sonali and Janata Bank being NCBs. the officials of CBL also claim that they provide much better and faster service , which justifies charging higher costs.

Analysis of Time Requirement in L/C Processing of Different Banks

Table-7:

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

ActivityAverage Required Time (in minutes)

Janata BankSonali BankCity Bank Ltd.

Checking Documents10105

Putting L/C No.221

Preparing Offering Sheet121010

Signing Offering Sheet15155

Typing the L/C151515

Checking the L/C885

Crediting the account of the customer151510

Total Time*90-12090-12050-60

Source: Primary Data

Total time mentioned here is not simple addition of the time required for basic activities. Rather it is provided from the interview with the bank officials.

From the table the following decision can be made:

City Bank Ltd. as PCB works much faster than the two NCB mentioned

Putting L/C no. is the least time consuming activity in the process

Typing the L/C and checking the L/C are the activities that do not vary much from bank to bank in terms of time

Typing the L/C is the most time consuming activity among the mentioned.

Relevant activities that affect the time structure:

Application for forms in company letterhead pad

Discussion between bank and the applicant

Filling in the forms

Dispatching the L/C

Analysis of Behavior or Trend

Number of Import L/C Issued Per Month

The following table shows the number of import L/C issued per month at Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.

Table-8: Number of Import L/C Issued Per Month

MonthNo. of L/C issued

January8

February22

March26

April23

May17

June12

July8

August7

September8

October10

November9

December10

Total160

Graph 7: Number of Import L/C Issued Per Month

The table and chart shows that, the highest no. of import L/C opened in the month march and most of the L/C is opened during month February to June. And the lowest no. of L/C is opened in month August.

Number of BTB Export L/C Issued Per Month

The following table shows the number of BTB Export L/C issued per month at Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.

Table-9: Number of BTB Export L/C Issued Per Month

MonthNo. of L/C issued

January10

February30

March21

April22

May15

June5

July9

August12

September14

October16

November8

December7

Total169

Graph 8: Number of BTB Export L/C Issued Per MonthThe table and chart shows that, the highest no. of BTB Export L/C opened in the month February and most of the L/C is opened during month January to May. And the lowest no. of L/C is opened in month June.

Number of Import L/C issued per Country

The following table shows the number of Import L/C issued to different countries at Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.

Table-10: Number of Import L/C Issued Per Country

CountryNo. of L/C issued

India42

China31

Singapore12

Netherlands9

Thailand3

Indonesia7

Switzerland4

S. Korea14

Other38

Total160

Graph 9: Number of Import L/C Issued Per countryThe table and chart shows that, China and India dominate the import market. The highest no. of import L/C opened the beneficiary country India.

Item-wise BTB Export L/C

The following table shows the number of BTB Export L/C issued to different items at Janata bank, Dilkusha Corp. Branch, during the period of January to December, 2005.

Table-11: Number of Import L/C Issued Per Item

ItemNo. of L/C issued

Fabrics34

Yarn38

Accessories92

others5

Total169

Graph 10: Number of Import L/C Issued Per ItemThe table and chart shows that, accessories dominate the import market.

Analysis of Stability of Export-Import:

Standard Deviation, Variance and Co-efficient of Variation:

ImportExportFrnTrdProfit

2001192.43250.54442.974.50

2002203.69283.81487.504.76

2003172.54436.06608.607.49

2004197.20267.53464.735.80

2005155.01325.00480.0122.70

Sum920.871562.942483.8145.25

Avg.184.17312.59496.769.05

SD17.9166.4957.956.91

Variance320.924421.553358.7647.69

Co-efficient of Variation9.7321.2711.6776.30

Growth Rate Import

YearImportImport Growth Rate

2001192.43

2002203.695.85%

2003172.54-15.29%

2004197.2014.29%

2005155.01-21.39%

SD17.9114.68%

Growth Rate Export

YearExportExport Growth Rate

2001250.54

2002283.8113.28%

2003436.0653.65%

2004267.53-38.65%

2005325.0021.48%

SD66.4933.13%

Growth Rate Foreign Trade

YearFTFT Growth Rate

2001442.97

2002487.5010.05%

2003608.6024.84%

2004464.73-23.64%

2005480.013.29%

SD57.9517.57%

Performance analysis

Import-Export Business

Table 12: Import, Export and Profit of 2001 to 2005

Amount in Crore Taka

The performance of the Janata Bank in the last five (5) years especially in the sector of import and Export and comparison of the data with the net profit of the branch is shown above and graphically presented below:

Graph 11:

Import, Export and Profit of 2001 to 2005

A statistical tool like correlation analysis is done here to determine the relationship between the following:

Import business and profitability

Export business and profitability

Foreign Trade business and profitability

Correlation Analysis:

Correlation between Import and Profit:

Amount in Crore Taka

Import(X-)Profit(Y-)

YearXxx2Yyy2xy

2001192.43 8.26 68.16 4.50 (4.55)20.70 (37.56)

2002203.69 19.52 380.87 4.76 (4.29)18.40 (83.72)

2003172.54 (11.63)135.35 7.49 (1.56)2.43 18.15

2004197.20 13.03 169.68 5.80 (3.25)10.56 (42.33)

2005155.01 (29.16)850.54 22.70 13.65 186.32 (398.09)

Sum/Avg.184.17 1604.60 9.05 238.43 (543.56)

Co-efficient of Correlation:

r = -0.878799573

Co-efficient of determination, r2 = 0.772289

Correlation between Export and Profit:

Amount in Crore Taka

Export(X-)Profit(Y-)

YearXxx2Yyy2xy

2001250.54(62.05)3849.95 4.50 (4.55)20.70 282.32

2002283.81(28.78)828.17 4.76 (4.29)18.40 123.46

2003436.06123.47 15245.33 7.49 (1.56)2.43 (192.62)

2004267.53(45.06)2030.22 5.80 (3.25)10.56 146.44

200532512.41 154.06 22.70 13.65 186.32 169.42

Sum/Avg.312.59 22107.74 9.05 238.43 529.02

Co-efficient of Correlation:

r = 0.230422799

Co-efficient of determination, r2 = 0.053095

Correlation between Foreign Trade and Profit:

Amount in Crore Taka

Fr.Trd(X-)Profit(Y-)

YearXxx2Yyy2xy

2001442.97 (53.79)2893.58 4.50 (4.55)20.70 244.75

2002487.50 (9.26)85.78 4.76 (4.29)18.40 39.73

2003608.60 111.84 12507.74 7.49 (1.56)2.43 (174.47)

2004464.73 (32.03)1026.05 5.80 (3.25)10.56 104.10

2005480.01 (16.75)280.63 22.70 13.65 186.32 (228.66)

Sum/Avg.496.76 16793.78 9.05 238.43 (14.54)

Co-efficient of Correlation:

r = -0.007266563

Co-efficient of determination, r2 = 5.28029E-05

Regression Analysis:

Calculation of Regression Function of Import

Amount in Crore TakaYearImport(X)Profit(Y)XYX2

2001192.434.50865.9437029.30

2002203.694.76969.5641489.62

2003172.547.491292.3229770.05

2004197.205.801143.7638887.84

2005155.0122.703518.7324028.10

Sum920.8745.257790.31171204.91

Avg.184.179.05

Slop,

Intercept,

Regression Equation of Import, Profit(y)= a + bX

= 71.43938 + (-0.33875)*X

Calculation of Regression Function of Export

Amount in Crore TakaYearExport(X)Profit(Y)XYX2

2001250.544.501127.4362770.29

2002283.814.761350.9480548.12

2003436.067.493266.09190148.32

2004267.535.801551.6771572.30

2005325.0022.707377.50105625.00

Sum1562.9445.2514673.63510664.03

Avg.312.599.05

Slop,

Intercept,

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

= 1.570000 + 0.023929*XCalculation of Regression Function of Foreign Trade

Amount in Crore TakaYearFrnTrd(X)Profit(Y)XYX2

2001442.974.501993.37196222.42

2002487.504.762320.50237656.25

2003608.607.494558.41370393.96

2004464.735.802695.43215973.97

2005480.0122.7010896.23230409.60

Sum2483.8145.2522463.941250656.20

Avg.496.769.05

Slop,

Intercept,

Regression Equation of Foreign Trade, Profit(y)= a + bX

= 9.48011 + (-0.00087)*X

So, if the bank has a profit target of Tk. 20.00 crore in next year,

The bank is required to generate the following:

Regression Equation of Import, Profit(y)= 71.43938 + (-0.33875)*X

Regression Equation of Export, Profit(y)= 1.570000 + 0.023929*XTarget Import,

20 = 71.43938 + (-0.33875)*X

X = 51.43938 / 0.33875

X = 151.85 Crore

Or, Target Export,20 = 1.570000 + 0.023929*X

X = (-18.43) / (-0.023929)

X = 770.195 Crore

Or, the combination of Import and Export, Instead of achieving only Import Target or only Export Target.

Overview of Findings:

The whole process of Letter of Credit is highly dependable on the personal skills of the officers engaged in the process.

In processing Letter of Credit almost all activities charges lower than the private commercial banks.

For regular and old client, Letter of Credit issuance does not take more than an hour. But for new clients, it generally takes around one to two hours, provided no discrepancy found in documents deposited.

Relationship and introduction with the client plays a vital role in processing Letter of Credit, especially the time factor.

Janata bank takes more time in issuing Letter of Credit in comparison with the PCBs.

More than half of the total Foreign Trades income is come from opening charges of Letter of Credit. Other sources of income from Letter of Credit includes: postage charges, amendments charges, advise charges etc.

Of the 12 months of observation, maximum numbers of Import L/C issued in March, 2005, minimum numbers of Import L/C issued in August, 2005 and maximum numbers of BTB Export L/C issued in February, 2005, minimum numbers of BTB Export L/C issued in June, 2005.

Of the 12 months of observation, maximum amounts of income from Import L/C comes in February, 2005, minimum amounts of income from Import L/C comes in August, 2005 and maximum amounts of income from BTB Export L/C comes in April, 2005, minimum amounts of income from BTB Export L/C comes in January, 2005.

China and India are the major countries from where exports come against the Import L/C.

Most of the L/Cs are opened for accessories.

Stability analysis shows that there is a high degree of ups and downs in volumes of export and import. Growth rate of Foreign Trade is not increasing at a desirable rate. It fluctuates year to year.

Performance analysis shows that profit is increasing due to increase in export. In the year 2005 this branch reaches its highest profit of Taka 22.7 crore. And the highest amount of export reaches in the year 2003 of Taka 436.06 crore.

Correlation analysis shows that there is a high degree of negative correlation exists between Import and Profit; a low degree of positive correlation exists between Export and Profit, and a very low degree of negative correlation exists between Foreign Trade and Profit.

Recommendations:From the analysis and observation of the author, following recommendations have been formulated in order to smooth operation of Import-Export Business and to make the L/C processing more efficient:

Since the import-export business have the highest contribution to the profitability of the bank, it should take special attention.

Skilled manpower in the line of import-export business must be accomplished through proper training, remuneration and job satisfaction.

Latest development in the business should be introduced accordingly.

Since the whole process is largely depend on human skill, properly planned training program should be arranged and implemented for the improvement of technical and conceptual skills of the dealing officers.

The time requirements in the processing of L/C have to be minimized.

Steps should be taken to improve the coordination between the officers involved in the L/C issuing process.

Consumers should be classified based on their trustworthiness, volume of business and relationship with the bank.

Performance measurement programs can be introduced to measure the performance of the officers involved in the process.

The sources of cost especially on communication purposes should be measured and tried to be minimized.

L/C information should be kept in proper and organized manner. Most of the functions are still done manually. Integrated software can be introduced for this purpose.

As the knowledge of English language, computer skills and geography is mandatory for trade finance business, the bank authority should consider the criteria during recruitment of its employee.

Scope of further expansion:

Software

Jewellary

Frozen fish

Dry & dehydrated fish

Electrical and electronics item

Toys and Luggage

Fashion item

Leather goods

Stationary goods

ConclusionL/C as a mode of financing in foreign trade acts as a pre-import financing tool for the importer and a pre-shipment financing tool for the exporter. Like all other commercial banks, L/C issuance is a very important function that Janata Banks offers. Presently the bank has been functioning with a network of total 904 branches. The Bank has been functioning with a net work of Total 897 Branches including 4 Overseas Branches in U.A.E. Besides Janata Bank, has, at present 780 Foreign Correspondents abroad. It has 44 Authorized Dealer Branches and 29 Branches to deal with Wage Earners' Remittances. The most widely used L/C in all braches is irrevocable documentary L/C and the highest number of L/C opened is under Back to Back L/C, especially for RMG sector. Opening charge for L/C processing constitutes highest portion of Janata Banks income from L/C. there is much scope for Janata Banks Dilkusha Branch to improve its current L/C processing system to make it more efficient.

APPENDIX

Details of Import Income from January05 to December05

Amount in Crore TakaMonthCommissionPADEx. EarningOtherTotal Income

Jan4.361.060.256.1911.86

Feb8.825.070.87.7742.44

Mar10.415.660.571.3627.99

Apr13.322.240.42.5418.5

May7.941.320.64.0213.88

Jun13.080.380.334.0117.8

Jul5.580.60.35.1311.61

Aug3.580.250.061.365.25

Sep4.790.420.221.757.18

Oct5.2114.141.6816.5337.56

Nov0.4212.651.250.3114.63

Dec4.284.610.452.8712.21

Total81.7678.46.9153.84220.91

Details of Import Export and Foreign Trade from year 2001-2005

Amount in Crore TakaYearImportExportFTProfit

2001192.43250.54442.974.50

2002203.69283.81487.504.76

2003172.54436.06608.607.49

2004197.20267.53464.735.80

2005155.01325.00480.0122.70

Total920.871562.942483.8145.25

BIBLIOGRAPHY

Books:

Annual report 2001-2005, Janata Bank

Branch Performance Report 2001-2005, Janata Bank, Dilkusha Branch

Import &Export Policy, 2003-2006

Gupta, S.P., Gupta, Business Statistics, 12th revised edition

Shekhar, K.C. & Lekshmy Shekhar, Banking theory and practice, 18th Ed.

Websites: www.janatabank-bd.com

www.tdcommercialbanking.comImporter

Exporter

Issuing Bank

Reimbursing Bank

Negotiating Bank

Confirming Bank

Ship of the Goods

Advising Bank

1

2

3

4

5

6

7

8

9

10

11

14

15

12

13

Import Finance

Janata Bank

Pre Import Finance

1. L/C (Letter of Credit)

Post Import Finance

PAD

LIM Agreement

Forced LIM

LTR

Dispatching L/C

Crediting the account

Checking the L/C

Typing the L/C

Singing offering sheet

Checking Documents

Putting L/C No.

Preparing offering sheet

Collecting forms and depositing those

Discussion between the Bank and the party

Application in companys letterhead pad

Post Shipment Finance

Negotiation of Export Bills

DP/DA

Collection of Export Bills

Pre Shipment Finance

1. Packing Cash Credit (PCC)

2. Back to Back L/C

Export Finance

Janata Bank

Letter of Credit : Definition

Advantages of L/C

Parties to a Letter of Credit

Uniform Customs and Practices of L/C

Regulatory Provisions Regarding L/C

Operational Flow of the Process

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This section is designed to review the theoretical understanding of the Letter of Credit. The relevant word about ICC & UCPDC is included here in brief. Local & International rules currently in action and uniform process or operational flow in L/C processing is described briefly with the help of a graph.

L/C OPERATION : A THEORITICAL REVIEW

GLOBAL AND BANGLADESH ECONOMY

CHAPTER - 3

Chapter Hints

History of the Bank

Functions of the Bank

Branch network

Management system

Products and Services

Import-Export Business

Origin of the Report

Objective

Scope

Limitation

Research Design

Report Organization

Chapter Contents

This section is designed to introduce you with the report. You will learn here the origin, objective, and scope of the report. The limitation the author faces are included here also. You will know in this section, how the research is performed and how they are described.

INTRODUCTION TO THE INTERNSHIP REPORT

INTRODUCTION

Chapter Hints

Global Economy

Bangladesh Economy

Banking Sector

Chapter Contents

This section is designed to introduce the overview scenario of the Global Economy especially in World Trade. The later part is on Bangladesh Economy which includes the current situation and growth rate of overall GDP, Industrial Production, and Import-Export. Major changes in banking sector are explained here.

GLOBAL AND BANGLADESH ECONOMY

CHAPTER - 1

Chapter Hints

Chapter Contents

This section is designed to introduce the Janata Bank at a glance. All about the bank is bring here together in a summary form. History, function, management system, network of its Branch, and the services it offered includes this chapter. The prospect of Import-Export Business of total Bank is also summarized here.

OVERVIEW OF THE ORGANIZATION : JANATA BANK

GLOBAL AND BANGLADESH ECONOMY

CHAPTER - 2

Chapter Hints

Considered factors of the L/C Applicant

Documents required for L/C

Forms provided by Janata Bank

Communication media

L/C Issuing Process

Letter of Credit in Import Financing

L/C in Export Financing

Amendments to Letter of Credit

Bank charge in different steps

Required Time duration in L/C Processing

Chapter Contents

This portion of the report is designed to describe all the matter about L/C processing, amendment, required charges/time duration in different stages. The required documents have to be deposited by the clients and the forms to be provided to the client and the communication media is being used currently in this Branch of Janata Bank is presented here in details.

L/C OPERATION : PRACTICED IN JANATA BANK

GLOBAL AND BANGLADESH ECONOMY

CHAPTER - 4

Chapter Hints

Analysis of Income from L/C

Analysis of Charges with Different Banks

Analysis of Time Requirement of Different Banks in L/C Processing

Analysis of Behavior or Trend

Analysis of Stability of Export-Import

Performance analysis

Correlation Calculation

Regression Analysis

Chapter Contents

This portion of the report includes all the analysis, has performed from the collected information. Income of the Bank, Charges of L/C processing and Time Requirement considering that of other Banks is analyzed here. Performance is analyzed using some statistical tools such as, Standard Deviation, Correlation, Regression and Growth Rate.

L/C OPERATION : ANALYSIS

GLOBAL AND BANGLADESH ECONOMY

CHAPTER - 5

Chapter Hints

Overview of Findings

Recommendations

Conclusion

Chapter Contents

This section is designed to conclude the report reviewing the Findings, giving relevant Recommendations. The findings are accumulated here in a short place. The Tips that can the Bank follows to improve their performance is included in Recommendation page and the report is concludes by conclusion.

RECOMMENDATION AND CONCLUSION

CHAPTER - 6

Chapter Hints

PAGE 3

_1203625880.unknown

_1203630996.unknown

_1203721717.xlsChart1

121710

171121

222914

141017

121710

191520

Food

Gas

Motel

Sheet1

Table-4:

Month-wise income from Import L/C

MonthTaka (in Lac)

Jan11.86

Feb42.44

Mar27.99

Apr18.50

May13.88

Jun17.80

Jul11.61

Aug5.25

Sep7.18

Oct37.56

Nov14.63

Dec12.21

_1203753761.xlsChart

11.86

42.44

27.99

18.5

13.88

17.8

11.61

5.25

7.18

37.56

14.63

12.21

Month

Chart-5:Month-wise income from Import L/C

Sheet

Import Income

Jan11.86

Feb42.44

Mar27.99

Apr18.50

May13.88

Jun17.80

Jul11.61

Aug5.25

Sep7.18

Oct37.56

Nov14.63

Dec12.21

_1203757521.xlsChart1

192.43250.544.56.02

203.69283.814.766.26

172.54436.067.498.88

197.2267.535.87.06

155.0132522.721.84

Import

Export

Profit

Non Interest Income

Sheet1

ImportExportProfitNon Interest Income

2001192.43250.544.56.02

2002203.69283.814.766.26

2003172.54436.067.498.88

2004197.2267.535.87.06

2005155.0132522.721.84

_1203723031.xlsChart

21.33

115.88

204.51

336.21

133

69.5

119.02

198.99

131.37

118.57

82.37

80.17

Export Income

Chart-6: Month-wise income from BTB Export L/C

Sheet

Export Income

Jan21.33

Feb115.88

Mar204.51

Apr336.21

May133.00

Jun69.50

Jul119.02

Aug198.99

Sep131.37

Oct118.57

Nov82.37

Dec80.17

_1203723030.xlsChart

15.9558333333

20.3958333333

21.9958333333

24.9158333333

19.5358333333

24.6758333333

Import Income

Import Income

Sheet

Table-5:

Month-wise income from BTB Export L/C

MonthTaka (in Lac)

Jan21.33

Feb115.88

Mar204.51

Apr336.21

May133.00

Jun69.50

Jul119.02

Aug198.99

Sep131.37

Oct118.57

Nov82.37

Dec80.17

_1203721107.xlsChart1

55

10

15

20

Income

Sheet1

Income

Opening Charge55

Postage10

Amendments15

Miscellaneous20

_1203721131.xlsChart1

55

10

25

10

Income

Sheet1

Income

Opening Charge55

Postage10

Amendments25

Miscellaneous10

_1203631245.unknown

_1203631620.unknown

_1203631875.unknown

_1203631037.unknown

_1203629287.unknown

_1203630551.unknown

_1203630806.unknown

_1203630841.unknown

_1203630445.unknown

_1203628036.unknown

_1203629285.unknown

_1203629286.unknown

_1203628007.unknown

_1203624851.unknown

_1203625240.unknown

_1203625824.unknown

_1203624904.unknown

_1203516965.xlsChart1

10

30

21

22

15

5

9

12

14

16

8

7

Sheet1

Jan10

Feb30

Mar21

Apr22

May15

Jun5

Jul9

Aug12

Sep14

Oct16

Nov8

Dec7

_1203622057.xlsChart1

192.43250.544.56.02

203.69283.814.766.26

172.54436.067.498.88

197.2267.535.87.06

155.0132522.721.84

Import

Export

Profit

Non Interest Income

Sheet1

ImportExportProfitNon Interest Income

2001192.43250.544.56.02

2002203.69283.814.766.26

2003172.54436.067.498.88

2004197.2267.535.87.06

2005155.0132522.721.84

_1203624230.unknown

_1203516761.xlsChart1

34

38

92

5

Sheet1

Fabrics34

Yarn38

Accessories92

others5

_1203516947.xlsChart1

8

22

26

23

17

12

8

7

8

10

9

10

Sheet1

Jan8