CREDIT EVALUATION PROCESS OF THE PREMIER BANK LIMITED by lawjuris

“CREDIT EVALUATION PROCESS OF THE PREMIER BANK LIMITED”

REPORT ON CREDIT EVALUATION PROCESS The policies, procedures and controls outlined in this Manual are minimum operating requirements and should not therefore be considered as all-inclusive. It is envisaged that the procedures and controls given in this Manual should not limit the scope for the credit manager’s own judgment or be seen as fetters of his enterprise and business acumen. It is only intended that these procedures will equip him to assess business risks more closely and more methodically. Staff/officers should keep in mind the Bangladesh Bank credit restriction on advances while handling customer (s) requests for credit facilities. They are also advised to make themselves conversant with “Managing Core Risks in Banking” prepared for Bangladesh Bank and received by the bank in October/2003.

PRINCIPLES OF LENDING The principles of lending can be considered as follows: PROFITABILITY All credit facilities granted to the Bank's customer must produce profit. When judging a credit proposal, branch managers/ Business Relationship managers should take a comprehensive view of the business and other allied business that will be received by the branches. Particular attention should be given to facility parameters (e.g./ maximum amount, purpose, repayment period, security, pricing) should be clearly stated.

PURPOSE OF THE FACILITY -

The purpose of advance should be studied with a view to understanding whether it is within the policy of the Bank. The purpose of borrowing should not in any way contravene laws or Bangladesh Bank exchange control /banking control requirements.

In the case of corporate borrowers, the purpose of borrowing must be consistent with the objectives of the company. The objectives laid down in the memorandum and articles of association or bye-laws of the company must be carefully examined before considering any credit facility for limited companies.

In the case of other borrowers it must be in line with the occupation mentioned in AOF.

SOURCE OF REPAYMENT - Demand /supply of the goods /product has to be carefully considered for repayment of the outstanding. If the goods /products have a continuous market then the repayment is considered realistic within a period, as agreed, by profitable cash generation. -

Long-term advance, generally over 5 years: examples of such facilities are investment in plant and machinery, buildings, a shop: generally, a long term loan is repaid out of future profits generated by the business.

Before granting a facility Relationship manager/Branch manager should ensure that a reliable source of repayment exists and that the advance will be paid within the agreed period. When considering the period of repayments, sufficient margin should be provided for unforeseen circumstances such as downward markets trend or the general economic condition of the country. Besides payments of interest and installments, the funds generated by the business should preferably leave adequate margin for meeting needs AOF-Account Opening Form.

For future expansion or other business contingencies.

Where the facilities are adequately secured by fixed assets, the sale proceeds of such security should not be considered as a prime source of adjustment of the facilities, since profitable cash generation of the business we considered as the prime source.

In order to ascertain the capacity of the business to meet it's obligations, the cash budget projections should be critically examined to ensure that repayment projection is realistic/ acceptable.

Regular monitoring of cash budget should continue during the life time of the advance, and if any deviation is in evidence should be examined for a revised cash budget statement and carefully monitored.

SAFETY -

To safeguard Bank's interest over the entire period of the advance, a comprehensive view of the capital, capacity and integrity of the borrower, adequacy and nature of security, (KNOW YOUR CUSTOMER) compliance with all legal formalities, completion of all security documentation and finally a constant watch on the account and cash budget/cash flow are called for. All advances will be against adequate security.

The basis of security valuation will be expert third party assessment at two levels; current market price and forced sale value.

In the case of property, valuations should be provided by estate valuation personnel /expert valuation firm.

Inventory valuations may be taken at the balance sheet values shown in unqualified audited accounts after the branch manager /Relationship manager has carried out his own investigation in to the composition of the inventory.

Specialist valuation personnel, and or expert valuation firm will be requested by the branch manager/RM to provide other asset valuations such as machinery and equipment.

The value of debtors may be taken at the balance sheet values shown in unqualified audit accounts.

The above valuation is applicable for a business under a going concern concept and that the advance is rated good.

In case the account is down graded the value of stocks and debts should be ignored for finding out the realization value.

RM-Relationship Manager VARIOUS TYPES OF BORROWERS In this chapter, eight types of borrowers are considered: 1) Individuals: Single and Joint

The fact that two or more persons have jointly opened an account does not imply that they have power to pledge each other's credit.

Joint account mandate should therefore in variably be signed by all parties to the account when opening an account.

The branch manager /manager, should also ensure that joint & several liability of all the joint account holders is established in the joint account mandate.

One advantage of securing joint and several liability of joint account holders is that it will enable the bank to set off a credit balance in the personal account of any of the joint account holders against the debit balance in a joint account.

It is necessary to break the existing joint account immediately upon receipt of notice of death, insolvency or mental in capacity of one of the joint holders.

Breaking off an account means that no further withdrawls should be allowed after the receipt of notice

The account should not be closed nor should the balance be transferred to a new account.

If further withdrawals are allowed, they should be recorded in a fresh account to be opened in the names of the remaining joint account holders after completing all the formalities.

As soon as possible thereafter the credit facilities granted should be reviewed at the appropriate level.

Ensure that Borrower is not suffering from any incapacity. In particular, verify that Borrower is not a minor, insane or insolvent, apart from verifying character and credit worthiness. These persons are not capable of contracting and therefore any borrowing by them could be unlawful.

PARTNERSHIPS -

Every partner is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. After his death his estate is also severally liable. However, it is advisable to obtain legal advice as regards the charge documents to be obtained from the partners if doubt arises for any reason, so that the Bank's interest is protected at all times.

Although any partner in a trading firm has implied power to open a banking account in the firm's name and so bind the partnership, he cannot bind the

firm by opening an account in his own name for the firm unless he has been expressly so authorized by all the partners. -

Any change in the partnership due to death, bankruptcy, retirement, addition of or mental incapacity of a partner dissolves the firm. After such an event the account of the partnership must be broken. Breaking of an account means that no further operations are allowed after receipt of notice of death or any other change in the composition of the partnership. The account is not closed and it should not be transferred. Further operations, if any should be allowed in a new account with the remaining partners.

The credit facilities should be reviewed as soon as possible and the decision whether any action is required against the estate of the deceased should be taken.

The branch manager should obtain guidance if considered necessary from the Bank legal advisor, who in turn will be able to advise the branch manager on the actions that he should take in the event of any change in the partnership's legal composition/content.

PARTNERSHIP AS BORROWER -

Obtain partnership Deed

Verify whether there is any restriction on borrowing

Check who are the partners who are empowered to borrow. What are the limitations, if any on such borrowing?

Is the purpose of the 'borrowing' within the scope of the partnership business?

Is the partnership authorized to give guarantees?

Verify whether there is any restriction in creating mortgage / charge on properties of partnership.

Obtain personal guarantees of all partners.

Have documents signed by all partners unless any one of the partners, or the single partner-signing document is deemed fully competent to do so under which the firm is constituted.

LIMITED COMPANIES

The bulk of advances are granted to companies, whether Private or

Public. It should be clearly understood that a company is a separate legal entity, distinct from its directors and shareholders. The bank officer will ensure that the following documents are already with the bank a) Copy of the Memorandum and Articles of Association. b) Copy of the certificate of incorporation or evidence that this has been inspected and returned to the customer. c) Certificate of authority to commence business. (This is not required in the case of Private Company) d)

Certified copy of a Resolution of the Board of Directors regulating the conduct of the Account.

The following questions should be raised by the branch/credit manager when considering any credit facility to a corporate borrower. The answers to these questions can be obtained by reference to the Memorandum and Articles of Association and duly authorized byelaws and resolutions of the company.

a) Whether the company and /or its director has the power to borrow, to invest or lend its funds, to mortgage its property and give security, and to give guarantees. The Memorandum and Articles of Association or bye-laws etc. normally define the company's power to borrow etc. b) What are the limitations on the amount, which can be borrowed? Sometimes the amount that may be borrowed by the directors is limited either to a particular figure or to a figure worked out by some formula. For example, directors may be restricted to borrow up to the amount of Paid-up capital of the company. The branch manager should ascertain by reference to the memorandum or articles of association whether any limitation has been placed on the director's power: borrowing in excess of the limit given in the Memorandum or

bye-laws is ultra-vires and since such borrowings are void the Bank will not be able to recover them from the company. c) What is the purpose of borrowing? It must be within the scope of the company's objectives. The Memorandum and Articles of Association, bye-laws etc. describe the company's principal and subsidiary objectives. It must also be ensured that the directors exercise their authority legally and in the general interest of the company. d) What powers are there to give security? The Memorandum & Articles of Association specifies the powers enjoyed by the company in giving charge on its assets. The directors' power to give charge on a companyâ&#x20AC;&#x2122;s assets is detailed in the articles of association. The branch / credit manager must examine the articles to ascertain whether any specific restrictions have been placed on the directorsâ&#x20AC;&#x2122; power to give security. LIMITED COMPANIES AS BORROWER A. 1 (i). Obtain Memorandum and Articles of Association / Statute under which the corporation is established. A.

1(ii) Verify: (a) whether it is empowered to borrow; (b) Are there restrictions on the corporation's power to borrow, e.g. limitation as to the amount? (c) What are the Directors' borrowing powers?. (d) Is the purpose of the borrowing within the objective clause of the Memorandum and Articles of Association / charter? (e) Is it empowered to create mortgage /charge on its properties? (f) Is it empowered to give guarantees?

A.1 (iii) Obtain appropriate Board Resolution to borrow and any other documents, as may be required in terms of sanction. A.1 (IV) Have the documents been signed by persons properly authorized? (If in doubt, verify who is /are authorized to sign on behalf of the borrower i.e. authority of directors in Memorandum &

Articles of Association and / or in Board Resolution and /or in other records).

Make sure of the identity and signature of authorized

persons. A.1 (v) Inspect the official records (e.g. the office of the Registrar of Joint Stock Companies) to ascertain (a) what is the Paid-up Capital; (b) who are the directors; (c) what are the charges /mortgages already registered in respect of properties of the Borrower etc. Obtain certified copies of these records and preserve.

UN INCORPORATED BODIES -

Unincorporated societies or clubs cannot be sued for a debt. The branch manager should not allow any advance, including temporary overdraft, to such societies or clubs.

Credit facilities to unincorporated societies or clubs are sometimes granted against the personal guarantees of members of the club or pledge of specific securities. The branch/ credit manager should make reference to HO and obtain prior approval and guidance before granting an advance to an unincorporated society or club. TRUSTS

Trustees have no automatic implied powers to borrow for the purpose of the trust. It is necessary to ascertain from the trust deed or the rules and regulations of the charity whether the trustees possess the necessary power to borrow.

Similarly, trustees do not have the power to offer any asset belonging to the trust as security, unless the trust deed or similar document has expressly empowered them to do so.

LOAN CATEGORY SET OUT IN BANGLADESH BANK LOAN CLASSIFICATION MANUAL i)

Agriculture – (AG)

ii)

Large and Medium Scale Industry (Term Loan) – (LM)

iii)

Small & Cottage Industry (Term Loan) – (SCI)

iv)

Working Capital – (WCL)

Working Capital (Small Industry) – (WCS)

vi)

Export – (EX)

vii)

Commercial Lending - (Com)

viii)

Ready Made Garments - (RMG)

ix)

Housing – Commercial - (HC)

Housing – Residential - (HR)

xi)

Other – (OT)

SMALL BUSINESS / PERSONAL LOAN ASSESSMENT FORM A statement of financial position (as at date of application and/ or end last month) for loan/ advance applied for by an individual/ retail and/ or small borrower must be obtained to asses the Liabilities / Assets of the customer in the proforma as appeared in the next page. SMALL BUSINESS / PERSONAL LOAN ASSESSMENT FORM The Manager The Premier Bank Limited. STATEMENT OF FINANCIAL POSITION AS AT LIABILITIES

Taka

Taka in nearest whole unit. Assets

Present Value Taka

The Premier Bank Limited

- Overdraft/ Cash Credit - Other loans - Accrued interest Other banks-Borrowings - over draft /cash credit - loans - Accrued interest Borrowing from Employer Accrued interest Credit cards Other outstanding accounts (specify) Trade creditors & bills payable Loans against Life Policies

- Current A/C - Saving A/C - Other Term Deposit etc.. Accounts at Other banks - Current A/C - Saving A/C - Other Term Deposit - Any other Deposit Book debts Stocks in trade Work in Progress House property Address In name of

Mortgages/ Loans Asset charged to 1. 2. 3. TIN # Taxation due on Other liabilities (details)

Purchased / / for Taka Insured for Taka Other property (details)

Motor Vehicles /Motor Cycle Make Model Cost Tk. Savings Certificates/ Prize Bonds/ Bonds (Market Value) ICB Certificates Shares/debentures (Market Value) Office equipment (details) (Cost Taka) Plant and machinery (Cost Taka)_ Furniture and household effects (Cost Taka)_ Life policies Annual Premium Tk. Date Taken

Sum Assured

Annual premium due

Total Liabilities Surplus Total (to agree Taka

Other assets (details) with

total

assets)

Total assets

Taka

Contingent Liabilities( Guarantees to bank and others)

P.T.O

Taka in whole unit Income (Average monthly) Business Income -Sales Taka -Net profit Salary (Net after tax & super) Self - Spouse Overtime Part time employment Dividends Interest Rent received Commission Other (details)

Expenses/Commitments (Average monthly) House Loan repaymentsOther loans (details) Rent payable

Credit cards Lease in statement payable for

Lease rental (terminating for Payment to Taxation (if not deducted from income) Life assurance premiums PF contribution Car reg. Ins. and running expenses Rates-Government & Municipal Utilities i.e. fuel, light, water Telephone and power Education (No of children) Tuition fees etc. Living expenses food, clothing & personal) Medical Social Commitment Club Bill

Total monthly income Less total monthly outgoing

Total Taka

monthly

income

Total Monthly Outgoing

WORKING CAPITAL WORKING CAPITAL-funds invested is a companyâ&#x20AC;&#x2122;s Cash, Accounts Receivable, Inventory and other CURRENT ASSETS (Gross Working Capital). Working capital finances the CASH CONVERSION CYCLE of a business-the length of time required to convert raw materials into finished goods, finished goods into sale, and accounts receivables into cash. These factors vary with the type of industry and the scale of production, which varies in terms with reasonability and with sales expansion and contraction. Internal sources of working capital include RETAINED EARNINGS, savings achieved through operating efficiencies, and the allocation of CASH FLOW from sources like depreciation of deferred taxes to working capital.

External sources include bank and other short-term borrowings. CREDIT MEMO All figures in 000’s Originating Unit : Applicant :

Page – 1 Number :

Date : Customer

grade :

Telephone Fax e-mail web site ID # CIB code TIN #

Review Date : : : : : : : :

Nature of Business : INDUSTRY/BUSINESS LOCATED AT MARKETED BY THE BANK/CUSTOMER APPROACHED/REFERRED BY INDIVIDUAL

Facility Type

Total Taka

Currency

Present Limit Taka

LENDING CATEGORY

Proposed Limit. Taka

Outstandings Taka

1 Purpose

2 Repayment

3 Security

Interest/ Commission

Complies with Credit Policy

Yes/No

Exception to Credit Policy obtained

Yes/No

Exception to Credit Policy :

Contd.

P/2

Approved/Reviewed :

Page – 2 FINANCIAL DETAILS OF CUSTOMER (All figures in 000’s) Currency. TAKA As at Current Assets Current Liabilities Net Current Assets/Liabilities Fixed Assets Other Non Current Tangible Assets Long Term debt deferred Tax Other Term Liabilities Intangibles Paid up Capital Reserves (inc. Retained Earnings) Tangible Net Worth

Sales (Turnover) Profit (Before Tax) Net Profit (After Tax) Depreciation and other Non Cash Charges Dividends declared or withdrawals Capital Expenditure Current Ratio Leverage Ratio Gearing

FACILITIES WITH OTHER BANKS (CIB / BANK /

Contd. P/3

Self declared)

Account Profitability Page â&#x20AC;&#x201C; 3 Balance of other accounts in name of Applicant at this or any other branch

Constitution, date formed and up to date history of account

Name of Directors, Names and means of Partners, Proprietor and Guarantors with address & phone

Associated concerns and their relationship, also details of facilities granted thereto at this or other branch

Main Participation and % Share holding

Allocation of credit for this sector

Balance during Past 12 Months Maximum Current A/C Dr. Current A/C Cr. Letter of Credit Guarantees Import Bills (O/Due)

To be filled in by HO

Minimum

Enclosures 1) Balance Sheet 2)

SPREAD SHEET

3) Profitability Statement 4) Cash Budget

Term Loan Contd. P/4 Page â&#x20AC;&#x201C; 4 Certify That : 1

Know your customer policy guidelines read & understood CIB and Report from other banks obtained and found satisfactory Security documentation complete and in order after sanction and before disbursement. Conforms with exchange control

requirements No conflicting charges registered

2 3

Reconciliation of borrowing from the bank

Memorandum and Articles of Association held

List of book debts examined and considered soun security

The proposal does not contradict to any objectiv clause of the Bank.

The proposal does not contradict with rules an regulations of Bangladesh Bank and Bankin companies Act. Due diligence have been taken in processing th proposal and all facts relating to the proposal whic came to our knowledge have been revealed in th Credit proposal.

No other charges outstanding except as detailed in latest B/sheet

Authorized limit adhered to and borrowings covered by security with stipulated margin Swing of overdrawn accounts satisfactory

Stocks etc., fully insured to our satisfaction

Stock inspected and in order

Borrowing powers in order

Title and valuation of properties mortgaged to the Bank in order Branch Managerâ&#x20AC;&#x2122;s comments and recommendation -

Notes on certificates Waivers requested Comments on Management Industry scan / Activities / Products / Markets Key risk issues Why do we want to do it Competitors Cash budget with explanation Management, labor and other resources Security Account Profitability Analysis of Risk Business Risk/SWOT Financial Risk Management Risk Structural Risk Security Risk Accounts Performance Risk Reward/Relationship strategy (Profitability) Recommendation:

CASH CREDIT

An advance under this head is granted for financing inventory, which may be either pledged or hypothecated to the Bank as security. A limit is advised to the borrower. INVENTORY -

A borrower should normally be granted credit facilities against pledge or hypothecation of those goods in which he usually deals.

Raw materials for manufacturing goods are mostly imported and therefore the pre- manufacturing price of the materials is invoice value (C&F) + duty & taxes (customs bill of entry) + insurance cost +transport cost +storage cost + clearing & forwarding agents commission.

The margin on the advance may be determined on the landed cost of the goods but an adequate margin should be maintained depending on the marketability of the finished goods.

When considering an advance secured by locally purchased inventory it is important to verify that the borrower has the tittle to goods he intends to pledge or hypothecate to the Bank. Title to the goods can be verified by reference to the original invoices. Prices shown on purchase invoices can also help the Bank to determine the amount, which could be advanced against the goods after deducting an adequate margin. Generally the stipulated margin should provide for an adequate cushion at all times against falls in price or stock shortages due to handling.

The safety of advances secured by inventory depends on the marketability of the goods and their value. The turnover of goods is a reliable indicator to ascertain the marketability of goods. When judging the turnover in the account, the total amount of receipts and payments in relation to the size of the advance should be considered.

Lack of movement in the account may indicate that the goods are obsolete, out of fashion, overvalued or defective in some other way, and hence are not marketable. The aging of the goods may affect their quality and price leading to a reduction in inventory values and insufficient security cover for the advance.

The branch manager must pay a great attention to movements in the

customers' account especially after the credit facility is secured against inventory. Turnover on the account should be consistent with the CASH BUDGET of the borrowers' business. -

A realistic CASH BUDGET must be supported by each advance, which should be monitored carefully to ensure that the advance is repaid as budgeted. Any deviation must be carefully examined so that corrective measures are taken for repayment of the outstanding.

A proforma of CASH BUDGET is enclosed.

There are two ways in which the Bank may accept inventory as security for an advance. (a) by pledge of goods (b) By hypothecation of goods.

Ensure that the charge on hypothecation has been registered with the Registrar of Joint Stock Companies in case of advance to limited companies. A prohibition of further charge clause by other bank must be part of our charge in form xviii i.e. the charge form.

In case of a pledge, goods are taken into the possession of the Bank and stored either in the Bank's own warehouses or in warehouses approved by the Bank. One of the conditions which the bank should insist on is that the warehouse must provide as much care and attention to the safety of the goods as the owner of the goods himself could provide.

An adequate waiver letter from the owner of the warehouse stating that bank's charge will prevail over the charge of the owner of the warehouse so long the goods remain in the warehouse.

The following additional points must be noted when considering the safety of the goods. (i)

The warehouse should be located in an area where there is reasonable security against theft and burglary, alternatively-guards at the warehouse may be considered.

(ii)

The selection of the warehouse will depend on the specific nature of the goods stored: e.g. goods liable to be damaged by moisture and other hazards require extra precaution as regards the flooring and ventilation

in the warehouse. Proper Dunnage should be laid on the floor before any storage is made. -

The warehouse should have leak-proof roofs and strong doors.

The warehouse may be equipped with fire extinguishers.

Insurance cover against possible hazards for full value of the goods + 10% must be obtained and recorded in the insurance register at the bank and filed with the security documents.

Insurance policies must be renewed on expiry of the policy, and or delivered to the customer if outstanding repaid, against acknowledgement. THE STOCK REGISTER

A stock register for pledged goods must be maintained at the Bank branch.

Movements for IN-OUT-BALANCE must be recorded at the time of entry and delivery of goods.

A bin card also to be fixed with the stock in the godown for recording of the movements of the stock.

Each delivery of goods must be supported by a delivery order executed by an authorized signatory of the bank. FIFO method should be applied for delivery if all goods are of the same nature. Acknowledgement of delivery of goods must be obtained on the back of the delivery order by the borrower, by his signature, as recorded with the AOF and dated.

The delivery order should be filed in the bank branch. Note: A DELIVERY ORDER is a document addressed by the owner of goods to the proprietor of a dock or warehouse in which the goods are stored, instructing such proprietor to delivery either all or some of the goods to a specified person or to his assigns. Although a delivery order is not strictly a document of title and does not require stamping, it is necessary to enable a third party to obtain goods covered by a warehouse keeperâ&#x20AC;&#x2122;s receipt or certificate.

INSPECTION OF GOODS

Inspection of goods pledged to the bank should be carried out at regular intervals by a team of two officers at a time. While inspecting the goods, care should be exercised to ensure that.

(a) Goods are of a reasonable age: this would depend on the nature of the goods pledged. (b) Goods are easily marketable at the value at which they are pledged. (c) There is a frequent turnover of the goods pledged. (d) Condition of the warehouse. (e) Up to date receipts of Municipal tax receipts, etc. -

Inspection of goods should be carried out with reference to the stock list submitted by the borrower each fortnight /month. The inspecting officers will review the list and satisfy themselves as to its accuracy.

The stock list should also tally with the stock register maintained at the branch.

The stock list should be retained in the borrowersâ&#x20AC;&#x2122; account file.

The inspecting officers should submit a report on their findings.

Satisfactory reports should be filed.

Necessary follow up should be made with the borrower for correcting irregularities, if there are adverse comments.

Name board inscribing UNDER PLEDGED TO THE PREMIER BANK LIMITED must be displayed in outside & inside the godown. HYPOTHECATION

A credit facility against hypothecation of goods will only be considered against established business house.

The proprietor, partner, directors of the business house must be of indubitable integrity.

The procedure of monitoring under hypothecation is similar to pledge with the following exceptions. That the goods will remain under the control of the borrower. The control is maintained on periodical submission of stock statements submitted by the borrower(s) and by regular inspection of stocks and by surprise inspection. (1) Ensure that all transactions of the borrower(s) particularly in relation to the sale and purchase of goods hypothecated to the bank, must pass through the account with the bank, and reflected in the periodical stock statements. (2) Ensure that margin stipulation on stock value is maintained.

(3) CASH BUDGET must be carefully examined to ensure regular sale proceeds as projected are deposited, and irregularity if any, must be examined and sorted out with the borrower. BOOK DEBTS AND RECEIVABLES -

Book debts and receivables are a form of property which a owner (borrower) does not actually possess but which he has right to receive.

In our country we seldom had experienced BOOK DEBTS constitute primary security. However, manufacturers /businessmen have to grant credit in the course of business resulting in book debts.

It has been the practice prevailing in our country to obtain Hypothecation over BOOK DEBTS along with Hypothecation over stocks.

Generally we should not consider book debts, which are more than three months old as a valuable security. Periodical ageing of outstanding book debts must be obtained preferably in the stock statement, and examined as to their realizable value.

The branch must regularly monitor receipts of the security, which should reflect in the account.

Quick recovery of Book debts influences the P & L of the entity.

In the normal course, if the obligant is a limited company, a charge with the Registrar of Joint Stock Companies must be obtained in form xviii, and registration certificate obtained.

DEMAND LOANS (GEN) Demand Loan is defined as a loan for a specific purpose, agreed and granted, repayable over a period of time in periodical installments. As usual interest is charged on a quarterly basis to the account and /or in current / savings account as agreed at the time of granting the loan. SECURED OVERDRAFT (SOD) Overdrafts for either short or longer periods are normally granted against the security of tangible assets and financial obligations viz. FDR, Sanchya Patras etc. They are called secured overdrafts.

EXPORT CASH CREDIT (ECC)

Credit facilities allowed to a borrower to facilitate export of commodities against Lien of Confirmed letters of credit and/or confirmed orders from the renowned foreign buyer. The advance is repaid out of export proceeds within a maximum period of 180 days.

TEMPORARY OVERDRAFT-TOD (Current Account)

Customers who maintain satisfactorily conducted accounts may be accommodated at their specific request to overdraw their balance in the current account to meet unexpected and urgent requirements for credit facilities. The amount up to which overdrawing is permitted is dependent on the need of the customer, the previous conduct of his account with the Bank and turnover in the account, average balance maintained etc. The overdraft must not be allowed to continue beyond 3-7 days from the date of sanction.

CLEAN ADVANCE -

In the course of our banking business, we require to give clean advance in exceptional cases only to parties of undoubted standing for a period not extending a week.

While considering such facility to a highly rated customer, source of repayment must invariably be obtained, and confirmed.

Advance payment against uncleared effects may be granted on the standing of the borrower.

If the outstanding is not repaid within seven days, it should be reported to line management who in turn report to controlling authority, detailing reason of non-repayment and expected date of repayment.

CONSUMER CREDIT SCHEME

Special credit of the bank to finance purchase of consumers durable to the fixed income group. The bank normally finances up to a limit of maximum 90% of the goods to be purchased.

The customers are allowed to enjoy the loan if the bank is satisfied that he/ she has the means to repay within a specified time period.

Personal net worth statement must be obtained and verified before granting the loan.

If the customer is an employee of a company / firm, a letter from the employer stating that monthly installment would be sent to the bank for repayment of the employersâ&#x20AC;&#x2122; loan must be obtained.

HOUSE BUILDING LOAN Loan granted to individual /corporate body for construction of buildings for living and/or for commercial purpose. The amount of loan is required for a longer time as such repayment program must be supported by a cash budget for the life of the loan period and critically examined before granting of the loan. HOUSE BUILDING LOAN (STAFF) STAFF LOAN General Any Loan considered / granted for our permanent STAFF ROLL is governed by staff TERMS OF SERVICES.

LOAN GENERAL Loan created under short / medium/ long term to individual and /or to entities for a specific purpose repayable by installments.

TRANSPORT LOANS Loans for acquiring any type of vehicles. Cost of vehicles must be ascertained as under: (i)

Invoice value plus (+)

(ii)

Duty & Taxes (As appraised under customâ&#x20AC;&#x2122;s Bill of Entry)

TERM LOAN SMALL AND COTTAGE INDUSTRY Short Term loans and / or medium term loan financing to small & Cottage Industry. Small & Cottage Industry is defined as an industry having investment in fixed assets to the extent of Tk. 30m. Short term: Loans having final repayment due up to and including 12 (twelve) months from the date of first disbursement.

TERM LOAN LARGE AND MEDIUM SCALE INDUSTRY

Medium and long term financing for acquiring capital machinery and equipment of newly floated industries and/or for BMRE of an existing industrial units who are engaged in manufacturing goods and services. Term finance to Tea gardens are also falls in this category Long term means

: Loans having final repayment due in more than 60 (sixty) months from the date of first disbursement.

Medium term means: Loans having final repayment due more than 12 (twelve) months but up to and including 60 (sixty) months from the date of first disbursement.

CONTINGENT FACILITIES LETTERS OF CREDIT (L/C) Letters of credit issued by the Bank can broadly be classified as under:

(i)

Sight Letters of Credit (S L/C)

(ii)

Usance Letters of Credit (U L/C)

The Sight Letters of Credit call for the draft to be drawn ‘at sight’. Documents negotiated and received against S L/C are held as security till their retirement/payment.

Drafts drawn under usance letters of credit are for a tenure specified in the L/C and are payable by the customer on due date.

Where the beneficiaries of the L/C extend credit to the applicant, an ‘acceptance’ L/C is issued. Such Letter of credit is called usance Letter of Credit-Acceptance. The acceptor of the Draft under U L/C-Acceptance signed the Bill of Exchange (B/E) by marking the B/E-ACCEPTED and signed.

There are also other types of Letters of Credit, for example, “back to back”.

CONTINGENT FACILITIES LETTERS OF GUARANTEE Guarantees issued by the Bank can be classified under two categories. (a) Financial guarantees, Where the Bank guarantees the fulfillment of a financial commitment on behalf of the customer, and (b) Performance guarantees, Where the Bank guarantees the performance of a contract or other work as specified in the guarantee. These two categories can be further subdivided into the following types of guarantees: Financial Guarantees: -

Payment of dues guarantee, e.g. to a landlord guaranteeing payment of rent.

Under such guarantees there is an unconditional commitment to pay a certain amount on definite dates. -

Guarantee in lieu of security deposit e.g. to customer service concerns for connection of supply of gas / water/ electricity etc.

Bid Bonds, which are issued in lieu of deposit of earnest money while bidding for a tender. Under these guarantees, the bank is called upon to pay in the event of a breach of terms on the part of the customer. Performance Guarantees: -

Under these guarantees, the Bank guarantees due fulfillment of a contract, undertaken by the customer. The amount of the guarantee is usually up to the extent of the value of the contract.

Shipping Guarantees: -

Under which the Bank issues guarantees in favor of the shipping company to enable the importer to obtain delivery of the goods without production of the Bill of Lading.

SECURITIES FOR ADVANCES â&#x20AC;&#x201C; LAND & BUILDINGS / FLATS -

Securities taken by a bank as cover for an advance may be generally classified as Primary or Collateral. Primary security is that which is regarded as the main cover for an advance. Collateral security in general term we mean additional security for an advance. LAND AND BUILDINGS

Land and building have become increasingly more acceptable securities in the recent past, mainly due to steady increase in value in respect urban property particularly in DHAKA and other divisional cities of Bangladesh.

Land and buildings are accepted as collateral with increasing reliance, in modern banking, to strengthen the bank's security and reduce the risk factor considerably.

It should always be remembered that the word "land" denotes not only the vacant land/ ground but also any building point. Consequently, if the borrower creates a mortgage of his land in the Banks' favor and then proceeds to build a factory on that land, the factory building automatically becomes part of the Banks' security.

An absolute reliance on land as security for the realized value of the security may deviate from the valuation or prove to be time consuming to materialize

Branches of the Bank should obtain as near as accurate valuation of the property offered as security through Bank's appointed / approved valuer.

Before creation of mortgage in the case of limited company's properties, a search with the Registrar of Joint Stock Companies should be made to ensure that no conflicting charge is registered with them.

AGRICULTURAL land must not be considered as security either Primary or Collateral. FLATS

Property developers are building flats in and around Dhaka city, and other Divisional cities, and town for sale. Cost of flat apart from its size depends on the location. Branch/ credit manager should exercise caution while dealing with flats as security particularly in respect of sale documents and valuation.

While accepting title deed/ sale deed the manager should be confident that the advance will be repaid by the borrower by regular profitable cash generation from the business and /or personal income is sufficient for repayment of the loan.

Location of the property should be verified by at least two officials of the bank which should agree with the location, area etc. with the title document.

Title deeds, mutation certificate, all supporting deeds, non encumbrance certificate, current land tax receipt, Municipal tax receipt, city improvement trust i.e. RAJUK, CDA, KDA, RDA, annual service receipt, TIN

number,

current income tax certificate and any other relevant documents should be obtained. The documents then to be sent to the Bank's solicitor

with an

instruction to examine the documents, who on examination, if found in order, will submit a certificate to the bank certifying the authenticity of the documents,

the genuineness of the owner, and the validity of the documents for creating a mortgage in favor of the Bank. -

A legal mortgage has priority over equitable mortgage. Legal mortgage attracts substantial stamp duty which is determined by the amount of limit granted, i.e. amount of charge to be created.

Equitable mortgage is created by deposit of the owner's title deed and allied documents with the manager of the Bank in presence of two/ three officers of the bank. A memorandum of deposit of title deeds containing the terms of the deposit is read out, and thereafter documents deposited with the manager.

In the case of limited company documents the charge is registered with the Registrar of Joint Stock companies, Dhaka on form xviii within 21 (twenty one) days of the creation of mortgage, and Registration certificate obtained.

In the case of third party property similar procedure followed, but a guarantee from third party is obtained for the amount sanctioned to the obligant and/ or a for an unlimited amount. In the case of Lease hold property a 'No objection certificate' from RAJUK / CDA / KDA / RDA must be obtained before creation of the mortgage. Similarly 'No Objection Certificate' should be obtained if the property has been leased are from Cantonment Board /the Ministry of works/ and/or from the concerned Authority before creation of mortgage. PACKING CREDIT (PC)

A credit under this head is granted to exporters to facilitate purchase of raw materials for the purpose of manufacturing and exporting finished goods.

The credit is granted after the evidence of a confirmed letter and against the security of inventory purchased by the borrower. (existing security primary and collateral remain undisturbed )

The outstanding are repaid from the proceeds of the bill negotiated under the letter of credit.

ADVANCES AGAINST SANCHAY PATRAS

Presently two types of Government sponsored sanchay patras are in the market viz.,

5 years savings certificates (5 years sanchay patra). Profit on maturity @12.5 % pa.

3 Years savings certificates (3 years sanchay patra). Profit on maturity @ 12% pa. But profit may be withdrawn at quarterly rests.

Apart from the above two types of savings certificates, Branch may grant advance against 8 years Defense Savings Certificates (PRATI RAKKHA SANCHAY PATRA) which have been purchased before withdrawal by the government.

Savings certificates are considered good security and Branch may grant maximum up to 90% of the face value against him of the certificates.

METHOD OF CHARGING -

Savings certificate (sanchy patra) together with the identity ship should be submitted to the branch with the application of the customer for advance.

Sanchay patras should be discharged on the back of the sanchay patra in the space provided for. The signature must agree with the identity ship and the signature on the advance application, and also with the signature recorded with the AOF.

An undated letter is obtained for the purpose of encashment on maturity and /or earlier. The signature verification must be in the manner as stated earlier.

The branch should mark the top of the face of sanchay patra with " UNDER LIEN TO PREMIER BANK LTD-----"

Usual security documentation should be obtained i.e. letter of lien, D/PN, Continuity letter.

A letter in duplicate sanctioning the facility(s) must follow detailing all terms & conditions under which the facilities have been granted and obtain duplicate copy duly signed by the borrower and verify the signature. IN CASE OF 3rd PARTY SANCHAY PATRA

Above procedure should follow.

Further obtain a personal letter of guarantee for the amount of sanction limit from the purchaser of the sanchay patra.

IN CASE OF OTHER BANK'S SANCHYA PATRA -

Above Procedure should follow. But advance will only be granted on receipt of confirmation of our lien on the sanchay patra by the issuing bank.

ADVANCE AGAINST LIFE INSURANCE POLICY •

Life insurance policy (Endowment) of first class Insurance Company may be accepted provided it is current and has been continuing over three years for acquiring a surrender value (s/v).

•

The AGE of the life insured has been admitted. Age admission is important, as in the event of non-admission the claim will not be satisfied.

•

The surrender value of the insurance policy is ascertained.

•

The bank may consider granting a maximum loan of 90% of the s/v, and on agreement by the customer the following procedure may be followed for assignment of the policy in favor of the bank.

•

The assignment of the policy by the borrower in favor of the bank has to be embodied on the policy document, dated and signed by the policy holder in presence of two witness, who will also sign as witness to the execution of assignment.

•

The life policy will then be sent to the Head office of the insurance company under a covering letter in duplicate requesting to register the assignment in favor of the bank, and to return the duplicate letter duly signed and dated on company's rubber stamp in acknowledgement of our notice of assignment on the life policy.

•

The insurance company should return the life policy after completion of assignment formalities within a reasonable time say maximum two weeks.

•

The bank will ensure that arrangement has been made, by standing instruction with the bank for payment of insurance premium regularly.

•

The insurance premium receipt should be kept attached to the policy.

•

In the case of postal Endowment life insurance, similar procedure may be followed; However, an appropriate undated letter of authority should be obtained for claiming s/v and other purpose if any.

•

After the repayment of the advance by the borrower, the insurance policy should be reassigned. Notice of reassignment should also be sent to the insurance company. The insurance policy thereafter returned to the life policy holder after obtaining his acknowledgement.

ADVANCE TO CONTRACTORS AGAINST WORK ORDER 

Advance to contractors is although considered secured against payment of supply and / or / percentage (%) of completion of Work Order; however, requires constant monitoring to obtain payment.



Obtain the Bid Bond which is issued by us on behalf of the contractor / customers and also obtain the contract for the Work / Supply of materials against Bid Bond and examine discretely the terms and conditions contained in the contract.



Examine to ensure: o

That payment of bill is on the basis of percentage of completion. Bill is paid after deducting a percentage of the amount against the bill submitted.

Obtain assignment of all bills against the relevant Work Order in favour of the bank, duly accepted by the WORK GIVING AUTHORITY with a Customer clean consent to issue payment of bills by cheques favouring the bank A/C. ………………

The customer / borrower in turn execute an irrevocable power of Attorney duly registered in favour of the bank stating inter alia to collect the payment cheque against the bill from the disbursing office.

Condition of disbursement to the contractor in the sanction letter must be agreed and placed which should commensurate with the % of completion of work and own investment of the borrower.

Obtain the margin amount deducted from each bill on completion of the Work Order, and retain / dispose of at the instruction of the customer.

To remind, effective constant supervision & follow up should be maintained by the Branch to ensure timely repayment of advance.

Submit Credit Memo detailing mode of payment, monitoring aspect, security aspect and control requirements.

TRADE SERVICES The Trade Services are

IMPORTS EXPORTS & GUARANTEES

(A)

IMPORTS : •

Imports are made through confirmed LETTER OF CREDIT (L/C).

•

A letter of Credit (L/C) is an instrument issued by a Bank at the request of its Customer authorizing the beneficiary to draw draft(s) on the issuing bank which on presentation is honoured provided terms & conditions stipulated in the L/C have been complied with.

•

A confirmed Credit is so called because the issuing banker gives the beneficiary a direct undertaking to honour draft drawn by him under the Credit. In other words, the banker confirms the promise contained in the L/C, which is thereby regarded AS IRREVOCABLE both by the banker and by the customer for whose account it is issued, and can be safely relied on by the beneficiary (usually a foreign exporter) in whose favour it is issued.

•

A confirmed credit is an absolute undertaking to honour drafts drawn in accordance with its terms, provided its conditions are fully complied with. Such a credit cannot be recalled without the consent of all the parties involved ; and, if the beneficiary does not consent to the revocation, the issuing Bank must honour drafts drawn under the L/C, although its customer may have instructed it not to do so.

•

Some authorities do not regard a credit as “confirmed” unless it contains the undertaking not only of the issuing banker but also of the negotiating banker i.e, the banker who advises the credit to the beneficiary and who

usually negotiates the bills drawn thereunder. These authorities regard a confirmed credit as one whereby the negotiating banker adds his own undertaking to that of the issuing banker, so giving the beneficiary what amounts to a double guarantee that his drafts will be duly honoured. •

Unconfirmed Credits - An unconfirmed Credit involves no undertaking on the part of the issuing banker that he will accept bills drawn thereunder. Such a credit is in fact nothing more than intimation to the addressee that, as the time of writing, the issuing banker is prepared to honour bills drawn under the credit provided they comply with its conditions as to form, amount, and term. But the customer opening the credit can cancel it at any time, and, if this is done, the issuing banker is under no obligation to advise the addressee abroad. Such credits are thus unsatisfactory, for there is no certainty that drafts drawn there under will be honoured, though in some cases, the issuing banker undertakes to honour all drafts negotiated before notice of cancellation has been received by the beneficiary.

•

REVOCABLE CREDITS AND IRREVOCABLE CREDITS - THESE terms are used in much the same sense as the terms confirmed credit and unconfirmed credit. A revocable credit may be withdrawn by the issuing banker or his customer at any time after its issue, where as an irrevocable credit cannot be withdrawn once its terms are communicated to the beneficiary.

•

REVOLVING CREDITS are automatically renewed form time to time as certain conditions are fulfilled. They are of four principal types:

1. For fixed amount in one draft at any one time, the credit being immediately reavailable; 2. For a fixed amount in one draft at any one time, the credit being re-available for the next draft only when advice has been received of payment of the previous one drawn; 3. For an unlimited amount in all, but with a limit to drafts current at one time, so that the credit is re-available only when advice has been received that previous drafts have been paid, bringing the total amount of drafts current at any one time below the agreed limit

4. For a limited amount in all during a specified period e.g., up to a limit of Tk.100,000.00 during any one month. The credit is re-available during each period for the limited amount. •

DOCUMENTARY LETTERS OF CREDIT – These are credit under which the accommodating banker at the request of a customer agrees to accept drafts drawn on him, the documents covering the shipments in respect of which the bills are drawn, i.e., the bill of lading, invoice, Marine Insurance Policy and such other documents as may be prescribed. Such a credit is issued against a detailed application, (which is stamped) duly signed by the customer.

•

The application contains an undertaking by the customer to provide the banker with funds to meet the drafts drawn under the credit, and pledges the documents of title to the goods with the banker as security for the due fulfillment of their under taking. If necessary, the bank takes a separate letter of Hypothecation.

“RED CLAUSE” LETTERS OF CREDIT 

A “Red Clause” L/C generally authorizes the designated – restricted negotiating bank to make clean advances not to exceed 80% of the amount of L/C if not otherwise stated (not in excess of the amount of the credit) to the beneficiary to finance the purchase and preparation for shipment of the merchandise stated in the L/C for export. The negotiating Bank is under no obligation to supervise the use of the advanced amount.

The negotiating bank reimburses itself upon the issuing bank. 

It is wise to consult a lawyer / counsel since local laws may prohibit or specify conditions to be met before advances can be made.

STAND BY LETTR OF CREDIT OR GUARANTEE CREDIT 

A letter of Credit under which the issuing bank assures the beneficiary that in the event of non performance or non payment of an obligation by the applicant the beneficiary may get the payment from the issuing Bank. The documents required for payment is a draft drawn at sight on the issuing bank supported by a simple statement stating non performance or default by the applicant to the credit.

BACK TO BACK LETTER OF CREDIT (L/C) 

Back to Back L/C is a type of import L/C against lien on valid irrevocable export L/C received by the inland export oriented industrial units operating under Bonded warehouse system subject to export of value added goods manufactured by the imported items.



In our country the READY MADE GARMENTS flourished under back to back L/C arrangements.



The L/C is opened by the local bank keeping the foreign based bank export L/C in the Back, which is to fulfill the requirement of the export L/C by the imported goods is called back to back L/C. The terms of the Back to Back L/C must be restricted to the terms of the original Letter of Credit. Also, ensure that expiry date of the Back to Back L/C permits time to present documents against the original credit.

LETTERS OF CREDIT -- THE UNIFORM CUSTOMS •

The uniform customs as defined by the international chamber of commerce are not laws, as conventionally understood.

They are the declaration of standardized conditions on which bankers are prepared to issue and deal with a letter of credit. •

Our bank agreed to adhere to the uniform customs and they are therefore binding on us.

•

The branch manager and departmental officers should appraise for themselves the details of various articles of uniform customs and their implications.

PARTIES TO A LETTER OF CREDIT (L/C) 

Applicant



Beneficiary



L/C Opening Bank



L/C Advising Bank



L/C Confirming Bank



Negotiation

OPERATION OF IRREVOCABLE DOCUMENTARY CREDIT



ALL TRANSACTIONS RELATED TO ISSUANCE OF LETTERS OF CREDIT, EXPORT BILL PURCHASE, GUARANTEES AND THEIR AMENDMENTS ARE SUBJECT TO APPROVAL OF THE SANCTIONING AUTHORITY

THE

BRANCH

CREDIT

DEPARTMENT

AUTHORITY. 

Letters of Credit application forms are subject to stamp duties.



Receive the Application of L/C in the Bank’s prescribed form (Enclosed) signed by the customer, put date and time on the top of the application.



A L/C is an undertaking by the bank on behalf of his customer authorizing the beneficiary to draw draft(s) on us, If it is emanated from our Branch, which will be honoured on presentation provided all terms and conditions of the letter of credit have been complied with.



Irrevocable Letter of Credit cannot be cancelled without the prior consent of all parties involved in it.



Tenor of L/C may be, sight and / or usance - Sight L/C can be opened by all IRC holder - Usance L/C can be opened by Industrial IRC holder - Tenor for import of all goods other than machinery and spares is maximum 180 days and for machinery and spares it is 360 days. ELIGIBILITY FOR OPENING IMPORT LETTER OF CREDIT



If the importer is a limited company an appropriate Board Resolution is needed.



Valid import Registration Certificate (IRC) issued from competent authority i.e. CCI&E (Chief Controller of Imports & Exports)



Valid membership certificate from the Chamber of Commerce & Industry and / or any Trade Association recognized by CCI & E (Chief Controller of Imports & Exports)



Valid Trade License issued from Dhaka / Chittagong / Khulna / Rajshahi / Barisal / Sylhet City Corporation and / or other municipality.



Proof of TIN (Tax Identification Number) from Income Tax authority.



A declaration in triplicate stating that the importer paid income Tax and / or submitted Income Tax return for the Previous year.



VAT (Value Added Tax) certificate from NBR (National Board of Revenue)

REQUIRED DOCUMENTS AND PAPERS FOR OPENING LETTER OF CREDIT. - LCA (letter of Credit Authorization form) having Bangladesh Bank Registration number and date. LCA form remains valid for remittances twelve months subsequent to the month of issuance or registration LCA form however, remains valid for eighteen months for import of capital machinery and spares. -

CIB / Bank report on the importer.

Credit report of the exporter.

Proforma invoice / indent (any one) which should contain full description of goods as per Import Trade Code (ITC), quantity, quality, unit price in foreign currency, shipping date, mode of shipment, name of supplier & importer, packing, payment method and registration number if local agent etc. It is an offence under the Laws to overprice or under price the imported

goods. -

IMP form.

Insurance Covernote covering full value of the L/C amount plus 10% and / or open policy.

Money receipt of premium paid.

Any alteration to Bank standard applications / documentation must be approved by the Branch manager / Credit Manager. Examine carefully that other requirements as under are accurate and correctly filled in.

(a) Harmonized system of Code (b) Description of goods for import (c) Expiry date / Validity of the L/C (d) The value of L/C i.e. the amount with C&F, CIF and / or FOB. (e) The mode of import by ship / Air / Rail / Bus / Truck. (f) Reimbursement claim under Letters of Credit (As per agreement with Correspondents)

(g) Required import documents including certificate of origin, packing list etc. (h) Remember that shipment by ISRAELI Ship / Link is prohibited. (i) Margin requirement. (j) Signature of the applicant is verified. WHEN YOU ARE SATISFIED WITH THE CREDIT AUTHORITY APPROVAL AND DOCUMENTATION START PROCESSING THE L/C APPLICATION. 

A record of each Letter of Credit opened, and details of customers’ liability with retention of margin must be maintained for each outstanding Letter of Credit transactions. The rate applied for opening of the L/C is the Bills selling rate on the date of opening of the Letter of Credit i.e. Asset / Liability voucher raised on the date of opening of the L/C.



Commission, Postage, Cable Charges, handling charges etc. are properly collected and recorded on all items in the relative L/C (Letter of Credit application form) and Registers.



The branch issuing the L/credit has to send the instrument to the correspondent bank (Receiving Bank Branch.) via media as per request of the customer. The reimbursement instruction must be clear under the L/C. Instruction for sending the document should also be clear.



Each L/C issued will be assigned an identification number with date.



Selection of the overseas bank to advise, confirm, negotiate usually depend on the currency in which the credit is issued and the geographic location of the beneficiary. Nevertheless, it is important for us to select the correspondent Bank for getting the prompt and reciprocal service.



In general, all Letters of credit issued, advised and / or confirmed by the Bank are subject to the “uniform customs and practice for Documentary Credits” (UCP) or the “International stand by Practices” (ISP’98) issued by the International Chamber of Commerce (ICC).



All expired Letters of Credit must be transferred to an obsolete file and filed serially.



GUARANTOR’S SIGNATURE If it is necessary to obtain a guarantee from a guarantor whose integrity is impeccable, the L/C Application should be signed by him duly signature verified in addition to a Letter of Guarantee obtained supported preferably by tangible security. TIME LIMIT FOR OPENING LETTER OF CREDIT (L/C)



All importers shall open L/C, unless otherwise specified, for import under cash F/E, (Foreign Exchange) within 150 (One Hundred and Fifty) days from the date of LCA(Letter of Credit Authorization form) registration with Bangladesh Bank and / or 150 days from the date of issue of LCA by AD.



IMPORT WITHOUT LETTER OF CREDIT (L/C) Import without L/C is permissible in cases of import of machinery, essential raw materials for export – oriented industries irrespective of value ceiling and in case of perishable goods for eventual re-exportation upto U.S.D.5000-7000 per consignment. CHECK LIST FOR L/C DEPARTMENT



List all outstanding under letters of Credit, PAD, and ensure that these are reviewed periodically by officers independent of transaction processing / approval functions for the purpose of liquidating outstanding L/C, follow up etc.

REGULATION OF IMPORT  Banned list and restricted list of items of import must be thoroughly understood. 

In case of import of banned / restricted items for approved projects financed under foreign aid the concerned Government Department / Agency will approach the Chief Controller of Imports and Exports directly for necessary permission together with a list of items duly certified under proper seal and signature giving description, quantity / number, price and H.S. Code Number against each item required to be imported. The details about the aided project and specific provision of the relevant contract and

other necessary information shall also have to be furnished along with the list of items. The chief Controller shall issue permission / permit on the basis of above documents. IMPORT / EXPORT POLICY All categories of staff / officers particularly in the department of TRADE SERVICES must acquaint themselves with the latest Import and Export Policy of the Government of the Peoples’ Republic of Bangladesh. AD – Authorized Dealer PAD – Payment against Document UCP – Uniform Customs and Practice for Documentary Credits ISP 98 – International Stand by Practices EXPORTS Export means legal movement of goods from one country to another country against payment. Export may be made under the following method: •

CAD Basis – Cash against documents. A method of payment for goods in which documents evidencing title are given to the buyer against payment of cash to the sellers’ bank.

•

Under documentary L/C – a Letter of Credit by which payment is made to the beneficiary against submission of a draft together with stipulated shipping documents subject to adherence to the terms of the L/C. A Letter of Credit protects the interest of both the seller as well as the buyer. The buyer is not called upon to pay unless the shipping documents and other conditions stipulated in the letter of credit are fulfilled and the seller is assured of payment as soon as the goods are shipped and the required documents are presented.

•

Against Advance Payment – Advance payment is seldom made except in the case of export of capital goods and services where a down payment of 10% to 15% of the contract is usually made. OFFICIALS OF TRADE FINANCE MUST READ AND UNDERSTAND THE CURRENT IMPORT / EXPORT POLICY OF THE GOVERNMENT PUBLISHED BY THE MINISTRY OF COMMERCE, GOVT. OF THE PEOPLE’S REPUBLIC OF BANGLADESH.

ELIGIBILITY FOR EXPORTERS

Companies, Firms and individuals who have the following registrations are eligible for exports: •

Export Registration Certificate (ERC)

•

Trade License

•

Membership Certificate

•

TIN Certificate

•

VAT Certificate

MAIN EXPORTS (COMMODITIES) FROM BANGLADESH •

Readymade Garments

•

Leather & Leather Products

•

Jute & jute Goods

•

Tea

•

Handicrafts

•

Frozen Fish

SOME LIST OF ITEMS PROHIBITED FOR EXPORT •

Petroleum & Petroleum Products except naphtha, furnace oil, lubricant oil and bitumen. However, not applicable for foreign firms operating in Bangladesh under production sharing contracts to the extent of their share as agreed upon.

•

Oil Seeds, Edible Oil

•

Jute Seeds & Sun hemp Seeds

•

Wheat

•

Molasses

•

Onion

•

Pulses, All sort’s

•

Fire Arms and Ammunition etc.

•

Bamboo & Cane in whole form & Wood log

•

Frogs of all Types

•

Raw hides and wet blue leather

EXPORT FINANCING Introduction of Credit Card •

In view of the risks involved in carrying cash foreign currency / travellers cheque while undertaking business trip abroad the practice of issuing credit cards to exporters against their retained foreign exchange entitlements will continue. Export Credit

•

Exporters may obtain export credit from commercial banks upto 90% of the value of their irrevocable letter of credit / confirmed contract. Credit to First Time Applicant

•

With a view to encouraging the new comers to enter the export trade the commercial banks will consider credit proposals of first time applicants on a priority basis Monitoring the Overall Flow of Export Credit

•

Bangladesh Bank will take necessary steps to ensure that normal flow of export credit is maintained. The C.C limit of the exporters will be determined only on the basis of their export performance in the preceding year. This will not be subject to any general credit squeeze measure. Such credit facilities will also be available to new contracts. Overdue Interest

•

No overdue interest will be charged by the commercial banks in case of export against irrevocable letter of credit on sight payment basis. In such cases however, exporters will be required to submit necessary export documents within a specified time. Export Credit Cell

•

A special export cell to supervise and monitor the export financing has been functioning in Bangladesh Bank. Besides, in every commercial bank a special unit has been created exclusively for Processing export credit proposals. Export Monitoring

•

A high powered committee has been functioning to assess the export credit requirement and to revise and monitor the flow of export credit to ensure that adequate and timely credits are made available to the exporters. Inland Back to Back L/C

•

Authorized dealers may establish inland back-to-back letter of credit in favour of local suppliers of raw materials against corresponding master letter of credit.

BANK’S ROLE IN EXPORT IN BANGLADESH •

Advising of Export L/C

•

Transfer of Export L/C

•

Add Confirmation on L/C

•

Negotiation of Documents

•

Collection of Documents

•

Discount of Documents

•

Honor of Reimbursement Claim



The Letter of Credit is the most common mode of settlement in international trade.



A L/C (Letter of Credit) is a guarantee issued by the buyers’ bank in favour of the seller that payment for the goods covered by L/C would be made on presentation of the stipulated documents and compliance of the terms and conditions thereon.



In L/C operations all parties concerned deal in documents, and not with goods, services and / or other performances to which the documents may relate. (Article 4 of UCPDC publication 500).

BANK’S RESPONSIBILITY FOR HANDLING OF EXPORT DOCUMENTS Export L.C should be checked properly and if any ambiguity clause found arrange necessary amendment. • Reimbursement instruction of the L/C must be specific and clear. •

If any transferred L/C submitted ensure that the transfer have been effected under article 48 of UCPDC 500. Proper care should be taken at the time of certification of EXP form. WHILE NEGOTIATING EXPORT DOCUMENTS, ENSURE THAT :

1. Export Letter of Credit must be in force. 2. A Letter of Credit becomes useless after expiry of the date mentioned in the L/C. 3. The documents required under the L/C must be submitted and examine that they conform the L/C. 4. The following documents are usually enclosed with the B/E. a) Invoice in the required numbers. b) Bill of Lading. c) Certificate of origin. d) Packing List. e) Weight Certificate. f) Pre shipment inspection certificate. g) Marine Insurance Policy. The Insurance cover is for invoice value plus 10%. 5. In case of discrepant documents indemnity must be obtained from the customer. 6. In all cases where applicable UCP 500, URC 522 & URR 525 must be followed. REGULATORY REQUIREMENT •

Export form (EXP) – original, duplicate, triplicate & quadruplicate to be issued and certified before shipment.

•

Duplicate EXP form should be submitted to Bangladesh Bank within 14(fourteen) days from the date of shipment.

•

Export proceeds must be repatriated within 4(four) months after export.

•

Bangladesh Bank Exchange Control Manual and Foreign Exchange circulars must be referred to where needed.

INCENTIVE FOR EXPORTERS •

Cash subsidy.

•

Duty draw back.

•

Exporter’s retention quota account.

•

There are other incentives also : Refer to current Export Policy for various incentives.

FILING An organized filing arrangement is essential to the functioning of an efficient support and control system. Each credit memo, spreadsheet, and borrowersâ&#x20AC;&#x2122; balance sheet should be meticulously documented and retained in a segmented folder and / or in a file. The following sections may be considered in the file. 1. correspondence; 2. credit memos / financial statements /approvals / certificate for charge documents taken; 3. Credit Report / information /valuation/ survey reports; 4. Balance sheet / copy of legal papers.

More than three years papers/ Balance sheets/ etc. may be transferred to another file and kept in the record room after entering in the DEAD STOCK REGISTER. CONCLUSION Bangladesh is developing country. Without developing banking sectors this country business sector is not possible to progress rapidly. In such conditions The Premier Bank is trying to develop banking sector through welfare and servicing to the people. IBBL has emerged facing the many obstacles yet. This bank is trying to operate their activities according to Banking Company Act. By this way they are playing a vital role for the growth of our economy. BIBLIOGRAPHY Books 1. Credit Manual, The Premier Bank Limited 2. Annual Report 2003; The Premier Bank Ltd. Circular: â&#x20AC;˘ Instruction Circulars, The Premier Bank Limited

Class Notes • QGM Farooki, Senior Vice President & Principal, The Premier Bank Training Institute • Mr. Rafiq Ahmed, SVP & Manager, Dilkusha Branch, Dhaka. Manual • Credit • Foreign exchange • Insurance • Audit & Inspection Web Site • http://www.thepremierbankltd.com.