5.16 Pre-Shipment Credit:
Pre shipment credit, as the name suggests, is given to finance the act of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information require for sanctioning the credit in accordance with the existing rules and regulations. Pre credit is given for the following
purposes- Cash for local procurement and meeting related expenses.
Procuring and processing of goods for export.
Packing and transporting of goods are export.
Payment of Insurance premium.
Inspection fees.
Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in farm of the followings-
Packing credit (PC).
Back-to-Back letter of credit.
Export Cash Credit (Hypo).
Export Cash Credit (Pledge).
These types of are described in below:
Packing Credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, packing and ships the goods. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Exporter can get PC up to 10% of the Export L/C value and has to be liquidated by negotiation / purchase of Bills of Exchange. The drawings of P.C are required to be adjusted fully once within a period of 180 days.
Charge Documents for PC
Banker should obtain the Following charge documents duly stamped prior to disbursement-
Demand Promissory Note
Letter c Arrangement
Letter of Lien of Packing Credit (On special adhesive stamp)
Letter of Disbursement
Packing Credit Letter
Back-to-Back Letter of Credit: A Back-to-Back letter of credit, a new L/C (an Import L/C) is opened on the basis of an original L/C (an Export L/C). Under the Back-to-Back concept, the seller as the Beneficiary of the First L/C offers it as a ‗security to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back-to-Back L/C may be located inside or outside the original Beneficiary‘s country. As per instruction of the central bank commercial banks are rendering Back-to-Back L/C at nil margins.
Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back-to-back L/C arrangement,
Back-to-Back L/C is of two types-
Foreign back-to-back L/C. covering usance of not more than 180 days. The payments normally made from the proceeds
or export bills negotiated after shipment. Import L/C is opened for 75% of the value of Export L/C. The payments normally made from the proceeds or export bills negotiated after shipment.
Payment of Back-to-Back L/C
Client gives the payment of the BTB L/C after receiving the payment from the importers. But in some cases, client sells the bills to the NCCBL. But if there is discrepancy, the NCCBL sends it for collection. In case of BTB L/C, NCCBL gives the payment to the beneficiary after receiving the payment from the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate.
In case Back-to-Back L/C as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank. For Back-to-Back L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate).
Generally LIBOR rate fluctuates from 5% to 7%.
Export Cash Credit (Hypothecation): Under this arrangement the bank sanction the loan to the 1st class exporter, as there is no security against this loan. The letter of hypothecation creates a charge against the merchandise in favor of the bank but neither the ownership nor the possession is passed to it.
Export Cash Credit (Pledge): Under this arrangement the bank advance loan to the exporter against pledge of raw materials or exportable goods. The exporter surrenders the physical possession of goods under banks control till the payment of dues is made.
If the exporter does not able to pay the loan the bank can sell the exportable goods to recover the credit.
5.17 Post-Shipment Credit:
This type of credit refers to the credit facilities, extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises, as the exporter cannot afford to wait for a long time for without paying manufacturers / suppliers.
Before extending such credit, it is necessary on the Part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force, Banks in our country extend post shipment credit to the exporters through —
Negotiation of documents under L/C
Foreign Documentary Bill Purchase (FDBP).
Local Documentary Bills Purchased (LDBP).
These are described in below:
Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods. A slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse to reimbursement of the payment already made by the Negotiating bank. So,
the Negotiating bank must be careful, prompt, systematic and indifferent while scrutinize the documents relating to the export.
Foreign Documentary Bill Purchase (FDBP): In case of Deferred L/C the payment usually received after a certain period that is 90,120180 days later. In that case party (exporter) sometimes wants to negotiate the bills to the negotiating bank, for incise or need of money. In FDBP bank negotiates the bills & documents to adjust the Packing Credit (PC) or back to-back L/C payment and gives the rest amount to the client in cash or by crediting his account. In this process the negotiating bank collect acceptance letter from the payment bank and purchase the export bills at a usance rate of currency. FDBP is created only for the foreign documents. For this purpose, NCCBL maintains a separate register named FDBP Register. This register contains the following information —
Bill amount both in forei9n currency & Taka.
Export L/C number
Local Documentary Bills Purchased (LDBP): It created only for the local export documents. Local exporters are usually small one and act as backward linkage industry to the large foreign exporters. So, in case of deferred L/C (Usually done in Textiles/ Garments) the exporters want to negotiate the bills for quick receiving of payments. The negotiating bank checked the documents thoroughly and transferred the discounted value of Bills by converting it into Bangladeshi Taka at a ruling usance rate. This temporary liability is adjustable from the proceeds of the bills.
5.18 Scrutiny of Documents:
The authorized dealer scrutinizes the documents very carefully. Because, they have to report it to the Bangladesh Bank at the interval of every fifteen days in a month. The following process is done by the authorized dealer for scrutiny of the documents.
On receipt of the EXP form and documents covering exports the AD compares the authorized signature with the specimen signature of the duly authorized officer of the shipping company to ensure the genuineness of the documents.
The AD should also compare the relative bill and /or documents with the relative form and satisfy itself that the declaration made on the form is correct and the amount for which the bill is drawn or the invoice is written is not less than the invoice value stated on the form.
If the difference between the value stated on the form and the amount of the bill is small the AD may accept bill /documents for collection. The details of such adjustment must be given on the relative form and must be authenticated by the AD under its stamp and signature.
After negotiation of the bill or acceptance of the documents for collection, the ADs should complete the certificates in this behalf on the space provided on the duplicate copies of the EXP form.
If the payment is received in foreign currency or nonresident taka account of a bank branch correspondent abroad the Ads shall certify on the reverse of the triplicate copy of the form retained with them and forward it to Bangladesh Bank with the usual return. The quadruplicate will be retained by the AD for record.
5.19 Export Portfolio of NCC Bank Ltd:
Export Portfolio consists of the items exported, the value of export bills that NCC Bank gets from issuing banks from foreign countries as well as Bangladesh. Various sorts of commodities are exported abroad through NCC Bank Ltd. But Readymade Garments consist of most of the foreign exports. Other exported items are shrimp, jute and jute goods, leather tobacco, ceramic tiles, fresh vegetables, tempered coated glass, bone crust, betel- nut etc.
There are two modes of export payments that are practiced in foreign trade worldwide.
These are:
Sight Bill: In this bill the exporters are paid at sight for the products they just exported.
Usance Bill: In this bill the exporter gets payment after a certain period of time depending on the L/C terms and condition. This bill is usually for raw materials or semi finished products that are exported from Bangladesh and once the goods reach in final destination they are employed for further processing.
Foreign Export: In the branch foreign export activities play a vital role in the export division. About 75% of the total export comes from this section. At this branch majority of the foreign exports are ―Ready Made Garments.‖
Local Export: Local export indicates that goods are exported within the boundaries of Bangladesh. Local exports consist 25% of the total export as it is not very common practice in Bangladesh. ―Yarn and Accessories‖ are the main commodities of the local export at this branch.
5.20 Accounting Treatment for Export Procedure:
Like import procedure a number of journals are to be passed at the different stage of the Export procedure. The journals are described below with the cause of occurrence: