An Assignment on:

Trade Finance Operations

in
United Commercial Bank Ltd

Submitted to:
Mohammed Sohail Mustafa
Associate Professor
Dhaka School of Bank Management
BIBM

Submitted by:
Mohammad Fahim Dad Khan
Class Roll: 1041721
EMBM- Batch 4
Dhaka School of Bank Management
BIBM
Overview:

United Commercial Bank Ltd., one of the pioneer local private

commercial banks, has been conducting all kinds and sorts of trade finance operations
within permissible limits of the Central Bank since its inception. UCBL, a first
generation private commercial bank in Bangladesh commenced its business 27 June
1983 after being incorporated as a Public Limited Company on 26th June 1983 under
the companies Act 1994 and listed in Dhaka Stock Exchange Limited on 30th November
1986 and Chittagong   Stock Exchange Limited on 15th November 1995. After from its
birth, the firm has been in pursuit of excellence through its diversified range of customer
service including all types of trade finance services for its customers. At present, UCBL
serves its clients through 28 Authorized Dealer Branches maintained by two Regional
Hubs. UCBL has been one of the few banks who chose their customers on the basis of
financial performances and hence, till date UCBL’s reputation in the International
Transaction Markets is of strength and pride. This report specifically focuses on overall
view of Trade Finance Operations of United Commercial Bank Limited including its
scopes, strengths and weaknesses.
Objectives of the study:

Objective of the study acts as a bridge between the starting point and the goals of
the study. To illustrate the objectives properly, presented into two parts:

General:

 To observe the Foreign Exchange Operation of United Commercial Bank Limited

and their services.

Specific:

 To observe the major outline of Foreign Exchange Business.

 To observe Credit line arrangement.
 To observe the Foreign correspondents of UCBL.
 To observe the post important financing operations.
 To analysis the expansion of foreign trade Business of the UCBL.
 To identify the problems of its financing.
 To recommend solutions to the problems faced by UCBL in Foreign Exchange
Department.

Administration of Foreign Exchange Operation by UCBL

After the relaxation of economic barrier at 90‟s, firms become interested to do

business globally and banks play a key role in this aspect. For doing foreign
exchange business in favor of firm, bank follows some administrative framework
and this chapter describes the administration of foreign exchange business of
United Commercial Bank Ltd. and the role of Bangladesh Bank in foreign
exchange business. United Commercial Bank has 189 Branches of which 29 are
authorized maintained by regional hubs by Bangladesh Bank through which bank
can do Foreign Trade business.

Foreign Exchange Business Mechanism:

Foreign exchange business comprises three areas: export, import and remittance.
In order to start a business with the bank involving foreign exchange, a
prospective client has to fulfill the following requirements:

Primary requirement:
When a company wants to go for any export or import through a bank, he has to
fulfill some common criteria. Let us first consider the issue of import. For
importing goods through a bank, the importer has to meet the following criteria:

 He has to be a customer of the bank; that means, he has to have a CD Account

with the bank.
 In case of import, he must have an IRC (Import Registration Certificates).
 He has to have experience of importing the same goods through the bank. If he
has no such experience, the goods that he wants to import have to be approved by
the Import policy.
 The item of import has to have marketability.
 He has to fix a right price for the goods to be imported.

If these requirements are fulfilled by the customer, the banker may proceed to
prepare the proposal for the customer. If the board approves the proposal, the
authorized banker can open L/C in favor of the customer by taking Pro-forma
Invoice or Indent. In cases of export, the customer has to fulfill the following
requirements:

 The exporter has to be a customer of the bank; that means, he has to have a CD
Account with the bank.
 The exporter has to give an Export LC or Contact against which he can open L/C.
 The goods to be exported must be approved by the Export Policy.

If the customer fulfills these criteria, the authorized banker can go for business
with him.

Import Section:

The Import Section helps business and other people to import goods. In
international environment, buyers and sellers are, in most of the cases, unknown
to each other. So a seller always seeks guarantee for the payment for his exported
goods. It is the bank that guarantees the seller the payment for the goods on
behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract
between the importer and the exporter is given a legal shape by the banker by its
„Letter of Credit‟.

Legislations for Import:

Imports are foreign goods and services purchased by consumers, firms &
Government agencies in Bangladesh. To import, a person should be competent to
be an „importer‟. According to Import and Export Control Act, 1950, the office of
the Chief Controller of Imports and Exports (CCI & E) provides the registration
(IRC) to the importer. Import of goods in Bangladesh is regulated by the

 Ministry of Commerce in terms of the Import and Export Control Act, 1950;
 Import Policy Order and the Public Notice issued by the Office of the Chief
Controller of Imports and Exports (CCI&E)
 At present it is regulated by the Import Policy Order (1997-2002), which came
into effect on June14, 1998. The duration of the Import Policy Order was
extended up to June 2003 by an amendment. This policy directs certain import
procedures and administers the whole activity.

Facilities provided by import section

 Opening of Letter of Credit

 Facilitating payments to the exporter on behalf of the importer
 Providing funded and non-funded credit facility
 Issuing bank guarantee in foreign currency on behalf of foreign companies.

Import Mechanism

Letter of Credits can be opened with any of the Branch authorized to deal in
foreign exchange. Bank issuing L/Cs has to perform the following functions that
are to be done in the different stages:

(i) Applicant’s approach to the bank

The applicant of Letter of Credit must be a known customer to the bank. He has
to approach the bank to open a Letter of Credit for import of goods through an
application in the letterhead pad.
(ii) Application for letter of credit limit

Before opening Letter of Credit, importer applies for Letter of Credit limit. To
have an import Letter of Credit limit, an importer submits an application to the
import division of United Commercial Bank furnishing the following information
–

 Particulars of account maintained with the bank

 Nature of business
 Required amount of limit
 Payment terms and conditions
 Goods to be imported
 Security offered
 Repayment schedule

A credit officer scrutinizes this application and accordingly prepares a credit limit
proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC).
The committee, if satisfied, sanctions the limit and returns it to the branch. Thus
the importer is entitled to an approved credit limit. Once a party succeeds in
opening an L/C through United Commercial Bank Ltd, generally it requires no
fresh credit limit on subsequent occasions; however, further approval of the Head
Office is required only if it proposes to increase its credit limit.

(iii) Taking necessary documents from the applicant

A bank takes the following documents with the application from the applicant
while opening a Letter of Credit:

 Application for Letter of Credit duly signed by the importer

 Letter of Credit Authorization Form (L/CAF)
 Import Permit Form (IMP)
 Valid Import Registration Certificate (IRC)
 Indent or Pro-forma Invoice
 Valid Membership Certificate
 Documents evidencing payment of fee for current year for Import Registration
Certificate (IRC)
 Declaration by the importer that he has paid income tax and submitted returns to
the Income tax authority for the last three years
 Insurance Cover Note and Stamped Tax Insurance Policy

Note: For import of capital machinery and initial spares to set up a new industry,
a Letter of Credit can be opened without Import Registration Certificate (IRC).
No waiver from the Chief Controller of Imports and Exports is necessary for this
purpose.

(iv) Lodgment

After the scrutiny, the following steps are taken to process for lodgment of import
documents received from the negotiating bank. Lodgment means retirement of
funds. Usually payment is made within seven days after the documents have been
received. If the payment is deferred, the negotiating bank may claim interest for
making delay.

However, after receiving the documents, the Branch authority collects the
documents by contacting the importer. Lodgment Constitutes the Followings:

 Conversion of foreign currency amount of the bill and the charges of the foreign
bank into Taka is done separately by applying Bills Collection (B.C.) selling rate
ruling on the date of lodgment. If the forward exchange was booked, the booked
rate is applied. Payment against Documents (PAD) is made by debiting PAD
account and crediting Head Office account. Full particulars of the documents are
entered in the prescribed PAD register allotting a consecutive serial number.
 Documents are endorsed under seal and signature.
 “Inter-Brach credit advice” (IBCA) is sent to the Head Office along with a
prescribed statement to provide them credit for the payment from their overseas
account through United Commercial Bank Limited General Account.
 Head Office (International Division) in receipt of the IBCA and the statement will
respond the entry by debit to branch account (through United Commercial Bank
Limited General Account) and contra credit to NOSTRO Account of the
negotiating bank abroad. To arrange necessary fund for payment, a requisition is
sent to the International Department.
 As the T.T & O.D rates are paid to the ID, the differences between these two rates
remain as exchange gain for the Branch.
 As soon as the above formalities are completed the importers are served with
PAD bill intimations for retirement of concerned import document. A letter of
intimation (P.A.D. intimation) regarding receipt of the documents should be sent
to the applicant with a request to take delivery of the documents on settlement of
all dues against it and mentioning the maturity date of P.A.D.
 The Import mechanism is completed with the lodgment because most of the
import operates by the United Commercial Bank Ltd. is cash letter of credit.

Export Section:

Bangladesh exports a large quantity of goods and services to foreign households.

Creation of wealth in any country depends on the expansion of production in the
export sector in international trade. Most of the exporters who export through
United Commercial Bank are readymade garment exporters. They open export
Letters of Credit here to export their goods, which they open against the import
Letters of Credit opened by their foreign importers.

Export Policy

Export policies formulated by the Ministry of Commerce, GOB provide the

overall guideline and incentives for promotion of exports in Bangladesh. Export
policies also set out commodity-wise annual target. It has been decided to
formulate these policies to cover a five-year period to make them
contemporaneous with the five-year plans and to provide the policy regime. The
export-oriented private sectors, through their representative bodies and
chambers, are consulted in the formulation of export policies and are also
represented in the various export promotion bodies set up by the government.
However, Exports forms Bangladesh are regulated by the following Acts,
Guidelines and authorities:

 Bangladesh Bank by issuing guidelines and circulars in compliance with Foreign

Exchange Regulation Act-1974 under the authority given to it by the aforesaid
Act. It controls physical and payment aspects of exports.
 Ministry of Commerce by issuing Export Policy Order under the authority given
to it by Export –Import Act, 1950; It outlines the Government‟s export
development strategies and lays down the package of incentives to promote
exports. It also provides the list of items, which are either banned for export or
whose export is subject to fulfillment of certain conditions.
1. Controller of Export and Import
2. Export Promotion Bureau
3. National Board of Revenue (Regarding duties and customs issues)
4. Ministry of Finance by providing Financial Assistance (like cash incentives,
fixation of lower interest rate of export credit etc.)

Back-to-back Letter of Credit

There is another area of export. In readymade garments sector the exporter has
to import the raw materials for completing the order. In that case the exporter
may seek financing facility from the bank. In this situation the bank finance the
exporter by opening back to back L/C against the Export L/C. There are four
types of Back-to-Back L/Cs. These are:

 Back to Back Local (Within Bangladesh)

 Back to Back EPZ
 Back to Back EDF
 Back to Back Foreign
Back-to-back L/C mechanism:

(i) Application for Opening Back to Back L/C

At first the exporter applies for opening BTB L/C against the Export L/C. He has
to write an application to the Branch Manager stating the amount of the L/C
along with a L/C form and Pro-forma Invoice.

(ii) BTB L/C Issue

The authorized officer issues the L/C if the document is OK and sends the L/C to
the bank of the beneficiary.

(iii) Bill sent by the beneficiary’s bank for acceptance

When the exporter gets an L/C he sends his goods to the importer and the bill for
the export sends to the importer bank. If there is no discrepancy in the document
then the opening bank give acceptance and fix the due date of payment according
to the tenor.

(iv) Payment made by the Importer

When the bill is due, the bank pays it with the money that the importer receives
from the export. The proceeds are given to the exporter (importer for BTB L/C).
This is his profit.

The Back-to-Back L/C Mechanism is completed here.

Remittance section:

Our economy depends highly on foreign remittance. The people who are working
abroad send currency through the help of bank. United Commercial Bank Ltd.
follows three ways to collect foreign remittance. The mechanism is presented in
Figure.
Mechanism of remittance collection:

United Commercial Bank Ltd. follows three ways for collecting remittance. These
are: exchange houses with which bank has agreement, direct telephonic transfer
and the exchange house with which bank has no agreement.

(i) Exchange House with which UCBL has agreement

In this way the remittance can come for anyone. He can be an A/C holder can be
not. If the receiver is an A/C holder the remittance directly deposited to his
account. If he is not an A/C holder then the procedure is different. The sender‟s
bank will give a pin code that the sender has to inform the receiver. The receiver
than tell the pin code, his name and other information to the authorized officer.
The officer will check and if everything is alright, the officer will give the cash to
the receiver. The following are the name of some of the Exchange Houses that
UCBL has agreement with:

 LARI Exchange Co.

 CITY INTL Exchange Co.
 Mustafa-Sultan Exchange Co.
 Western Union
 Ria Money Transfer.
(ii) Telephonic Transfer

The bank provides this service only to its A/C holders. When the remittances
come it is directly deposited to receiver‟s account.

(iii) Exchange house having no agreement with UCBL

This is another way that the bank follows. This service is also limited to its A/C
holders.

If a remittance is sent through an exchange house having no agreement with

UCBL, it comes to the bank that has an agreement with the exchange house. After
getting the remittance, the bank issues a pay order in favor of UCBL. Then UCBL
collects the cash through clearing house and deposits it to receiver‟s account.

This is the administration of foreign exchange business. In this process the

foreign exchange department accomplishes its responsibilities.

Submission of Return to Bangladesh Bank:

The Authorized Dealer (AD) must maintain adequate and proper records of all
Foreign Exchange transactions including transaction on non-resident taka A/C.
in their books and furnish such particulars in the prescribed form of Return to
Bangladesh Bank. The purpose of submission of return to the Bangladesh Bank is
to keep systematic and proper records of all dealing in foreign exchange
transaction. Every single transaction that Bank does has to be reported on
Bangladesh Bank Website. Other than that, there are yearly, quarterly, monthly,
weekly statements which is submitted to Bangladesh Bank.

Findings

It is not so easy to find out and analyze the Foreign Exchange performance
regarding this mechanism within short time span. Despite of this, an inclusive
approach has been taken to find out of foreign exchange activities of United
Commercial Bank Limited in this paper. After evaluating the performance I get to
see that the bank lacks in earning foreign currency which is a disappointment for
the bank. The bank should look over this and try to increase export more. For
further evaluation of the bank‟s position and its future prosperity I have done
SWOT analysis for UCBL.

SWOT analysis is a simple framework for generating strategic alternatives from a

situation analysis. The complete elaboration of SWOT analysis is following

S = Strength.
W = Weakness.

T = Threat.

O = Opportunities.

SWOT analysis is very helpful to measure and evaluate a stated objective within a
very short time. Hence this approach has been adopted in this paper. After
monitoring closely and working proactively in the Foreign Exchange Department
of United Commercial Bank LTD. Principal Branch the following Strength,
Weakness, Threat, and Weakness has been found-

Strength

According to the CAMEL rating of 2011 United Commercial Bank Limited is one
of the satisfactory banks of Bangladesh. This rating is based on Capital Adequacy,
Asset Quality, Management, Earnings, and Liquidity of the bank. Bangladesh
Bank monitors these parameters and publishes the ranking. This top most
position of United Commercial Bank is the most important strength of the Bank.
This is the reason why every household clients and corporate clients relies on this
bank. Other strengths are-

 The Bank has well reputation in the market.

 Has good relation with Importers and Exporters.
 Sound Import and Export operation.
 Executives working in the Foreign Exchange Division are highly qualified and
experienced. They are quite capable of handling large scale of export and import
transactions and making a profitable customer relationship with the clients.
 The Branch follows the Foreign Exchange rules and regulation very strictly
 In export and import activities there are lots of provisions of making unethical
and unlawful transactions. But UCBL gives it utmost attention so that such
unethical and unlawful does not takes place. This image of UCBL is also a vast
strength of the Bank.
 Recently UCBL has gone through an agreement with different exchange house to
provide quick and more authentic remittance service to its clients.

Weakness

There is no unmixed blessing in the earth. Every object in the world has some
lacking. So it is quite natural to have some perforates in the performance of the
United Commercial Bank Limited.
  In Foreign Exchange Division UCBL still uses lots of register for maintaining its
foreign exchange transactions. It is time consuming and there are lots of chances
for making mistakes. Computer software should be used to maintain these
transactions to ensure timeliness and error free recording.
 There is no customer complain desk in the Bank‟s branches. It is not only
important part of the foreign exchange activities but also for other two
department of the Bank- General Banking and Credit Department.
 Being a well reputed Bank, UCBL no longer wants to conduct smaller L/C request
coming from small parties and as a result they are neglecting a huge number of
potential customers.
 While dealing with government bank, the bank faces a problem because the
website of Bangladesh Bank is very slow which delays the process of reporting.

Opportunities

 As stated earlier that UCBL is one of popular bank in Bangladesh. Both exporters
and importers have their faith on this Bank. This is a great opportunity for UCBL.
 The percentage of classified loans is below 2% which is far better than
international standard.
 United Commercial Bank Limited has already 139 branches all over the country
and recently they have planned to set up branches in some other places of the
country.

Threat

 Economic stagflation and economic break down of the country especially after
9/11.
 As country‟s export is RMG sector depended, reduce in RMG export has affected
foreign exchange department of the Bank.
 The margin for opening L/C is different for different customers. The margin is
more for new customers while the margin is less for corporate and reputed
customers.
 Government continuous pressure to reduce interest rate.
 Frequent fluctuation of domestic currency worth against US Dollar.
 Political crisis and decaying country image as exporter.
 Rapid increase of private sector Bank in number and size.

Recommendations:

Being a modern bank, UCBL is expected to compete with in a dynamic

environment comprised by many Govt. and Non-Govt. banks, Local and Foreign
banks. On the basis of my observation and responses from Bank‟s employees and
customers, I found out some necessary steps should be taken by the bank o
enhance its performance potentiality.

Three months internship at Foreign Exchange Department is not enough to

suggest anything about a huge organization like UCBL, but according to my
observation, I made the following suggestion that may improve the performance
of Foreign exchange

Department and other departments:

 As in Foreign Exchange Department, it is required to communicate with foreign

banks and organizations frequently: so to make process fast and easy whole bank
should be well equipped and use faster communication system.
 Bank should open more Nostro accounts for efficient processing of L/C.
 Charges in foreign exchange include SWIFT charges, Document Handling
Charges, Stamps Charges as well as VAT. If such charges could be reduced, UCBL
will definitely attract more customers.
 If the Bank reduces the rate of margin then perhaps they can attract more
customers. At the moment, Companies with good relationship with the banks
only benefits with lower margin level over others.
 In order to report Bangladesh bank about TC, DD and other foreign remittance
transactions, the necessary documents should be collected from customers on
time.
 The bank may introduce some promotional program to increase export. If bank
give more emphasis to export parties they will be influenced.
 The bank should follow the UCPDC (Uniform Customs and Practices for
Documentary Credit) rules very strictly to avoid the risks involved in Foreign
Trade Business.
 The scenario of International Business is quite dynamic. Newer trends are taking
place time to time. This may create a tension between exporters-importers and
the bankers. To reduce confusion and making long term profitable customer
relationship the Bank should arrange seminars, workshops, discussion etc. this
will help the Bank to run in safe mode.

Conclusion:

Bank is a very important and vital for economic development in mobilizing

capital and other resources. UCBL is also contributing to the advancement of the
socioeconomic condition of the country. To keep pace with the current market
and demand, UCBL is following several strategies and taking new initiatives,
offering new products and services to the customers. The bank should maintain
well-structured communication from upper level to lower level. UCBL have a
strong position in the competitive market. It is among one of the fastest growing
Bank. As the economy of Bangladesh is increasing so is the foreign trade and
UCBL like always have played its role in making sure that things go smoothly.
The bank is doing its best to provide better Import, Export and Remittance
services to the customers. Export, Import is showing positive trends even after
the global challenges that we are facing today. However, the bank needs to
improve its remittance. The foreign trade handled by bank is increasing in recent
year; this may be because of opening of new branches in different business
centers.

Citations:

1. UCBL Annual Report Vol. 2017, 2018

2. Trade Finance Services in Banks. Vol-3, BIBM
3. Business Operations Procedure Manual, UCBL
4. Bank Parikrama, BIBM