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International Trade Finance and
Role of Banks
Md. Ahsan Ullah Executive Director
Bangladesh Bank
1
o Bangladesh
o Policy for Int’l Trade
o Regulations for Payment Settlement
o Trade Transactions
o Export Trade
o Import trade
o Trade with Myanmar
o Investment in Myanmar
o Looking Forward
Outline
2
Bangladesh
3
Policy for Int’l Trade
o Int’l trade is regulated by The Imports and Exports
(Control) Act, 1950
oUnder the provisions of this act, Government
formulates policies –
Import Policy Order; and
Export Policy.
4
Regulations for Payment
Settlement
oSettlement of payments against international trade
is executed under Foreign Exchange Regulation
Act, 1947
oBB, under the provisions of this act, formulates
regulations in line with international trade regime
oUnder the current account convertible regime since
early nineties, payment against trade is fully
convertible.
5
FX regime - milestones
o Bangladesh Taka is convertible on current
international transactions since 1994 in
terms of Article VIII of the IMF Articles of
Agreements.
o Floating exchange rate regime since 2003;
before that fixed exchange rate regime
existed.
6
Export and import of Bangladesh
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15p
10,412 12,053
14,151 15,581 16,233
22,592 23,989
26,567
29,765 31,198
13,301 15,511
19,481 20,291 21,388
32,527 33,309 33,576
36,571
40,611
In B
illi
on
US
D
Export
Import
Both export and import are showing the increasing trend. In fiscal year 2014-2015, export has been recorded at USD 31.2 bn where the
import is USD 40.6 bn
7
Trade transactions
o Bangladesh is following international
practice in conducting trade transactions
o Documentary collection under contracts
is increasing but major transactions are
still on Letter of Credit.
8
Transactions under LC
• Buyer’s Application and Contract with the Issuing Bank. o It is up to the buyer to apply for a LC from a
bank. o LC contains instructions, terms, and condition
to release the money. o Buyer’s application for credit is a contract
between the buyer and the bank. • Complies with UCP.
9
Transactions under LC…..cont’d
Seller’s Compliance with the Letter of Credit.
o Seller must read the terms and conditions of
the LC very carefully before shipment or
manufacturing of product.
o Is the LC accurate? Does it reflect the terms
and conditions of the sales contract?
10
Transactions under LC……cont’d
• Complying Presentation: delivery of seller’s
documents and draft to the nominated bank or
directly to the issuing bank. Contains:
o All the required documents,
o Within the time frame allowed and prior to
expiry of the credit,
o With no discrepancies, and
o Which complies with all other terms of the LC.
• Examination of Documents and Discrepancies.
o UCP allows up to five banking days to inspect.
11
Export trade
o Export is subject to export policy in force
including-
o Declaration on regulatory (EXP) form
o Repatriation of export proceeds within 4
months
o Transport documents to the order of
Authorized Dealer bank AD (excepting Type –
A industries of EPZ)
o Permissible agent commission at 5%
12
Export in non-physical form
o Export in non-physical form ie. Software,
date entry, BPO, advisory/business service is
allowed without prior regulatory declaration
o OPGSP is allowed to repatriate income upto
US$ 2,000
o Formal declaration (in Form C) is required
for receipt exceeding US$ 10,000
13
Exchange facilities
o Export proceeds may be retained in FC
account (known as ERQ) up to
o 15% for products having high import
contents
o 60% for products having low import
contents
o Balance of ERQ is freely remittable for
bonafide business purpose including
advance payment up to US$ 10,000
14
Exchange facilities…….cont’d
o ICC can be issued against balance of ERQ
account
o Besides ERQ, export proceed is allowed to
retain export proceeds in single pool to meet
back to back liabilities
o EPZ industries are allowed to retain export
proceeds in FC accounts (100% for Type-A
and 80% for Type-B and C industries)
15
Bangladesh export to major countries
0
1000
2000
3000
4000
5000
6000
7000
U.S.A Germany U.K. France Spain Italy
Ex
po
rt R
ece
ipt
(In
Mil
lio
n U
SD
)
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
16
Import trade
o Import is subject to compliance of Import Policy
Order including
o declaration on LCAF
o transactions through LC as per UCP
o import on contract is allowed for capital
machinery, raw materials and some specified
items
o commercial import on contract is allowed
upto USD 200,000 in a year
17
Import trade…….cont’d
o Settlement of import payment is allowed in
accordance with international rules
o Advance payment is allowed subject to
repayment guarantee
o Without repayment guarantee, USD 5,000 is
allowed for advance payment.
18
Import trade…….cont’d
o Import at supplier’s/buyer’s credit is allowed for
capital machineries (360 days), industrial raw
materials (180 days)
o All in cost for usance period against supplier’s/buyer’s
credit is 6%
o Import for longer period is subject to BOI approval
o Contract/open account is allowed for EPZ industries
19
Bangladesh import from major
countries
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
China India Singapore Malaysia Japan Korea
Imp
ort
Pa
ym
en
t (I
n M
illi
on
US
D)
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
20
Trade with Myanmar
Trade with Myanmar is conducted by way of –
- Letter of Credit
- Border trade
LC system
Under LC system, standard banking norms are
applied. Transactions under LC are settled
through third country.
21
Trade with Myanmar………..cont’d
Border trade In case of border trade, two banks (Sonali Bank and AB Bank)
of Bangladesh maintain accounts with banks in Myanmar and
vice versa.
Importers in Bangladesh go to Myanmar with foreign draft and
encash the same for purchases of goods therefrom.
Importers from Myanmar come to Bangladesh with foreign
draft and encash the same for purchases of goods from
Bangladesh.
22
Trade with Myanmar………..cont’d
Border trade
Regarding Import from Myanmar without using LC in a single
consignment :
Private Import:
USD 50,000- Import of rice , pulse, maize, beans, ginger, garlic,
soya bin oil, palm oil, onion and fish items
USD 30,000- other items
Government Import:
Import of rice under Public Sector valued up to US dollar 20 lacs
While for other countries, the limit is up to 2 lacs (without LC ).
23
Trade with Myanmar Major Export Items-
Frozen Food
Agri Products
Chemical products, Leather
Jute goods
Knitwear and woven Garments, Others
Major Import Items-
Live animals-animal products, Vegetable products, Prepared foodstuffs;
beverages, sprits and vinegar;
tobacco and manufactured tobacco substitutes,
Products of the chemical or allied industries
Plastics and rubber and articles
Raw hides and skins and leather
Wood and articles of wood
24
Bangladesh trade with Myanmar
Import is more than Export
9.6
13.5
13.7
16.1
25.8
179
.4
65.
0 8
4.1
92.
2
31.5
0
20
40
60
80
100
120
140
160
180
200
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Tra
de
wit
h M
ya
nm
ar
(In
Mn
US
D)
Export
Import
25
Border trade with Myanmar
0.2 1.6
2.7 2.0 3.4
17.0
2.8
8.1
13.0
17.8
02468
101214161820
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Bo
rde
r T
rad
e w
ith
M
ya
nm
ar(
In M
n U
SD
)
Export
Import
Border Trade is going on between Bangladesh and
Myanmar through FDD
26
o Pre-shipment export financing at 7% in local
currency for packaging materials of 3 months
tenure
o Financing in foreign currency from EDF for input
procurements by exporters at LIBOR + 2.5% for a
tenure of 6 months
o Import of inputs on supplier’s/buyer’s credit at all-
in-cost of 6%
Trade financing windows
- Pre shipment
27
Trade financing windows –
post shipment
o Post shipment financing in local currency in the
form of bill negotiation/bill purchase on banker-
customer relations and banking norms
o Export bill discounting in foreign exchange at cost
not exceeding 6%
28
Trade financing windows for foreign
suppliers
o Foreign suppliers can discount their usance export
bills from ADs who have accepted bills
o Such facility is also available in OBUs operating in
Bangladesh
o UPAS LC is also available to have sight payment by
suppliers
29
Payment settlement - BB supervision
o BB introduced online reporting system since 2013 for
all FX transactions
o Import settlement is a sensitive issue if remain
unsettled
o BB closely monitors payment schedules as per
maturity
o ADs are asked to explain if payment remains unsettled
o BB imposes penalties on ADs under BCA for non-
payment of import bills on value date/maturity date
30
Investment of a Bangladeshi Private Sector Company
in Myanmar
The First Ever Foreign Direct Investment from Bangladesh
Considering the huge potential of Myanmar economy a
Bangladeshi Company M/S MJL Bangladesh Limited has
already invested an amount of USD 440,000 in Myanmar in a
joint venture company named MJL & AKT Petroleum Company
Ltd. with the permission of The Central Bank of Bangladesh.
This company is allowed to invest up to USD 510,000.
This instance may open the door of investment for many other
Bangladeshi companies in different economic sectors of
Myanmar.
In order to promote more Bangladeshi investment in Myanmar,
signing of Special Bilateral Investment Agreement between
Bangladesh and Myanmar has now become more important.
31
Complaint Cell Send your e-mail to us at [email protected]
Or
Send your complaint to Fax :0088-02-9530273
Or
Send your complaint using the electronic complaint
form: http://www.bb.org.bd/complainbox/complainbox.p
hp
Or
Send your complaints against Banks/Financial Institutions to the
following address:
General Manager
Financial Integrity & Customer Services Department
Bangladesh Bank, Head Office,
2nd Annex Building (17 floor)
Motijheel, Dhaka-1000, Bangladesh.
32
Looking Forward…… Myanmar can be the gateway for the ASEAN Countries. For this,
BBIN-ASEAN Connectivity network can be developed to decrease
the cost of trade.
Local Industry focusing on export will flourish
Infrastructure will attract huge investment both on FDI and PPP
basis
Tourism industry will boom
To enhance Bilateral trade relationship between Bangladesh and
Myanmar-
1 FTA can be signed
2 Safety can be ensured in Teknuf-Mongdu border for border
trade through border trade
3 Trade barriers like tariff, para-tariff, quasi-tariff, non-tariff
should be reduced
33
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