LCs in International Trade

The following content was originally published by Bangladesh Bank:

Letters of Credit

LC may be established providing for payment to the country of origin of goods or any other country except those countries imports from which are prohibited. The LC may provide for payment or reimbursement in any freely convertible foreign currency, in the currency of the country of the beneficiary or of the country of origin/shipment of goods, or by way of credit to the non resident Taka account of the concerned bank abroad. Payments for imports under barter agreements or under foreign Loans/Grants can be made only in the manner specified for the concerned barter/loan/grant.

Authorised Dealers (Banks)

The ADs may not issue, advise, notify or confirm any LC, authority to purchase, guarantee or similar undertaking covering imports into Bangladesh the implementation of which would involve a payment in Taka to a non resident account or a payment in foreign currency except in accordance with the instructions prescribed hereunder.

An AD may approve on behalf of Bangladesh Bank remittance against imports into Bangladesh provided the conditions set out in section-I and elsewhere in this chapter are complied with and provided also that the documents covering the import, whether under LC or otherwise, are received through the AD concerned. In case of import by post/courier, the ADs may make remittance without prior approval of the Bangladesh Bank only if the parcel is addressed directly to the AD. Where the parcel is addressed to an individual care of the AD/ to the individual direct, prior approval of Bangladesh Bank should be applied for in prescribed manner.

ADs may allow remittance against discrepant documents /documents received directly by the importers after the goods have been cleared from the customs, on the basis of the relative LCAF, the authenticated copy of the customs bill of entry for consumption or customs certified invoice in the case of import by post/courier and the relative invoices.

LC Covering imports

The AD should establish LCs against specific authorisation only on behalf of their own customers who maintain accounts with them and are known to be participating in the trade. Payments in retirement of the bills drawn under LCs must be received by the ADs by debit to the account of the concerned customer or by means of a crossed cheque drawn on the drawee's other bank. These restrictions shall not apply to import of articles for the private use of the importer as permitted in the Import Policy Order.

Terms on which LCs may be opened

(i) All LCs and similar undertakings covering imports into Bangladesh must be documentary LCs and should provide for payment to be made against full sets of onboard (shipped) bills of lading, air way bill, railway receipts, truck receipts, post/courier parcel receipts showing despatch of goods covered by the credit to a destination in Bangladesh. All LCs must specify submission of signed invoices and certificates of origin. If any particular LCAF requires submission of any other document or the remittance of exchange at certain periodical intervals or in any other manner, the LC should incorporate those instructions of the LCAF. Besides, following instructions are to be followed by ADs while importing through land ports:

(a) only one port of entry ( land port) is to be mentioned specifically in the letter of credit/purchase contract ( as the case may be);

(b) ADs shall have to send copies of letter of credit and subsequent amendment(s) if any, including other relevant information to the land port authority;

(c) specimen signatures of the officials working in the import-export desks of the concerned Authorised Dealer bank, contact phone and fax nos. of the ADs are to be sent to all the land ports;

(d) ADs, through their agents or representatives shall collect certified invoice & bill of entry evidencing entry of goods into Bangladesh from the concerned land ports;

(e) letters of credit/purchase contracts shall contain inter alia the following payment terms instead of reimbursement authority/debit authority: "Upon receipt of documents complying with credit terms, we shall effect payment as per instructions of Negotiating Bank/Collecting Bank".

(f) LC covering value more than USD 5000 or equivalent should be sent through SWIFT or other similar arrangements to the advising bank;

(g) NOC(if any) shall contain name of the officials along with P.A. nos. and official seal.

(ii) It is not permissible to open clean or revolving letter of credits or LC with realisation clause (except EPZ companies). Applications for opening such LCs should be referred to the Bangladesh Bank with full particulars.

(iii) The ADs may open transferable LCs for imports into Bangladesh under cash LCAF without reference to the Bangladesh Bank. They may also allow without reference to the Bangladesh Bank amendments that do not violate foreign exchange regulations and IPO in force.

(iv) It is not permissible to open import LCs in favour of beneficiaries in countries from which import into Bangladesh are banned by the competent authority.

LC covering import of goods into Bangladesh against valid LCAF should be opened within the period, if any, prescribed in the current IPO.

Periods for which LCs may be opened

(a) The AD should, before opening an LC, see documentary evidence that a firm order for the goods to be imported has been placed and accepted. The AD should ensure while opening an LC that full description of the goods to be imported are given in each Credit alongwith the unit price of the merchandise.

(b) The ADs should also obtain confidential report on the exporters from their branches or correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter by consulting standard books of reference issued by international credit agencies of international standing such as Seyds, Dunn and Bradstreet in all cases where the amount of the LC/Contract exceeds BDT 5 lac against proforma invoices issued direct by foreign suppliers and BDT 10 lac against indents issued by local agents of the suppliers. Such reports should be obtained by the ADs themselves and the reports if submitted by the importers should not be accepted. The ADs may also, at their discretion and in their own interest, verify the standing of the beneficiaries even in cases where the value of the credit is lower than the limits mentioned above. Credit report my remain valid for a preiod of maximum twelve months from the date of issuance if no adverse report comes to the notice of the AD. Moreover, credit report of the same supplier collected for one importer may be used for other importers within the same validity.

Loss of Goods

In the event goods are completely lost, duplicate copy of the IMP form should be forwarded to the Bangladesh Bank giving full particulars of the loss and the manner in which the insurance claim has been collected. In the event of partial loss, the authenticated copy of the customs bill of entry for the goods actually cleared should be submitted giving full particulars of the loss and the manner in which the insurance claim has been collected.

FOREIGN INVESTMENT IN BANGLADESH