What is a Standby Letter of Credit(SBLC)?

What is a Standby Letter of Credit(SBLC)?

A Standby Letter of Credit (SBLC) can be considered as equivalent to a demand guarantee from the point of view of its function and aim. It is payable on first demand against presentation of a declaration from the beneficiary stating that the applicant is in default of his obligations under the underlying transaction.
An SBLC is an independent undertaking on the part of the bank and is separate from the underlying transaction or contract.
Like any other bank guarantee, the Standby Letter of Credit may have multiple purposes:

  • Tender SBLC
  • Advance payment SBLC
  • Performance SBLC
  • Retention money SBLC
  • Warranty SBLC
  • Payment SBLC

What is a Bank Guarantee?

What is a Bank Guarantee?
A bank guarantee may be defined as a written undertaking by which a bank, at the request of its customer (the applicant), irrevocably commits itself to pay a sum of money to a third party (the beneficiary) upon receipt of a complying demand by the beneficiary informing the bank that the applicant failed to fulfill his obligations under the underlying commercial contract. 
As it appears from the definition, the bank does not guarantee the actual fulfillment of the applicant’s obligation under the contract. It only commits itself to pay, in whole or in part, the amount stated in the guarantee.
This means that the bank will not, and is not liable to, deliver the goods or assume any responsibility for carrying out a project.
Parties involve in Bank Guarantee:
    An applicant : the party having an obligation under the underlying relationship supported by the guarantee.
    A beneficiary : the party in favor of which a guarantee is issued.
    A guarantor : the bank issuing the guarantee and committing itself to pay upon receipt of a complying demand for payment.
    Counter Guarantee:
    A counter guarantor who guarantees the guarantor banks obligation. If so, counter-guarantor ( bank ) issues a counter guarantee in favor of the bank who will commit payment to the beneficiary.

Checklist of Foreign Exchange Transactions

Import:
1. Approval from Head Office(if required)
2. IRC checking/original copy of IRC/genuineness and its validity/checking payment of IRC fees.
3. Putting IRC fees.
4. Entitlement of IRC on IMP
5. Validity of Indent/Proforma Invoice
6. Renewal of the expired indent by the indentor.
7. Indent/Proforma Invoice signed by the Importer and indentor/supplier.
8. Copy of Trade license.
9. Certificate from chamber of commerce and Industries/Trade Association
10. TIN/VAT registration

Banking Notes

General Banking
  Indemnity: Indemnity nj Ggb GK Pzw³ hv‡Z GK c¶ Avi GK c¶‡K ¶wZi nvZ †_‡K i¶vi AsMxKvi K‡i| †PK nvwi‡q †M‡j, bKj wWwW Bm¨y Ki‡j, wnmveavixi g„Z¨ n‡j Indemnity †bqv nq|
  Set off: hw` GKRb MÖvn‡Ki `~ÕwU wnmve _v‡K (GKwU cvIbv wnmve Ges GKwU †`bv wnmve) Z‡e GK wnmve †_‡K UvKv wb‡q Ab¨ wnmve adjust Kivi AwaKvi‡K set off e‡j|
  Contingent liability: ‡hmKj `vq fwel¨‡Z m„wó n‡Z cv‡i ‡m¸‡jv n‡jv Contingent liability (m¤¢ve¨ `vq)| ‡hgb-Gjwm, wejm&, e¨vsK M¨vivw›U|
  Negotiable Instrument: Negotiable Instrument means a Promissory note, Bill of Exchange or cheque payable either to order or to bearer. (N.I Act-1881 Article 13 (1))

Resident and Non-Resident

A resident is a person bank or firm who/which resides in Bangladesh.
A non-resident is a person, bank or firm who/which resides outside Bangladesh. Non-residents include Bangladesh nationals who go out of Bangladesh for any purpose . 
A person is presumed to be ordinarily resident if he maintains a home in Bangladesh or resides in the country for a substantial part of each year or pays income tax as a resident of Bangladesh. 
On the other hand, the fact that a person gives an address in Bangladesh does not necessarily mean that he should be regarded as a resident if he is, in fact, only a temporary visitor and is ordinarily resident elsewhere.
Chapter-1, Section-7 (i)

Deposit Insurance Trust Fund (DITF)

What is meant by Deposit Insurance Trust Fund (DITF)?
In accordance with the provision of the "Bank Amanat Bima Ain 2000 (The Bank Deposit Insurance Act, 2000)", premium collected from insured banks and all other receivables are deposited into an account called Deposit Insurance Trust Fund (DITF).

Who is the Chairman of the Trustee Board?
The Governor of Bangladesh Bank who is the Chairman of the Board of Directors of Bangladesh Bank is also the Chairman of the Trustee Board.

How many members are in the Trustee Board?
All the members of the Board of Directors of Bangladesh Bank are the members of the Trustee Board. At present 9 (nine) members are in the trustee Board.

What is DIS?

What is DIS?
Deposit Insurance Systems is an institutional initiative to protect depositors against the loss of their deposits in the event that a scheduled bank goes into liquidation.

What are the objectives of Deposit Insurance Systems (DIS)?
The important objectives of DIS are:
Protect small depositors
Enhance public confidence
Enhance stability of the financial system
Increase savings and encourage economic growth
Enhancing more propitious bank services

When DIS was introduced in Bangladesh?
In Bangladesh Deposit Insurance was introduced in August, 1984.

Foreign Exchange Market

Spot Market: 
Where exchange of one currency for another currency being happened on the spot or within two Banking days.
Forward Market:
Where actual transaction or delivery of Foreign Currency to be happened at a future date of period as per today's agreement.
Future Market:
Where two parties agreed to buy or sell a fixed quantity of particular commodity, currency or security for delivery at a fixed date in the future at a fixed price. It obliged a definite purchase or sell and not an option to buy or sell. In these transactions small security deposit is required.
Option Market:
An option is a contract specifying the right to buy or sell (by the buyer of the contract) a standard amount o foreign exchange with in a specific date at a certain price. A call option confers the right to buy and a put option confers the right to sell. Buyer of the contract has the right not to buy or sell. If he lapses the deal he will loss only option money.

EXP Form

EXP Form means Export Form which is used to export any commodity to abroad. It is a prescribed form by Bangladesh Bank in Appendix 5/19 of Guidelines For Foreign Exchange Transations.

Branch (AD) will certify EXP Form only after confirming the following:
i. Arrangements have been made for realization of Export proceeds.
ii. Bonafide importer/consignee abroad
iii. EXP has been signed by the Exporter
iv. Arrangement has been made for receipt by Authorized Dealer of documents of title to goods.

Contents of EXP:
EXP No., Exporters registration no., goods details, shipment details, signature of exporter, certification of AD etc.



LCAF-Letter of Credit Authorization Form

LCAF stands for Letter of Credit Authorization Form. It is mainly application for permission for opening LC as well as importing of goods into Bangladesh and remittance there against. So it is used for opening LC, releasing goods and remittance there against.

Bank should ensure while issuing LCAF:
Valid Import Registration Certificate (IRC)
Renewal of IRC
Item to be imported is eligible as per IPO (Import Policy Order)

Purpose of LCAF:
Allowing imports, releasing goods and remittance there against.

There are five copies in each set of  LCAF., The use of each copy are:
Original-For Exchange monitoring purpose: For opening LC and for effecting remittances
Duplicate-Custom purpose: For releasing goods
Triplicate and Quardruplicate- For controlling agency (will be send to the CCI&E along with LC copy)
Quintuplicate - Office copy

BRICS: New Development Bank

BRICS
BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. The grouping was originally known as "BRIC" before the inclusion of South Africa in 2010. It is typically rendered as "the BRIC countries" or alternatively as the "Big Four".

The General Council for Islamic Banks and Financial Institution(CIBAFI)

CIBAFI:
The General Council for Islamic Banks and Financial Institution (CIBAFI) is one of the 4 "I's"
International Islamic Infrastructure Institutions. It is a non-profit organization and it was
established and hosted in the Kingdom of Bahrain on May 16, 2001. It is an affiliated organ to
the Organization of Islamic Cooperation (OIC)
. The council membership includes a large
number of banks and financial institutions registered in various countries around the world
regulated by central banks. CIBAFI has been headquartered in Bahrain due to its positioning
in the Arab and global financial industry.

The Blue Economy

The Blue Economy:
The Blue Economy is a concept designed in 1994 by Gunter Pauli. Itʹs a way of doing business in the world
of tomorrow ‐ combining profitability, sustainability and scientific knowledge.
The Blue Economy entered the UN lexicon during the 2011 ‐12 preparations for the Rio+20 Conference.

Blue Planet

The Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. government charged with planning and execution of economic and trade sanctions in support of U.S. national security and foreign policy objectives. Acting under Presidential national emergency powers, OFAC carries out its activities against foreign states - such as Russia and Iran - as well as a variety of problematic organizations and individuals deemed to be a threat to U.S. national security.
Involvement of the U.S. Department of the Treasury in economic sanctions against foreign states dates to the War of 1812, when Secretary Albert Gallatin administered sanctions against Great Britain in retaliation for the harassment of American sailors.
The Division of Foreign Assets Control was established in the Office of International Finance by a Treasury Department order in 1950, following the entry of the People's Republic of China into the Korean War; President Harry S Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction. In addition to blocking Chinese and North Korean assets.
OFAC is responsible for administering the Specially Designated Nationals (SDN) List. The list is a publication of OFAC which lists individuals and organizations with whom United States citizens and permanent residents are prohibited from doing business.


ref:
http://en.wikipedia.org/wiki/Office_of_Foreign_Assets_Control

The Financial Action Task Force (FATF)

In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989
Recognising the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries.

Parallel Salam

Bai salam
Bai salam is an Islamic finance tool used to generate working capital and consists of a contractual sale in which advance payment is made by the buyer to the seller for the deferred supply of goods at a specified date pre-determined in the contract.  Thus, it is a sale and purchase transaction whereby the payment is made in cash at the point of contract, but the delivery of the asset purchased will be deferred to a pre-determined date.

Parallel Salam
The financier may at the same time enter into a parallel but separate bai salam with a third party to resell the asset for an increased price  or it may simply sell the asset on delivery.
Conditions of the Parallel Salam
  1. There must be two different and independent contracts, these two contracts cannot be tied together, and performance of one should not be contingent on the other.
  2. Parallel Salam is allowed with the third party only.
(http://www.scribd.com/doc/37532527/Bai-Salam-by-Mufti-Mujeeb)

Method of charge creation

Method of creating charges on security

1. Lien
2. Assignment
3. Set-off
4. Pledge
5. Hypothecation
6. Mortgage

 Lien:
The lien is a mode of creation of charge specially on assets of financial instruments like fixed deposit, TDR, deposit balance etc.

Assignment:
It is a mode of creation of charge on the financial instrument like Bills Receivables covering security against debt and be liquidated against debt when the Bills becomes matured. Here the owner of the proceeds of Bills is known as Assignor, the Bank is Assignee and the proceeds received from whom is known as Debtor of Assignor.

What is an Escrow Account?

Escrow Account:
A financial instrument held by a third party on behalf o the other two parties in a transactions. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.

If there are conditions to the sale, such as the passing of an inspection , the buyer and seller may agree to use escrow. In this case, the buyer of the property will deposit the payment amount for the house in an escrow account held by a third party. Once all the condition of the sales are satisfied, the escrow transfer the payment amount to the sellers, and title is transferred to the buyer.

Islami Bank Khidmah Card

Khidmah Card:
Islami Bank Bangladesh Limited has introduced a new IT based Shariah Compliant product under the name of 'Islami Bank Khidmah Card.' It operates on the 'Ujrah' concept which is based on a fixed fee structure, meaning that only fixed fee will be charged to the customer.

Types of card limit: 
Silver Card up to : tk 50,000
Gold Card up to : tk 100000
Platinum Card up to : tk 200000  

Features:

Non performing Asset

Non Performing Asset: Assets which do not generate any income are called Non-Performing Assets. Components of NPI: i. Overdue Investments ii. Classified Investments iii. Rescheduled Investment (without profit) iv. Written off investment