How does a back to back LC work in Bangladesh?

Answer 1

Export Financing:

Financing of export credits is made in two stages:

 Pre-shipment stage.

 Post-shipment stage

Packing Credit (Pre-shipment financing)

Packing credit is short-term advance granted by a bank to an exporter against valid export L/C contract for the purpose of purchase of materials or finished goods or manufacturing, processing, packing, transporting up to ware house/ port of shipment etc, of exportable for export.

Voucher to be passed:

packing Credit-------Dr.

exporter's A/C--------Cr.

Adjustment:

FBP/FDBC-----------------A/C

Packing credit----------Cr.

Income A/C interest on PC----------Cr.

Back-to-back L/C: (Pre-shipment financing)

Back-to-back L/C means one credit backs another credit. It is new credit in favor of another beneficiary. Sometimes beneficiary/seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit.

Besides, the normal formalities and requirements (for L/C opening) the following formalities and documents are also required for opening back-to-back L/C:

1) Master L/C

2) Valid bonded were house license

3) Quota allocation for quota items

4) ERC in addition to IRC

5) Indemnity/undertaking

6) No objection from previous banker (if any)

7) Factory inspection certificate

8) BGMEA Membership

Vouchers and accounting treatments are the same normal L/C opening except margin. In this case, no margin is taken by the bank. After lodgment, maturity date of the import bill is intimated to foreign bank as per L/C terms. The documents are delivered to the order of opener duty indorsed for clearance of goods from custom authority. Goods are cleaned through approved clearing and forwarding agent of the bank.

Voucher to be passed:

Banker's liability for L/C------Dr.

Customer's liability for L/C---- Cr.

Reversal of contra Lodgment

Customer's liability on IFBC L/C------Dr

Party's A/C ---------Dr.

Income A/C Bank charges-----Cr. (if any)

Payment of Import Bills:

Payment of Import bills is at maturity from the relative export proceeds repatriated. The required foreign exchange for payment of import bills is kept in a separate account, out of repatriate proceeds of relative export. Party wise and export L/C- wise funds are kept in FBPAR (foreign Bills Awaiting Remittance) account from export proceeds for payment of bills at maturity.

OTHERS:

Loro account:

Loro account means "their account with you ". Account maintained by third party is known as Loro Account. This account may be either in foreign currency or home currency.

Nostro Account:

Nostro Account means "Our account with you:. The account that a home bank maintains with a foreign bank is known as Nostro account. For example, Dhaka Bank's US Dollar account maintained with City Bank NA New York, USA is NOSTRO Account of Dhaka Bank.

Vostro Account:

Vostro Account means "your account with us". The account maintained by a foreign bank is known as vostro account. We can term nostro account when referred to its account holder (foreign bank) by home bank as vostro account. For example, State Bank of India's taka account maintained with Dhaka Bank is a vostro account of Dhaka Bank.