Letter of Credit

Letter of Credit:

A document issued by financial institution which provides a guarantee of payment on behalf of the client in favor of the seller or beneficiary. If the buyer failed to make the payment the bank will make the necessary payment according to the contract. 

The party who is to recieve the benefit(Payment) of L/C is reffered to as Beneficiary.
The bank that issues the L/C reffered to as  Issuing Bank

The bank which advise the L/C to the seller is known as Advising Baan>

Types of Letter of Credit

UPCDC consisting the rules unifying banking practicves regarding documentary credits says that all credit may be either 

1. Revocable

2. Irrevocable

Revocable L/C: 

A revocable L/C may be amended or cancelled by the issuing bank ay any moment and without prior notice to the beneficiary.

Irrevocable Letter of Credit (ILOC):

Is a letter of credit which can't be cancelled or amdended by the issuing bank without the agreement of the parties of the letter of credit transaction.

Under UCP 500 All credit should clearly indicate whether they are revocable for irrevocable.

If it is not mentioned then the credit shall be deemed to be irrevocable.

Current Letter of Credit Rules UCP 600 do not cover revocable L/C. This point is made clear in article 3 UCP 600.

Number of Parties involve in the Letter of Credit (L/C)

There are minimum 4 parties and maximum 7 parties involve in opening a L/C

1. Importer
2. Exporter
3. Issuing Bank
4. Advising Bank
5. Reimbursement Bank
6. Add-Confirmation Bank
7. Negotiating Bank

Documents are required for opening  Letter of Credit

1. Valid Trade License
2. Valid IRC
3. Valid Membership Certificate from association
4. TIN/VAT registration certificate
5. Indent/Proforma Invoice
6. Insurance cover note
7. L/C application
8. L/C authorized form
9. IMP
10. Charge Documents

Islamic Banking- Different types of investment

• Mudaraba
• Musharaka 
• Bai-Murabaha 
• Hire Purchase under Shirkatul Meelk
• Bai-Muajjal
• Bai-Salam 
• Bai-Istisna
• Bai-Al-Sarf

Mudaraba

One of the most well known investment mode.

Feature:

• One party will provide capital and another party will provide labor/work.
• Profit and loss will be shared according to agreed ratio. e.g. 30:70 or 50:50.

(Article is under construction)

Different Types of Accounts

Fixed Deposits:

This type of deposits are made with the bank for a certain period of time.e.g. 1 month,3 month,6 month 9 month 12 month, 5 years etc.

Fixed Deposit ofers higher interest rate because the bank need not to maintain cash reserve for the deposit on the other hand the money can't be withdrawn before the maturity. As the money remains with the bank for a longer time, in addition the bank need not to maintain cash reserve, they provide higher interest rate on such deposits. 

***Though the depositer can withdraw his money at any time but in that case the policyholder must give penalty.

Savings Account: 

Non trading customers who want to save and have less transactions unlike current accounts. 

Basel II

Objectives of BASEL II

1. Ensuring that capital allocation is more risk sensitive;
2. Enhance disclosure requirements which will allow market participants to assess the capital adequacy of an institution;
3. Ensuring that credit risk, operational risk and market risk are quantified based on data and formal techniques;
4. Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage.

While the final accord has at large addressed the regulatory arbitrage issue, there are still areas where regulatory capital requirements will diverge from the economic capital.

Statutory Liquidity Ratio

SLR - Statutory Liquidity Reserve


All scheduled banks in Bangladesh have to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio.
At present
CRR is 6% 
SLR is 13%