Guidance notes on prevention of Money Laundering Definition of Money Laundering: A definition of what constitutes the offence of money laundering under Bangladesh law is set out in Section 2 (Tha) of the Prevention of Money Laundering Act 2002 (Act No.
7 of 2002) which is read as follows: “Money Laundering means – (Au) Properties acquired or earned directly or indirectly through illegal means; (Aa) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly through legal or illegal means.Responsibilities of Bangladesh Bank towards Money Laundering: The Act gives Bangladesh Bank broad responsibility for prevention of money laundering and wide-ranging powers to take adequate measures to prevent money laundering, facilitate its detection, monitor its incidence, enforce rules and to act as the prosecuting agency for breaches of the Act. The responsibilities and powers of Bangladesh Bank are- ? To investigate into all money-laundering offences. ? Supervise and monitor the activities of banks, financial institutions and other institutions engaged in financial activities. Call for reports relating to money laundering from banks, financial institutions and other institutions engaged in financial activities analyze such reports and take appropriate actions. ? Provide training to employees of banks, financial institutions and other institutions engaged in financial activities on prevention of money laundering. ? To authorize any person to enter into any premises for conducting investigations into money laundering offences.
? Persons authorized by Bangladesh Bank to investigate offences can exercise the same powers as the Officer in Charge of Police Station can exercise under the Code of Criminal Procedure. To do all other acts in attaining the objectives of the Act. ?The Courts will not accept any offence under the Act for trial unless a complaint is lodged by Bangladesh Bank or any person authorized by Bangladesh Bank in this behalf. Penalties for Money Laundering: All offences under the Act are non-bailable and the penalties for the commission of the offences all have prison terms and/or fines as prescribed in the Act as follows: ? The offence of money laundering is punishable by terms of a minimum imprisonment for six months and a maximum of up to seven years plus a fine amounting to double the money laundered. The punishment for violation of Seizure Orders is a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. ? The punishment for violation of Freezing Orders is a minimum imprisonment for one year or a fine of at least Taka five thousand, or both. ? The offence of divulging information by informing i. e.
tipping off the person who is the subject of a suspicion, or any third party is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. The offence of obstructing investigations or failure to assist any enquiry officer in connection with an investigation into money laundering is punishable by a minimum imprisonment for one year or a fine of at least Taka ten thousand, or both. ? If any bank, financial institution and other institutions engaged in financial activities fail to retain customer identification and transaction records or fail to furnish required information as per the Act, Bangladesh Bank will report such failure to the licensing authority of the defaulting institution so that the concerned authority can take proper action for such negligence and failure.
Bangladesh Bank is empowered to impose fines of not less than Taka ten thousand and not more than Taka one lac on any bank, financial institution and other institutions engaged in financial activities for the failure or negligence to retain customer identification and transaction records or fail to furnish required information to Bangladesh Bank. ? 8 If any Company, Partnership Firm, Society, or Association violates any provisions of the Act, it will be deemed that every owner, partner, directors, employees and officers have individually violated such provisions.Bangladesh Bank’s Anti-Money Laundering Policy: • Senior Management Commitment: ? The most important element of a successful anti-money-laundering program is the commitment of senior management, including the chief executive officer and the board of directors, to the development and enforcement of the anti-money-laundering objectives which can deter criminals from using their facilities for money laundering, thus ensuring that they comply with their obligations under the law. Senior management must send the signal that the corporate culture is as concerned about its reputation as it is about profits, marketing, and customer service. As part of its anti- money laundering policy an institution should communicate clearly to all employees on an annual basis a statement from the chief executive officer that clearly sets forth its policy against money laundering and any activity which facilitates money laundering or the funding of terrorist or criminal activities.
Such a statement should evidence the strong commitment of the institution and its senior management to comply with all laws and regulations designed to combat money laundering. ? The statement of compliance policy should at a minimum include: ? A statement that all employees are required to comply with applicable laws and regulations and corporate ethical standards. ? A statement that all activities carried on by the financial institution must comply with applicable governing laws and regulations. A statement that complying with rules and regulations is the responsibility of each individual in the financial institution in the normal course of their assignments. It is the responsibility of the individual to become familiar with the rules and regulations that relate to his or her assignment. Ignorance of the rules and regulations is no excuse for noncompliance. ? The statement should direct staff to a compliance officer or other knowledgeable individuals when there is a question regarding compliance matters. ? A statement that employees will be held accountable for carrying out their compliance responsibilities.
Written Anti-Money Laundering Compliance Policy ? At a minimum, the board of directors of each bank and other financial institution must develop, administer, and maintain an anti-money-laundering compliance policy that ensures and monitors compliance with the Act, including record keeping and reporting requirements. Such a compliance policy must be written, approved by the board of directors, and noted as such in the board meeting minutes. ? The written anti-money-laundering compliance policy at a minimum should establish clear esponsibilities and accountabilities within their organizations to ensure that policies, procedures, and controls are introduced and maintained which can deter criminals from using their facilities for money laundering and the financing of terrorist activities, thus ensuring that they comply with their obligations under the law. ? The Policies should be tailored to the institution and would have to be based upon an assessment of the money laundering risks, taking into account the Financial institution’s business structure and factors such as its size, location, activities, methods of payment, and risks or vulnerabilities to money laundering.
It should include standards and procedures to comply with applicable laws and regulations to reduce the prospect of criminal abuse.Procedures should address its Know Your Customer (“KYC”) policy and identification procedures before opening new accounts, monitoring existing accounts for unusual or suspicious activities, information flows, reporting suspicious transactions, hiring and training employees and a separate audit or internal control function to regularly test the program’s effectiveness. It should also include a description of the roles the Anti-Money Laundering Compliance Officers(s)/Unit and other appropriate personnel will play in monitoring compliance with and effectiveness of money laundering policies and procedures. ? The anti- money laundering policies should be reviewed regularly and updated as necessary and at least annually based on any legal/regulatory or business/ operational changes, such as additions or amendments to existing anti-money laundering rules and regulations or business.
In addition the policy should emphasize the responsibility of every employee to protect the institution from exploitation by money launderers, and should set forth the consequence of noncompliance with the applicable laws and the institution’s policy, including the criminal, civil and disciplinary penalties and reputational harm that could ensue from any association with money laundering activity. GUIDELINES FOR FOREIGN EXCHANGE TRANSACTIONS INTRODUCTION AND DEFINITIONS Foreign Exchange Regulation (FER) Act, 1947 enacted on 11th March, 1947 in he then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications which are published in the Bangladesh Gazette. Authorized Dealers (ADs) in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day-to-day dealings and to ensure compliance with the regulations by such customers.
The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued there under. The ADs must maintain adequate and proper records of all foreign exchange transactions and furnish such particulars in the prescribed returns for submission to the Bangladesh Bank. Resident and Non-Resident Any person who has at any time after the commencement of the Act been resident in Bangladesh be treated as resident in Bangladesh until Bangladesh Bank by general or special order directs otherwise.Where such directions are given, the Act also empowers Bangladesh Bank, to declare the territory in which such persons be treated as resident. A person is deemed 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. In addition to that i) the accounts of United Nations and its Organisations, ii) (ii) persons holding Office in the Service of the Republic of Bangladesh who go abroad or who are already abroad and residing outside Bangladesh for the time being either on duty or on leave, iii) foreign nationals residing inBangladesh for work or self employment, iv) foreign nationals residing in Bangladesh for study under student visa, v) foreign nationals staying in Bangladesh with residence visa, vi) officials of Bangladesh Government and public sector undertakings deputed abroad on assignment with foreign governments/organisations or posted to their own offices (including Bangladesh Diplomatic Missions abroad) and vii) foreign nationals residing continuously in Bangladesh for six months or more would be treated as residents.A non-resident is a person, bank or firm who/which resides/has a place of business outside Bangladesh.
Non-residents include Bangladesh nationals who go out of Bangladesh for any purpose. 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. Taka: Taka means the Bangladesh Taka unless otherwise specified. Dollar: Unless otherwise indicated the term dollar shall mean the US dollar.Authorized Dealers: The term Authorized Dealer or AD would mean a bank authorized by Bangladesh Bank to deal in foreign exchange under the FER Act, 1947. Money Changers: The term “Money Changer” would mean a sole proprietorship or partnership firm/company licensed by Bangladesh Bank under “FER Act, 1947” to act as Money Changer for dealing in certain foreign exchange transactions as directed by Bangladesh Bank from time to time.
AUTHORISED DEALERS AND MONEY CHANGERS Application for AD License:Bangladesh Bank issues licences normally to scheduled banks to deal in foreign exchange. All applications for Authorised Dealer Licence should be made to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka with a declaration that ‘Guidelines on Managing Core Risks in Banking’ pertaining to treasury functions in foreign exchange are already in place and all steps have been taken by the bank for internal monitoring and supervision of the branches for carrying out foreign exchange transactions.Besides, the bank should also provide information showing that it has adequate manpower trained in foreign exchange and there is prospect to attract reasonable volume of foreign exchange business in the desired location and the applicant bank meticulously complies with the instructions of the Bangladesh Bank especially with regard to submission of periodical returns. Application for License to perform limited functions: Licenses with limited scope are also issued to persons or firms (e.
g. hotels, bank booths, gift shops etc. to exchange foreign currency notes, coins, and travelers’ cheques (TCs) in places where money changing facilities are required. Money Changer License: Bangladesh Bank may also issue “Money Changer” licenses to persons/firms desirous of undertaking, as their sole line of business, the purchase and sale of foreign currency notes, coins, TCs from and to incoming and outgoing tourists. INSTRUCTIONS FOR MONEY CHANGERS Use of Office Space Money Changer shall have no branch office. The premise to be used for money changing business shall not be used for any other business activity.
Buying of Foreign Currency Notes, Coins and TCsMoney Changers are allowed to buy foreign currency notes, coins and TCs from incoming foreign and Bangladesh nationals coming/returning from abroad. For each such purchase an encashment certificate shall be furnished to the seller in prescribed format. Releasing of foreign currency notes, coins and TCs Money Changers may sell foreign currency notes, coins and TCs only to outgoing Bangladesh nationals against their annual private travel entitlements (per calendar year) subject to a maximum limit of USD 1000 or equivalent in the form of cash and /or TC. Release of foreign exchange in excess of USD 200 or equivalent shall require valid visa.Money Changers may also sell foreign currency notes, coins and TCs to outgoing foreign nationals having duly issued encashment certificates, subject to a maximum limit of USD 500 or equivalent by re-conversion of Bangladesh Taka proceeds of foreign exchange sold by a tourist during his/her stay in Bangladesh. Only the Money Changer that issued the encashment certificate can make such re-conversion.
While releasing foreign exchange for travel abroad, Money Changers shall verify and satisfy themselves that the travel for which the foreign exchange released earlier was actually undertaken or the issued foreign exchange was duly encashed.Each sale of foreign exchange shall be recorded in the passport and air ticket (in case of air travel) of the outgoing passenger with seal and signature of authorized person of the Money Changer. For issuance of TC, signature of the buyer should be obtained on the TC as per usual norm.
In each case of release of foreign exchange for travel abroad, photocopies of first six pages, pages containing visa (if available) and pages containing endorsement of foreign exchange of the passport duly signed by the authorized person of the Money Changer with seal shall be retained at least for five years for inspection by Bangladesh Bank Team.In case of release of foreign exchange to a foreign tourist against encashment certificate evidencing conversion of foreign currency into Taka, photocopy of the encashment certificate produced by the outgoing tourist shall be retained at least for five years along with the receipts/vouchers and other records of sale. It may be mentioned here that reconversion of Taka into foreign currency (maximum USD 500 or equivalent) can be done only by the money changer with whom the foreign exchange was encashed earlier. Submission of monthly statementDetails of all sales and purchases shall be recorded in the books properly and completely. All such records and books of accounts of the licencee must be made available for inspection by Bangladesh Bank officials as and when directed. Periodical returns/statments in prescribed form shall be furnished to Foreign Exchange Operation Department, Bangladesh Bank, Head Office or concerned Area Office of Bangladesh Bank on monthly basis within seven days from the end of each month. BANGLADESH BANK’S TRANSACTIONS WITH Buying and sellingBangladesh Bank’s purchases and sales from and to the ADs are in US Dollar only, on spot basis. All such transactions with Bangladesh Bank are required to be in multiples of US$ 10,000, subject to a minimum of US$ 50,000.
ADs are free to quote their own rates, ready and forward, for transactions in the interbank market and with their customers. Payments through ACU The central Banks of Bangladesh, India, Iran, Nepal, Pakistan, Sri Lanka, Myanmar and Bhutan have an Agreement to settle current transactions between these countries through the Asian Clearing Union (ACU) mechanism.All such payments to the ACU member countries excepting those covered by loan/credit agreements are accordingly settled through the Asian Clearing Union (ACU) mechanism in “Asian Monetary Units which may be referred to in the abbreviated form as “AMUs”. The Asian Monetary Units shall be denominated as ‘ACU Dollar’ and ‘ACU Euro’ which shall be equivalent in value to one US Dollar and one Euro respectively.
The ACU Agreement referred to above provides for settlement of the following types of payments: (i) Payments from residents in the territory of one participating country to residents in the territory of another participating country. ii) Payments for current international transactions as defined by the Articles of Agreement of the International Monetary Fund. (iii) Payments permitted by the country in which the payer resides. Clearing arrangement with Bangladesh Bank Bangladesh Bank operates a foreign currency clearing system enabling the AD banks to settle their mutual claims in US Dollar, Pound Sterling, Euro and Japanese Yen arising from inter bank transactions; to economize the time and cost involved in settlements through correspondents abroad.Under this arrangement, AD banks maintain clearing accounts with the BB in US Dollar, Pound Sterling, Euro and Japanese Yen.
Apart from the purpose of settlement with other ADs, these accounts may also be used for transfers to and from correspondents abroad. FOREIGN CURRENCY ACCOUNTS OF THE ADS AND PURCHASE AND SALE OF FOREIGN CURRENCY Foreign currency held by ADs at the disposal of the Bangladesh Bank: ADs may maintain accounts in freely convertible currencies with their correspondents/branches abroad.The foreign currencies held by ADs shall at all time be deemed to be held at the disposal of the Bangladesh Bank. The Bangladesh Bank, through its Foreign Exchange Policy Department, may give such instructions with regard to the disposal of such currencies as it may deem necessary and expedient. Open position Overbought/oversold position in excess of prescribed limits Bangladesh Bank sets prudential limits on each AD bank’s open (overbought/oversold) exchange position. The AD should ensure that the prescribed open position limit is not exceeded.If an AD exceeds the prescribed limit and fails to furnish satisfactory explanation for the same, it may be asked to sell the excess amount ready and to cover its position by buying forward for deliveries corresponding to the maturities of its own forward obligations.
FORWARD DEALINGS IN FOREIGN EXCHANGE General Forward sale and purchase Swap transactions ADs may engage in forward sales only against bonafide need of the customers/counterparty banks. In all cases the ADs must ensure that the cover is intended to neutralize the risks arising from such transactions.AD banks are required to cover at least 50% of their forward sales by forward purchases; the remaining portion may be covered by interbank forward purchases and/or spot purchases of export bills. Forward sales associated with swap transactions are not required to be covered by forward purchases. ADs may purchase forward from banks and non-bank customers like exporters, foreign currency account holders( including retention quota accounts of exporters, foreign currency accounts of EPZ companies), exchange houses abroad etc. Be it forward sale or purchase, ADs must cover their own risk within the shortest possible time.
All forward contracts should be treated as firm and should be closed out on expiry. In such cases, the ADs should charge the difference between the contracted (booked) rate and the TT clean spot buying or TT spot selling rate, as the case may be, ruling on the date the contract is closed out. The forward contract should be closed without charging any difference if the rate moves in favor of the customer on the date of the closure. Two way quotation ADs are advised to quote both sale and purchase rate while quoting/asking for any spot/forward transaction in the interbank market and with customers.
HEDGING THE PRICE RISK OF COMMODITIES Authorised dealers can hedge the price risk of commodities that are traded on exchanges or over-the-counter (OTC) of their customers through standard exchange traded futures/options and OTC derivatives on commodities subject to prior approval of Bangladesh Bank. The use of commodity derivatives will only be permitted when customers have genuine underlying commodity price risk exposure(s). This can be monitored by the ADs through checking of the underlying risk exposure documents.
Any kind of speculation through the use of commodity derivative instruments will not be permissible.ADs must completely hedge the commodity price risk arising from the commodity hedge transactions by booking back to back transactions with banks having international standing or their branches operating in Bangladesh. NON-RESIDENT TAKA ACCOUNTS OF FOREIGN BANK BRANCHES AND CORRESPONDENTS The Taka accounts of all foreign bank branches or correspondents outside Bangladesh are regarded as non-resident accounts. The accounts of different branches of the same bank situated in different countries must be identified separately and the accounts of each branch or group of branches in one country should be designated as accounts of that country.ADs may open or continue to maintain Non-Resident Taka Accounts in the names of their overseas branches and correspondents against inward remittance in convertible currencies only. Transfer between non-resident Taka accounts are permitted freely.
Approved foreign currency may also be sold to non-resident bank branches and correspondents provided the remittance is charged against credit balances held in the non-resident Taka account.Non-resident Taka accounts may be opened with initial deposits sent from abroad in a freely convertible currency. New non-resident Taka accounts opened by the ADs must be reported to the Bangladesh Bank with details.
OUTWARD REMITTANCES Barring a few remittances of special nature, most outward remittances either in its entirety or upto a certain limit set by Bangladesh Bank may be approved by the ADs, following declaration of Taka as convertible for current account payments from March, 1994.However, the limits of release of foreign exchange set forth in this Guidelines are indicative; all bonafide requests beyond these indicative limits and payment transfer requests for a current international transaction not specifically included in this Guidelines will be accommodated by Bangladesh Bank upon establishing the bonafides of the expenses. All remittances from Bangladesh to a foreign country or local currency credited to non-resident Taka accounts of foreign banks or convertible Taka account constitute outward remittances of foreign exchange.INWARD REMITTANCES The term “Inward Remittances” includes not only remittance by T. T.
, M. T. , Drafts etc. , but also purchases of bills, purchases of drafts under Travellers’ Letters of Credit and purchases of Travellers’ Cheques. This does not, however, cover purchases of foreign currency notes and coins.
The ADs may freely purchase foreign currencies or raise debits to non-resident Taka Accounts of the respective bank branches and correspondents. Remittances equivalent to US$ 2000 and above should be reported on Form C attached to the appropriate schedule.DEALING IN FOREIGN CURRENCY NOTES AND COINS ETC. No person, firm or company other than an AD or Authorised Money Changer is permitted to deal in foreign currency in any form. Other persons entering into transactions involving the buying or otherwise acquiring or borrowing from or selling or otherwise transferring or lending to or exchanging with, a person who is not an AD or Authorised Money Changer any foreign currency, will, therefore, be deemed to be contravening the provisions of the FER Act. 1947.ADs and money changers may freely buy foreign currency from incoming passengers regardless of nationality and regardless of whether or not a declaration on form FMJ is produced at the time of encashment. If this form is produced, the amount encashed should be endorsed on it.
The ADs may also purchase foreign currency notes, coins and other travel instruments freely from Authorised Money Changers without the production of Form FMJ. IMPORT AND EXPORT OF CURRENCY NOTES AND COINS, FOREIGN EXCHANGE, GOLD, SILVER, JEWELLERY AND SECURITIES ETC.Any person may bring into Bangladesh from any place outside Bangladesh without any limit foreign currency notes or bank notes other than- (i) Un-issued notes and coins. (ii) Notes legal tender in Bangladesh in excess of Taka 500 in value. Provided that the concerned person makes a written declaration to the Customs Authorities at the time of arrival, in FMJ Form of the entire amount; no declaration will however, be necessary if the amount brought in does not exceed US$ 5000 or its equivalent in foreign currency and does not exceed Taka 500 in notes legal tender in Bangladesh.Sending into Bangladesh by post/courier or otherwise of any currency note, bank note or coin by any person from abroad without general or specific permission from the Bangladesh Bank is prohibited.
Any traveller entering into Bangladesh may bring with him at every time Bangladesh currency notes/coins within the limit as prescribed hereunder: (i) Members of the crew of a ship or an aircraft or the staff of a railway may bring Bangladesh currency notes upto Tk. 00 at any one time. (ii) An incoming/outgoing passenger may bring in/take out upto Taka 500 ( five hundred) in Bangladesh currency at the time of arrival into/departure from Bangladesh. (iii) Every foreign national travelling on a foreign passport and persons travelling on Bangladesh passports will, while entering into Bangladesh by sea, air or land from any destination outside Bangladesh declares to the Customs authorities. IMPORTSImport of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the Import and Export (Control) Act, 1950, through Import Policy Order (IPO) in force and Public Notices issued from time to time by the Office of the Chief Controller of Imports and Exports (CCI;E). In terms of the Importers, Exporters and Indentors (Registration) Order, 1981 no person can import goods into Bangladesh unless he is registered with the CCI;E or exempted from the provisions of the Order.
Before Letter of Credit Authorisation Form (LCAF) is issued or Letter of credit (LC) is opened or remittance is made for imports into Bangladesh the AD should verify that the importer is registered with the CCI;E or otherwise exempted from such registration. LETTERS OF CREDIT AND REMITTANCES AGAINST IMPORTS 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.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. BACK TO BACK LCsThe ADs may open back to back (BTB) import LCs against export LCs received by export oriented industrial units operating under the bonded warehouse system, subject to observance of domestic value addition requirement (stated in terms of permissible limit of value of imported inputs as percentage of FOB export value of output) prescribed by the Ministry of Commerce from time to time. Further to the relevant general instructions in the foregoing sections of this chapter, the following instructions should be complied with while opening back to back import LCs: i) Only recognised export oriented industrial units operating under bonded warehouse system (ii) The master export LC (against which opening of back to back LC is requested) should have validity period adequate to cover the time needed for importation of inputs, manufacture of merchandise and shipment to consignee. (iii) The back to back LC value shall not exceed the admissible percentage of net FOB value of the relative master export LC and the price of goods to be imported must be competitive.
iv) The back to back import LCs shall be opened on usance basis for a period not exceeding 180 days. Interest for the usance period shall not exceed LIBOR or the equivalent interest rate of the currency of settlement. (v) All amendments of the master export LC should be noted down carefully to rule out chances of excess obligation under the back to back import LC.
(vi) Back to back import LC should not be opened against LCs received for export under Barter/STA, without prior approval of Bangladesh Bank.EXPORTS 1. FER Act prohibit export of any goods directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the Customs Authority or to such other authority as the Bangladesh Bank may specify in this behalf that foreign exchange representing full export value of the goods has been or will be disposed of in a manner and within a period specified by the Bangladesh Bank. 2. The prohibition mentioned above does not apply to the export of: i) bonafide trade samples sent by registered exporter upto the value prescribed in the Export Policy in force; (ii) personal effects, whether accompanied or unaccompanied, of travellers; (iii) ships stores and transhipment cargo; (iv) goods shipped under the order of the Government of Bangladesh or of such officers as may be appointed by the Government in this behalf or of the Military, Naval or Air Force authorities in Bangladesh for Military, Naval or Air Force requirements. v) gift packets where they are accompanied by a declaration by the sender that the contents of the packet are less than the value as prescribed in the Export Policy in force and that the despatch of the packet does not involve any transaction in foreign exchange; and (vi) where the packet is covered by a certificate issued by the Bangladesh Bank to the effect that the export of the parcel does not involve any transaction in foreign exchange. Exemptions as above will be allowed by the Customs Authorities after being satisfied that the relative exports qualify for such exemptions. 3.
Foreign exchange regulations regarding exports cover all goods exported to all destinations regardless of whether they are subject to Export Trade Control Regulations. Similarly, nothing in the foreign exchange regulations relieves the exporters from the necessity of complying with the Export Trade Control Regulations prescribed by the Government, including the necessity of obtaining export licences in case of goods the export of which requires such licence. EXPORT FROM THE EXPORT PROCESSING ZONE Export Processing Zones (EPZs) have been established by the Act namely, Bangladesh Export Processing Zone Authority Act, 1980.The following types of industrial units operate in the EPZs: (a) Type A: 100 percent foreign owned including those owned by Bangladeshi nationals ordinarily resident abroad; (b) Type B: Joint venture projects between foreign and Bangladesh entrepreneurs resident in Bangladesh; (c) Type C: 100 percent Bangladeshi entrepreneurs resident in Bangladesh. Exports from EPZs are subject to the usual requirement of declaration of exports in EXP Form and repatriation of export proceeds. For identification, EXP forms for these exports should be rubber stamped or over printed with words ” “EXPORT FROM EPZ” in bold letters.Sales of Bangladeshi goods or raw materials to the enterprises in EPZ against payment in foreign currency shall be treated as exports from Bangladesh and normal foreign exchange regulations concerning declaration of exports on EXP Forms and repatriation of proceeds is applicable to these exports to the EPZ enterprises.
FOREIGN INVESTMENT IN BANGLADESH Foreign investors are free to make investment in Bangladesh in the industrial enterprises excepting a few reserved sectors. An industrial venture may be set up in collaboration with local investors or may even be wholly owned by the foreign investors.No permission of the Bangladesh Bank is needed to set up such ventures if the entrepreneurs use their own funds. However, to avail of the facilities and institutional support provided by the Government, entrepreneurs/sponsors may secure registration with the Board of Investment (BOI). Prior permission of the Bangladesh Bank is not required for issue of shares in favour of non-residents against foreign investment in Bangladesh; general permission is accorded in this behalf subject to the following conditions: a) The industrial venture will have permission from the Registrar of the Joint Stock Companies and Firms(RJSCF)/The Securities and Exchange Commission (SEC) about its capital issue. (b) Shares may be issued either against freely convertible foreign exchange brought in from abroad through the banking channel or against import of capital machinery. Payment against such import must be made from abroad.
However, foreign exchange thus brought in must be encashed in taka before issuance of shares. In the case of issuance of shares against capital machinery, the machinery have to be cleared from the Bangladesh Customs irst. (c) Foreign Exchange Investment Department, Bangladesh Bank, Head Office must be informed through the concerned AD about the issue of shares to non-residents, within 14 days of such issue.
OPERATIONS IN SECURITIES FER Act defines “security” as shares, stocks, bonds, debentures, debenture stock and Government securities, deposit receipts in respect of securities and units or subunits of unit trusts. “Security” also includes coupons or warrants representing dividends or interest and life or endowment insurance policies.A “foreign security” is defined as a security issued elsewhere than in Bangladesh and any security the principal of or interest on which is payable in any foreign currency or elsewhere than in Bangladesh.
There is no restriction under the FER Act on the import of securities into Bangladesh. No securities can however be exported or taken out of Bangladesh without general or special permission of the Bangladesh Bank. Residents in Bangladesh who are holders of foreign securities and who wish to send the securities to banks, brokers or agents abroad for the purpose of sale, transfer etc.
hould apply to the Bangladesh Bank through an AD for necessary export permit. Permission for transfer of such securities will be granted provided the AD gives an undertaking that the securities will be received back in Bangladesh within a specified period, or in the case of sale, the foreign currency proceeds of the sale will be repatriated to Bangladesh. Bangladesh Bank is also prepared to consider applications for the exchange of foreign shares and/or securities held by residents of Bangladesh with Bangladesh shares and/or securities held by residents abroad.Applications for this purpose should be made through an AD or Stock and Share Broker. Such applications would be considered favourably provided the Bangladeshi shares/securities desired to be imported from abroad are approximately of the same market value as foreign shares and/or securities that are desired to be exported. COMMERCIAL REMITTANCES (OTHER THAN FOR IMPORTS ) Applications for remittances: Applications for remittances of freight and passage collections by branches or agents of foreign airlines and shipping companies should be made to the ADs on Form TM accompanied by a declaration in Form FP along with the following: a) Import/export freight manifest.
(b) Encashment certificate in support of inward remittances received from head office/principal abroad. (c) Authenticated copy of the charter party in case of vessel chartered by the principal of the shipping agent in Bangladesh. Remittance of freight and passage: Remittances of freights and passages collected in Bangladesh may be sent to owners abroad after adjustment of the amount spent for local disbursement and taxes payable.Submission of periodical statement : All foreign airlines & shipping companies are required to submit periodical statements of their disbursement and collection in the prescribed form regardless of whether there is a remittable surplus. Freight on Exports: Freight on exports from Bangladesh in local currency shall be accepted only when a certificate from the exporter’s bank is produced to the Shipping Companies/Airlines in the following form: “Certified that EXP Form …
…… in respect of shipment to be made by M/s..
….. name of the exporter) has been stamped to the effect that the documents in respect of the shipment under this EXP form shall be negotiated/accepted only when these are drawn on CFR/CIF/CPT/CIP basis and not on FOB/FCA/FAS/EXW/DAS basis. Freight on Imports: Freight on imports on FOB basis against LCAFs issued on CFR/CPT/CIF basis only shall be accepted in Bangladesh in the local currency by the shipping companies provided a certificate from the AD as mentioned in this paragraph is produced by the importer to the shipping company concerned.
The AD should ensure that in the case of imports on FOB basis against LCAF issued on CFR/CPT/CIF basis, a reasonable margin within the overall limit of the LCAF is reserved to cover the amount of freight so that the overall total does not exceed the amount of the LCAF. With a view to ensuring compliance with the above requirement, the AD should endorse on the LCAF the amount of freight payable in Bangladesh Currency as stated in the bill of lading/airway bill and to issue a certificate in the form prescribed below for presentation to the shipping company/airline in Bangladesh at the time of payment of freight in Bangladesh currency.Shipping companies/airlines are advised that while accepting payment of freight in Bangladesh currency on such imports they should invariably insist on production of the certificate from the ADs on the following form, which should be enclosed with the freight manifest/return at the time of applying for remittance of surplus freight collections: “Certified that the amount of freight payable in Bangladesh Taka viz. Taka …..
… as indicated on the bill of lading no.. /airway bill no..
…… dated ..
.. in respect of.
…. imported by Messrs..
. as been duly endorsed on the exchange monitoring copy of the relative LCAF No. ..
.. under stamp and signature”.
Computation of Remittable Profit: Upon being satisfied about the consistency of the amount applied for remittance with the facts and figures in the documents listed above, profits as per audited accounts may be remitted after making necessary deductions on the following counts: a) Tax: Tax assessed by the taxation authority or in the event assessment is not completed on the date of remittance, the amount of tax as provided for in the books of accounts and certified by the auditors as adequate in ccordance with the tax laws; b) Additions to Fixed Assets: Costs of fixed assets, furniture and fixtures, office equipment, cars etc. acquired/ bought during the year minus cost of assets financed out of depreciation, sale proceeds of assets and those bought with non-repatriable funds from abroad; c) Profits on Sale of Immovable Assets: Any amount of profit in excess of Tk. 10,000 (Ten thousand) arising out of sale of immovable assets (land, building etc. ) included in the profit; d) Income receivable: Any unrealised receivable against an adversely classified asset e. . interest earning credited to interest suspense account; e) Irregular Income: Excess amount of interest and commission/charges etc. realised and included in the Profit & Loss Account as detected by the Bangladesh Bank inspection teams ; f) Shortfalls in Capital & in provision requirements: Any shortfall in capital & reserves in Bangladesh and any shortfall in maintenance of provisions against classified loans, advances and other assets as required in terms of laws and regulations by Bangladesh Bank/other relevant regulatory authorities from time to time; ) Past accumulated losses :All accumulated previous losses.
PRIVATE REMITTANCES Foreign nationals leaving Bangladesh permanently after expiry of period of service in terms of relevant employment contracts, may transfer abroad their genuine savings out of salaries/benefits clearly stated in the employment contracts duly approved by the Board of Investment (BOI). They shall also be eligible to transfer abroad the retirement benefits such as provident fund, pension, gratuity due as per employment contracts approved by the BOI.The ADs may, without prior approval of Bangladesh Bank, effect remittance of retirement benefits and savings including sale proceeds of investments in government securities (but not including sale proceeds of real assets such as household articles, real estates and other real assets, requests if any for remittance of such sale proceeds should be forwarded to Bangladesh Bank);Pension payments: In cases where pension is payable at regular intervals after the initial lump sum payment of retirement benefits, the ADs shall effect remittances of regular pension payments provided that life certificate in respect of the pensioner issued by the paying banker abroad is produced and the AD is satisfied on the basis of documentary evidence that the relative pension fund is maintained locally. Remittances effected in accordance with the above instructions will be reported by the ADs to the concerned area office of Bangladesh Bank in the usual monthly returns.The ADs shall maintain full records of cases of remittance of retirement benefits and savings of foreign nationals disposed of by them, for eventual examination by the inspecting officials of Bangladesh Bank. TRAVEL The amount of foreign exchange released by an AD to a traveler with the approval of the Bangladesh Bank or under general authority given to the ADs by Bangladesh Bank should be recorded by them on the traveler’s valid passport as well as ticket under their stamp and signature at the time of release of such exchange.
Release of foreign exchange in excess of USD 200 or equivalent will require valid visa. However, while issuing foreign exchange to the Diplomats/Privileged persons/UN personnel, Govt. officials travelling on official duties, such endorsement in their passport need not be made. The AD should verify to satisfy itself that the ticket covers a journey to be undertaken not later than two weeks after the date on which exchange is issued. No exchange should be sold against tickets, which do not specify the date of departure.The ADs may release foreign exchange upto US$ 1000 or equivalent per person during a calendar year to Bangladesh nationals proceeding by air to destinations in SAARC member countries and Myanmar; within this annual limit, upto US$ 500 or equivalent may be issued per person for overland travels to the aforesaid countries. Also for visits of Bangladesh nationals to destinations in countries other than those mentioned above, upto US$ 3000 per person may be issued during a calendar year.However, foreign exchange in the form of cash must not exceed US$ 2000 at any one instance.
For resident Bangladesh nationals proceeding abroad against one way ticket for valid job or migrating abroad, the release of foreign exchange shall not exceed the half of the un-used balance of the annual travel entitlement of the person concerned in the calendar year. Irrespective of foreign exchange entitlement, the outgoing passenger is permitted to take upto Bangladesh Taka 500 in cash at each time.The above limits are indicative.
Bangladesh Bank will authorize release of foreign exchange for travel abroad beyond these indicative limits upon submission of documents regarding the bonafides of the expenses. Application for such authorization should be sent to Foreign Exchange Operation Department of Bangladesh Bank. (iii) The annual quotas mentioned above are for adult passengers.For minors (below 12 years in age) the applicable quota will be half the amount allowable to adults. (iv) While releasing foreign exchange for travel abroad, the AD should verify and satisfy itself that any foreign exchange released for an earlier travel was utilised with the journey being actually undertaken or was duly encashed unutilised. (v) The travel entitlements mentioned above may be utilised also by way of international cards issued in the names of the persons concerned.
vi) While releasing foreign exchange for travel purposes the Ads should ensure that: (a) the intending traveller is a client of the AD bank or is sufficiently well known to the AD bank for it to be satisfied about the bonafide of the application; (b) the intending traveller is in possession of a confirmed air ticket (where applicable) for journey to be undertaken; (c) the amount released is endorsed on the passport and air ticket (where applicable) of the traveller with indelible ink, with the signature and name of the AD branch embossed in the passport and ticket (where applicable); vii) In each case of release of foreign exchange for travel abroad, photocopies of first six pages, page bearing visa on the passport (if available), the page recording endorsement of foreign exchange and photocopies of the pages of ticket showing name of the passenger, route and date of journey and endorsement of foreign exchange alongwith the relative TM Form should be sent to Bangladesh Bank alongwith report of the transaction in the usual monthly returns.All applications for foreign exchange for travel abroad on health grounds should be submitted in duplicate. Upto US$ 10,000 or equivalent may be released by the AD on the basis of the recommendation of the Medical Board set up by the Health Directorate or on the basis of the need established through recommendation of appropriate medical specialists and the cost estimate of the foreign medical institution.
Request for release of foreign exchange exceeding US$ 10,000 for treatment abroad should be forwarded by the AD with supporting documents to Bangladesh Bank (Foreign Exchange Operation Department) which will authorise release upon verification of the bonafides of the expenses. For official or semi-official visits abroad by the officials of Government/Autonomous/Semi-autonomous institutions etc. , Ads may release foreign exchange as per entitlements fixed by the Ministry of Finance/respective competent authority from time to time.In such cases, the applicant for foreign exchange shall be required to submit the Competent Authority’s Order/Notification /Circular authorising the travel abroad. Travel abroad by resident Bangladesh nationals Tickets against payment in Bangladesh Taka may be issued by the Airlines / Travel Agents for these travels on completion of P Form (Appendix 5/40) in duplicate and production of valid passport with valid visa, involving journey by a route and at a fare approved by the Civil Aviation Authority of Bangladesh (CAAB).In case of travel abroad by officials of Govt.
/Autonomous/Semi-autonomous bodies/Public sector corporations or Local Goverment Agencies on official duty or as member of official delegation, tickets shall be issued preferably on Bangladesh Biman. If the passport of the intending traveller shows that the traveller is employed with any Govt/Autonomous/Semi-autonomous bodies or public sector agencies, the Airline/Travel Agent may issue ticket only if the Order or NOC from the concerned administrative Ministry/Division /Department authorising the travel is produced.The above provision of issuance of ticket against payment in Taka would also be applicable for those foreign nationals who work in Bangladesh with the approval of the competent authorities of the Government of Bangladesh and draw their pay and allowances in Bangladesh Taka; or whose costs of travel abroad, as per terms of their service, are to be borne by the employing organization /agency. In such cases, attested photocopies (in duplicate) of sanction letters of the competent authorities of the Govt. of Bangladesh and service contract should be asked for before issuing tickets and submitted to the ADs alongwith monthly statement.PRIVATE FOREIGN CURRENCY ACCOUNTS The ADs may without prior approval of the Bangladesh Bank open foreign currency accounts in the names of (a) Bangladesh nationals residing abroad (b) foreign nationals residing abroad or in Bangladesh and also foreign firms registered abroad and operating in Bangladesh or abroad (c) Foreign missions and their expatriate employees. Bangladesh Bank may specially allow opening of foreign currency accounts not covered by this general authorisation. (ii) Foreign exchange earned through business done or services rendered in Bangladesh can not be put into these accounts.
Credits to a foreign currency account may be made against inward remittance of foreign exchange in any form or transfer from another foreign currency account or non-resident Taka accounts of banks abroad. (iii) Payments may be made freely abroad from these foreign currency accounts to the extent of balances lying therein. Local disbursements may also be made freely in Taka from such foreign currency accounts. (iv) No payment in foreign exchange may be made to or on behalf of any resident in Bangladesh out of the foreign currency accounts opened as per the above arrangement.However, this restriction will not apply in case of foreign diplomats and privileged persons or any other person or firm who have specific authority from the Bangladesh Bank to accept such payments. Bills of the local contractors of the foreign missions in Bangladesh may also be settled in foreign currency from the balances of the foreign currency accounts of such missions. In such cases the beneficiary of the bill will have to encash the foreign currency with any AD within one month from the date of receipt. v) Any payment received in foreign exchange by the ADs on behalf of residents of Bangladesh must not be retained in foreign exchange but must be converted into Taka unless the AD is satisfied that the payee has the general/ special permission of the Bangladesh Bank to retain the foreign exchange.
(vi) The ADs maintaining foreign currency accounts under this authority can pay interest on such accounts being maintained in the form of term deposits for the period of one/three/six/twelve months at the prevailing eurocurrency deposit rates.ADs may apply interest on prevailing eurocurrency deposit rates also on nonresident foreign currency accounts not specifically maintained as term deposit, for balances not less than USD 1000, Pund Sterling 500 or equivalent in other currency lying in the accounts for one month or longer period. NON-RESIDENT FOREIGN CURRENCY DEPOSIT ACCOUNT All non-resident Bangladesh nationals and persons of Bangladesh origin including those having dual nationality and ordinarily residing abroad may maintain interest bearing time deposit accounts named “Non-Resident Foreign Currency Deposit (NFCD) Account” with the ADs.Bangladesh nationals serving with Embassies/High Commissions of Bangladesh in foreign countries and also the officers/staff of the government/semi-government departments/nationalised banks and employees of body corporate posted abroad or deputed with international and regional agencies like IMF, World Bank, IDB, ADB etc.
during their assignments abroad may open such accounts. Crew members of the Bangladeshi shipping companies are not entitled to open such accounts, but shore staff posted abroad may open such accounts.Accounts may also be opened with funds transferred from existing foreign currency accounts maintained by the wage earners with the ADs in Bangladesh. RESIDENT FOREIGN CURRENCY DEPOSIT ACCOUNT Persons ordinarily resident in Bangladesh may open and maintain Resident Foreign urrency Deposit (RFCD) accounts with foreign exchange brought in at the time of their return from travel abroad.
Any amount brought in with declaration to Customs Authorities in form FMJ and upto US $ 5000 brought in without any declaration, can be credited to such accounts.However, proceeds of export of goods or services from Bangladesh or commission arising from business deals in Bangladesh shall not be credited to such accounts. Balances in these accounts shall be freely transferable abroad. Fund from these accounts may also be issued to account-holders for the purpose of their foreign travels in the usual manner (i.
e. with endorsement in passport and ticket, upto US $ 2000 in the form of cash currency notes and the remainder in the form of TC & or other currencies. ) These accounts may be opened in US Dollar, Pound Sterling Euro or Japanese Yen and may be maintained as long as the account holders desire.EXPORTER’S RETENTION QUOTA (ERQ) ACCOUNT Merchandise exporters are entitled to a foreign exchange retention quota of 50% of repatriated FOB value of their exports. However, for exports of goods having high import content (low domestic value-added) like POL products including naphtha, furnace oil and bitumen, readymade garments made of imported fabrics, electronic goods etc. the retention quota is 10% of the repatriated FOB value. FOREIGN CURRENCY ACCOUNTS FOR THE EPZ COMPANIES The following procedures shall apply to release of foreign exchange to the nterprises against exports made from the EPZs: (i) 100% of repatriated export proceeds of a Type A industrial unit in EPZ may be retained in FC account in the name of the unit with an AD in Bangladesh. Balances in the FC account may freely be used to meet all foreign payment obligations including import payment obligations of the unit and payment obligations in foreign exchange to BEPZA.
Balances from the FC account will also be freely encashable for local disbursements or for crediting Taka account maintained with an AD for meeting Taka payment obligations like wages, rents, rates, taxes etc.Taka account maintained with ADs by Type A units in EPZ may be credited only with encashments of funds from FC accounts or of other inward remittances from abroad. However, receipts from Taka sales of factory refuses and of unusable portion of raw materials of Type A industries may be credited to the Taka accounts provided the permission letter of BEPZA for the sale and evidence of payment of duties/taxes on sale proceeds are produced to the AD.
Balances in these Taka accounts cannot be converted to foreign exchange and may only be used for meeting local expenses. (ii) Upto 80% of the repatriated export proceeds of Type B and Type C units other than those in the garments sector may be retained in FC Accounts maintained in the names of the units with their ADs; for a Type B or Type C unit in the garments sector, upto 75% of the repatriated export proceeds may be credited to FC account maintained in the name of the unit with an AD.The remainder of the export proceeds should be encashed to taka at the prevailing exchange rate. All foreign payment obligations of Type B and Type C units including import payment and repayments of foreign loans may be met out of the balances in their FC accounts; payment obligations in foreign exchange of a type B unit to the BEPZA may also be settled from balances in its FC account. Balances in the FC accounts of the Type B and Type C units are freely encashable to Taka for local disbursements. CONVERTIBLE AND NON-CONVERTIBLE TAKA ACCOUNTSADs may open convertible Taka accounts in the names of foreign organisations/nationals viz.
, diplomatic missions, UN organisations, non-profit international bodies, foreign contractors and consultants engaged for specific projects under the Govt. /Semi Govt. agencies and the expatriate employees of such missions/organisations who are resident in Bangladesh. These accounts may be credited with foreign currency brought in or remitted from abroad or transferred from a foreign currency account or another convertible Taka account.The ADs may open Taka STD (7-30 days special notice) accounts in the names of foreign diplomatic missions and their expatriate personnel, foreign airlines and shipping lines operating in Bangladesh, international non-profit organisations including charitable organisations, UN organisations and their respective expatriate personnel and pay interest thereon provided that the amount of interest accrued on balances of these accounts will be disbursed locally in non-convertible Taka and that no part of the earned interest will be remittable abroad at any stage.
PRIVATE NON-RESIDENT TAKA ACCOUNTSThe accounts of individuals, firms or companies resident outside Bangladesh are designated as non-resident accounts and are treated as accounts of countries of permanent residence of the account holders. ADs should establish the countries of permanent residence of all account-holders and mark the accounts of all nonresident persons, firms or companies as non-resident accounts; indicating clearly the countries of their permanent residence as established. Where any doubt exists whether an account is to be treated as non-resident, reference should be made to the Bangladesh Bank for decision, giving relevant details.It would, however, be in order for the ADs to raise debits and credits to the accounts of such persons during their absence from Bangladesh for the following: (a) Debits: (i) Payments on account of insurance premium, club bills or other payments in Bangladesh of a regular nature for which the ADs hold standing instructions from their customers provided the payments are supported by bills and vouchers. (ii) Government and Municipal dues in Bangladesh provided payments are supported by official claims.
(iii) Debits representing payments in Bangladesh for cost of passages by air or by sea. iv) Other payments by cheques drawn in favour of payees resident in Bangladesh. (v) Debits on account of purchase of shares of public limited companies and/or securities of the Government of the People’s Republic of Bangladesh provided such shares/securities are purchased and retained by the ADs themselves for and on behalf of the account holder so long as he resides outside Bangladesh. In case the shares/securities are required to be disposed of, the sale proceeds should be credited to the non-resident account. vi) Debits on account of disbursements in Bangladesh to resident Bangladesh nationals to the extent of funds received from abroad through banking channel. (vii) Debits on account of repayments of instalments of loan direct to a financial institution in Bangladesh from which the account holder had obtained loan. (viii) Debits in reversal of previous credits. (b) Credits: (i) Receipts on account of salary, allowances, bonus, commission etc.
, (ii) Dividend and interest income on investments in shares and securities, (iii) Income from landed property and agricultural rent, iv) House rent and sale proceeds of properties on the basis of documentary evidence, (v) Interest accrued on the amounts lying in the non-resident accounts, (vi) Sale proceeds of shares of public limited companies and/or securities of the Government of the People’s Republic of Bangladesh purchased, (vii) Remittances received from abroad through banking channel, (viii) Refund of amount previously debited or over-charged. In these cases, the AD must satisfy himself that the credit falls under any one of the exempted categories and represents the purpose which it purports to do before passing it through the account.NON-RESIDENT BLOCKED TAKA ACCOUNTS FER Act confers powers on the Bangladesh Bank to “block” accounts in Bangladesh of any person resident outside Bangladesh and to direct that payment of any sum due to a non-resident may be made only to such a blocked account. A blocked account means an account opened as a blocked account at any branch or office in Bangladesh of a bank authorized in this behalf by the Bangladesh Bank or an account blocked by the order of the Bangladesh Bank.
A blocked account may not be opened in the name of a resident of Bangladesh unless it is held jointly with a non-resident.No blocked account may be opened by an AD or an existing “free” account blocked except under directions from the Bangladesh Bank. NON-RESIDENT INVESTOR’S TAKA ACCOUNTS (NITA) In respect of portfolio investment in Bangladesh the non-resident investor (non-resident person/institutions including non-resident Bangladesh nationals) shall open a NITA with any AD in Bangladesh, with freely convertible foreign currency remitted from abroad through normal banking channel or by transfer of funds from the non-resident investor’s foreign currency account, if any, in Bangladesh;BORROWING ABROAD BY RESIDENTS All proposals for borrowing from abroad by private sector industrial enterprises in Bangladesh (including supplier’s credits, financial loans from institutions or individuals and debt issues in capital markets abroad) shall require prior authorisation of the Board of Investment (BOI). In each case of supplier’s credit/loan from abroad approved by BOI, a copy of the loan agreement should be forwarded by the concerned AD to ‘External Debt and Grant Section’, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka.LOANS, OVERDRAFTS AND GUARANTEES Grant of credit facilities in Taka to non-residents, to companies (other than banking companies) controlled directly or indirectly by persons resident outside Bangladesh and to residents against guarantees or collateral lodged outside Bangladesh, the extension of loans and overdrafts in foreign currencies and the giving of guarantees on behalf of residents of Bangladesh in favour of nonresidents or on behalf of non-residents in favour of residents CREDIT FACILITIES TO INDUSTRIES IN EXPORT PROCESSING ZONES 00% foreign owned enterprises in the EPZs known as Type A industries may obtain short term foreign currency loans from overseas banks and financial institutions subject to the following conditions: (i) The loan shall be received through an AD in Bangladesh; and the loan proceeds will be credited to the FC account maintained by the AD in the name of the Type A unit, to be used for financing import of capital machinery and raw materials, payment of interest/service charges, repayment of loans and for crediting Taka account for meeting local expenses; (ii) Only assets fully owned by the Type A industry may be lodged as collaterals for such loans; (iii) Repayment of principal and interest on the loan shall be remitted out of the balances available in the FC account without prior Bangladesh Bank approval.No fund may be provided from the AD’s own resources for such repayment except with prior approval of Bangladesh Bank; (iv) In case the loan is called up by the creditor, the asssets charged to foreign lender will be allowed to be sold only in foreign exchange and proceeds, after paying off all local liabilities in Bangladesh, may be remitted abroad with Bangladesh Bank’s approval; (v) No Taka loan against repatriable short term foreign currency loan will be allowed to a Type A industry.
(B) Type B industries (joint venture projects) may also obtain such loans subject to conditions applicable to Type A industries as indicated above, except that Type B industries will not be permitted to mortgage/ hypothecate their fixed assets, raw materials in favour of any nonresident. The ADs may, however, issue guarantee to overseas banks/ financial institutions for short term foreign currency loans brought into Bangladesh by Type B industries, subject to prior approval of the Bangladesh Bank. OPENING OF OFFICE AND APPOINTMENT OF AGENTS IN BANGLADESH BY NON-RESIDENTS: REPATRIATION OF EARNINGS OF COMMISSION, FEES ETC.All persons resident outside Bangladesh, foreign nationals residing in Bangladesh and foreign companies (other than banking companies) not incorporated in Bangladesh are required to obtain permission from the Bangladesh Bank to establish in Bangladesh any place of business for trading, commercial or industrial activities.
Permission of Bangladesh Bank will have to be obtained by any person (which includes individuals, firms, business organisations or concerns incorporated or not) to enable the person concerned to act or accept an appointment to act as an agent in trading and commercial transactions or as a technical or management adviser of any person resident outside Bangladesh or of a person resident in Bangladesh but not citizen of Bangladesh. INSURANCE BUSINESSForeign exchange regulations governing insurance business entered into and completed in Bangladesh. Branches and agencies in Bangladesh of insurance companies whose head offices are situated abroad are, from foreign exchange regulations viewpoint, regarded as resident in Bangladesh and are subject to the-same instructions as insurance companies registered in Bangladesh. Life Insurance Insurance policies on the lives of residents of Bangladesh may be issued only in Taka. (ii) Existing Taka life policies may not be converted into foreign currency policies except with the prior approval of the Bangladesh Bank.
Similarly, the records of an existing Taka policy may not be transferred to an office outside Bangladesh. Non-Life BusinessExporters in Bangladesh may obtain insurance cover for shipments on CIF basis, the policies may be expressed in Taka or in foreign currency. For FOB/CFR export shipments, the insurance covers are arranged by the overseas buyers. REINSURANCE Remittance facilities for reinsurance (non-life) abroad will be allowed to the insurance companies operating in Bangladesh by ADs without prior Bangladesh Bank approval subject to the following conditions: (i) Remittances of Premia-Facultative Reinsurance: (a) Application for this purpose should be made on Form TM accompanied by a declaration. (b) The application is supported by evidence in the nature of cover note etc.
, in respect of reinsurance effected. c) In case of applicant insurance companies other than the SBC, a certificate from SBC that the applicant has fulfilled the requirement of obtaining reinsurance cover through SBC to the extent statutorily prescribed. (ii) Settlement of Account- Treaty Reinsurance: (a) The application is supported by a proforma statement of account signed by the Manager of the applicant company or an officer holding a power of attorney and duly confirmed by the reinsurer. (b) The applicant company has submitted quarterly statements of its reinsurance account to the Bangladesh Bank through the AD. (c) Proceeds certificate in case any amount of claim has been received in cash and the same is being accounted for through the statement of account.
(d) Applications for this purpose should be made on Form TM accompanied by a declaration. PAYMENT THROUGH INTERNATIONAL CARDS 1.Payment in foreign exchange may be made through International Card (debit/credit/pre-paid as the case may be) of internationally recognised issuing company against the following entitlements: i) Balance in exporters’ retention quota account ii) Annual personal travel quota entitlement of individual iii) Balances held in Resident Foreign Currency Deposit (RFCD) accounts iv) Foreign exchange entitlement (fixed by the Government for each person intending to perform Hajj) of approved private Hajj Agencies for meeting food/lodging expenses of the pilgrims in Saudi Arabia. v) Foreign exchange entitlement fixed by the Ministry of Finance/competent authority for fficial or semi-official visits abroad by the officials of Government/Autonomous/Semi-autonomous institutions etc vi) Per diem foreign exchange entitlement for private sector participants for attending seminars, conferences, workshops abroad arranged by recognised international bodies vii) Balances held in private foreign currency accounts viii) Personal entitlement fixed by the Government of Bangladesh in each year for intending pilgrims for performing Hajj SUBMISSION OF RETURNS OF FOREIGN EXCHANGE TRANSACTIONS Authorised Dealers must maintain proper records of all dealings in foreign exchange including transactions on non-resident Taka accounts in their books. Authorised Dealers must submit returns and statements to the Bangladesh Bank.Where there is no transaction to report during a particular period, a NIL return/statement should be submitted. Authorised Dealers should report transactions as per following procedure: (a) Export (i) Negotiation of export bills : Transactions in respect of export bills negotiated by Authorised Dealers should be reported as purchases only (b) Export bills drawn on collection basis : Sometimes Authorised Dealers also purchase export bills drawn on collection/CAD basis. Transactions relating to such export bills should be reported as outright purchases against ”Exports” in the summary statement after the transactions are put through the currency account on receipt of advice of realisation of the export proceeds.
(c) Imports :Sales on account of import bills under LCs/contracts shall be reported when the transactions are put through the currency account on receipt of import documents and not on the basis of retirement of bills by the importers. All sales on account of imports are required to be supported by the original copy of the IMP Form. Other Payments : Transactions relating to DDs and MTs issued by the Authorised Dealers should also be reported only at the time entries are made in the currency accounts. Transactions in non-resident Taka accounts of foreign banks and correspondents including barter accounts shall also be reported by Authorised Dealers. CREDIT RISK MANAGEMENT INTRODUCTIONRisk is inherent in all aspects of a commercial operation, however for Banks and financial institutions, credit risk is an essential factor that needs to be managed.
Credit risk is the possibility that a borrower or counter party will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the bank’s dealings with or lending to corporates, individuals, and other banks or financial institutions. Credit risk management needs to be a robust process that enables banks to proactively manage loan portfolios in order to minimize losses and earn an acceptable level of return for shareholders. Central to this is a comprehensive IT system, which should have the ability to capture all key customer data, risk management and transaction information including trade & Forex.Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and dis- intermediation, it is essential that banks have robust credit risk management policies and procedures that are sensitive and responsive to these changes.
The purpose of this document is to provide directional guidelines to the banking sector that will improve the risk management culture, establish minimum standards for segregation of duties and responsibilities, and assist in the ongoing improvement of the banking sector in Bangladesh. Credit risk management is of utmost importance to Banks, and as such, policies and procedures should be endorsed and strictly enforced by the MD/CEO and the board of the Bank. Bangladesh Bank that these guidelines will be adopted, particularly for those institutions that have a high rate of non-performing loans and weak credit risk management procedures.
Bangladesh Bank may, based on its regular examination of individual banks, enforce the specific adoption of these guidelines. The guidelines have been organized into the following sections: 1. POLICY GUIDELINES 1. 1. Lending Guidelines 1. 2. Credit Assessment & Risk Grading 1.
3. Approval Authority 1. 4. Segregation of Duties 1. 5. Internal Audit 1. POLICY GUIDELINES This section details fundamental credit risk management policies that are recommended for adoption by all banks in Bangladesh. The guidelines contained herein outline general principles that are designed to govern the implementation of more detailed lending procedures and risk grading systems within individual banks.
1. Lending GuidelinesAll banks should have established Credit Policies (“Lending Guidelines”) that clearly outline the senior management’s view of business development priorities and the terms and conditions that should be adhered to in order for loans to be approved. The Lending Guidelines should be updated at least annually to reflect changes in the economic out look and the evolution of the bank’s loan portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be approved by the Managing Director/CEO & Board of Directors of the bank based on the endorsement of the bank’s Head of Credit Risk Management and the Head of Corporate/Commercial Banking. Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided.Approval of loans that do not comply with Lending Guidelines should be restricted to the bank’s Head of Credit or Managing Director/CEO & Board of Directors. The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval, and should include the following: ¦ Industry and Business Segment Focus The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the bank’s loan portfolio. For each sector, a clear indication of the bank’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the bank’s marketing staff. ¦ Types of Loan FacilitiesThe type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc. ¦ Single Borrower/Group Limits/Syndication Details of the bank’s Single Borrower/Group limits should be included as per Bangladesh Bank guidelines. Banks may wish to establish more conservative criteria in this regard. ¦ Lending Caps Banks should establish a specific industry sector exposure cap to avoid over concentration in any one industry sector. ¦ Discouraged Business Types Banks should outline industries or lending activities that are discouraged. As a minimum, the following should be discouraged: – Military Equipment/Weapons Finance – Highly Leveraged Transactions – Finance of Speculative Investments Logging, Mineral Extraction/Mining, or other activity that is Ethically or Environmentally Sensitive – Lending to companies listed on CIB black list or known defaulters – Counterparties in countries subject to UN sanctions – Share Lending – Taking an Equity Stake in Borrowers – Lending to Holding Companies – Bridge Loans relying on equity/debt issuance as a source of repayment. ¦ Loan Facility Parameters Facility parameters (e. g. , maximum size, maximum tenor, and covenant and security requirements) should be clearly stated. As a minimum, the following parameters should be adopted: – Banks should not grant facilities where the bank’s security position is inferior to that of any other financial institution. Assets pledged as security should be properly insured. – Valuations of property taken as security should be performed prior to loans being granted. A recognized 3rd party professional valuation firm should be appointed to conduct valuations. ¦ Cross Border Risk Risk associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments – Synonymous with political & sovereign risk – Third world debt crisis For example, export documents negotiated for countries like Nigeria. 1. Credit Assessment & Risk Grading A thorough credit and risk assessment should be conducted prior to the granting of loans, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is approved by Credit Risk Management (CRM). The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the bank’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors.It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be. All banks should have established Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details: – Amount and type of loan(s) proposed. – Purpose of loans. – Loan Structure (Tenor, Covenants, Repayment Schedule, Interest) – Security Arrangements In addition, the following risk areas should be addressed: – Borrower Analysis. The majority shareholders, management team and group or affiliate companies should be assessed.Any issues regarding lack of management depth, complicated ownership structures or intergroup transactions should be addressed, and risks mitigated. – Industry Analysis. The key risk factors of the borrower’s industry should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified. – Supplier/Buyer Analysis. Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower. – Historical Financial Analysis.An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analysed. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flow, leverage and profitability must be analyzed. – Projected Financial Performance. Where term facilities (tenor > 1 year) are being proposed, a projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments.Loans should not be granted if projected cash flow is insufficient to repay debts. – Account Conduct. For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed. – Adherence to Lending Guidelines. Credit Applications should clearly state whether or not the proposed application is in compliance with the bank’s Lending Guidelines. The Bank’s Head of Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the bank’s Lending Guidelines. – Mitigating Factors. Mitigating factors for risks identified in the credit assessment should be identified.Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues. – Loan Structure. The amounts and tenors of financing proposed should be justified based on the projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrower’s repayment ability. – Security. A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed. – Name Lending.Credit proposals should not be unduly influenced by an over reliance on the sponsoring principal’s reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis. Risk Rating Grade Definition Superior – Low Risk 1 Facilities are fully secured by cash deposits, government bonds or a counter guarantee from a top tier international bank. All security documentation should be in place. Good – Satisfactory Risk 2 The repayment capacity of the borrower is strong. The borrower should have excellent liquidity and low leverage.The company should demonstrate consistently strong earnings and cash flow and have an unblemished track record. All security documentation should be in place. Aggregate Score of 95 or greater based on the Risk Grade Scorecard. Acceptable – Fair Risk 3 Adequate financial condition though may not be able to sustain any major or continued setbacks. These borrowers are not as strong as Grade 2 borrowers, but should still demonstrate consistent earnings, cash flow and have a good track record. A borrower should not be graded better than 3 if realistic audited financial statements are not received. These assets would normally be secured by acceptable collateral (1st charge over stocks / debtors / equipment / property).Borrowers should have adequate liquidity, cash flow and earnings. An Aggregate Score of 75-94 based on the Risk Grade scorecard. Marginal – Watch list 4 Grade 4 assets warrant greater attention due to conditions affecting the borrower, the industry or the economic environment. These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings. Facilities should be downgraded to 4 if the borrower incurs a loss, loan payments routinely fall past due, account conduct is poor, or other untoward factors are present. An Aggregate Score of 65-74 based on the Risk Grade Scorecard.Risk Rating Grade Definition Substandard 6 Financial condition is weak and capacity or inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans. Loans should be downgraded to 6 if loan payments remain past due for 60-90 days, if the customer intends to create a lender group for debt restructuring purposes, the operation has ceased trading or any indication suggesting the winding up or closure of the borrower is discovered. Not yet considered non-performing as the correction of the deficiencies may result in an improved condition, and interest can still be taken into profits. An Aggregate Score of 45-54 based on the Risk Grade Scorecard.Doubtful and Bad (non-performing) 7 Full repayment of principal and interest is unlikely and the possibility of loss is extremely high. 3. Approval Authority The authority to sanction/approve loans must be clearly delegated to senior credit executives by the Managing Director/CEO & Board based on the executive’s knowledge and experience. Approval authority should be delegated to individual executives and not to committees to ensure accountability in the approval process. The following guidelines should apply in the approval/sanctioning of loans: ¦ Credit approval authority must be delegated in writing from the MD/CEO & Board (as appropriate), acknowledged by recipients, and records of all delegation retained in CRM. Delegated approval authorities must be reviewed annually by MD/CEO/Board. ¦ The credit approval function should be separate from the marketing/relationship management (RM) function. ¦ The role of Credit Committee may be restricted to only review of proposals i. e. recommendations or review of bank’s loan portfolios. ¦ Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. ¦ All credit risks must be authorized by executives within the authority limit delegated to them by the MD/CEO. The “pooling” or combining of authority limits should not be permitted. ¦ Credit approval should be centralized within the CRM function.Regional credit centres may be established, however, all large loans must be approved by the Head of Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office credit executive. ¦ The aggregate exposure to any borrower or borrowing group must be used to determine the approval authority required. ¦ Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be referred to Head Office for Approval ¦ MD/Head of Credit Risk Management must approve and monitor any cross border exposure risk. ¦ Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control, and Head of CRM. It is essential that executives charged with approving loans have relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have: – At least 5 years experience working in corporate/commercial banking as a relationship manager or account executive. – Training and experience in financial statement, cash flow and risk analysis. – A thorough working knowledge of Accounting. – A good understanding of the local industry/market dynamics. – Successfully completed an assessment test demonstrating adequate knowledge of the following areas: o Introduction of accrual accounting. o Industry / Business Risk Analysis o Borrowing Causes o Financial reporting and full disclosure o Financial Statement Analysis The Asset Conversion/Trade Cycle o Cash Flow Analysis o Projections o Loan Structure and Documentation o Loan Management. 4. Segregation of Duties Banks should aim to segregate the following lending functions: – Credit Approval/Risk Management – Relationship Management/Marketing – Credit Administration The purpose of the segregation is to improve the knowledge levels and expertise in each department, to impose controls over the disbursement of authorized loan facilities and obtain an objective and independent judgment of credit proposals. 5. Internal Audit Banks should have a segregated internal audit/control department charged with conducting audits of all departments.Audits should be carried out annually, and should ensure compliance with regulatory guidelines, internal procedures, Lending Guidelines and Bangladesh Bank requirements. 2. PREFERRED ORGANISATIONAL STRUCTURE & RESPONSIBILITIES The appropriate organizational structure must be in place to support the adoption of the policies detailed in Section 1 of these guidelines. The key feature is the segregation of the Marketing/Relationship Management function from Approval/Risk Management/ Administration functions. Credit approval should be centralized within the CRM function. Regional credit centers may be established, however, all applications must be approved by the Head of Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office credit executive. PROCEDURAL GUIDELINESThis section outlines of the main procedures that are needed to ensure compliance with the policies contained in Section 1. 0 of these guidelines. 3. 1 Approval Process The approval process must reinforce the segregation of Relationship Management/ Marketing from the approving authority. The responsibility for preparing the Credit Application should rest with the RM within the corporate/commercial banking department. Credit Applications should be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives. Banks may wish to establish various thresholds, above which, the recommendation of the Head of Corporate/Commercial Banking is required prior to onward recommendation to CRM for approval.In addition, banks may wish to establish regional credit centres within the approval team to handle routine approvals. Executives in head office CRM should approve all large loans. The recommending or approving executives should take responsibility for and be held accountable for their recommendations or approval. Delegation of approval limits should be such that all proposals where the facilities are up to 15% of the bank’s capital should be approved at the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO. 1.Application forwarded to Zonal Office for approved/decline 2. Advise the decision as per delegated authority (approved /decline) to recommending branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to report the previous months approvals sanctioned at the Zonal Offices. The HOC should review 10% of ZCO approvals to ensure adherence to Lending Guidelines and Bank policies. 3. ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for endorsement, and Head of Credit (HOC) for approval or onward recommendation. 4. HOC advises the decision as per delegated authority to ZCO 5. HOC & HOCB supports & forwarded to Managing Director 6.Managing Director advises the decision as per delegated authority to HOC & HOCB. 7. Managing Director presents the proposal to EC/Board 8. EC/Board advises the decision to HOC & HOCB ** Regardless of the delegated authority HOC to advise the decision (approval/decline) to marketing department through ZCO Recommended Delegated Approval Authority Levels HOC/CRM Executives Up to 15% of Capital Managing Director/CEO Up to 25% of Capital EC/Board all exceed 25% of Capital Appeal Process Any declined credit may be re-presented to the next higher authority for reassessment/ approval. However, there should be no appeal process beyond the Managing Director. 3. 2 Credit AdministrationThe Credit Administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential that the functions of Credit Administration be strictly segregated from Relationship Management/Marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level. Credit Administration procedures should be in place to ensure the following. 3. 2. 1 Disbursement ¦ Security documents are prepared in accordance with approval terms and are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel should be used in all cases.Exceptions should be referred to legal counsel for advice based on authorisation from an appropriate executive in CRM. ¦ Disbursements under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should be guided by Bangladesh Bank circulars & related section of Banking Companies Act. All Credit Approval terms have been met. 3. 2. 2 Custodial Duties ¦ Loan disbursements and the preparation and storage of security documents should be centralised in the regional credit centres. Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets pledged as collateral. ¦ Security documentation is held under strict control, preferably in locked fireproof storage. 3. 2. 3 Compliance Requirements ¦ All required Bangladesh Bank returns are submitted in the correct format in a timely manner. ¦ Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant departments to ensure compliance. ¦ All third party service providers (valuers, lawyers, insurers, CPAs etc. ) are approved and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank circular outlining approved external audit firms that are acceptable. 3. 3 Credit MonitoringTo minimize credit losses, monitoring procedures and systems should be in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems should be in place to report the following exceptions to relevant executives in CRM and RM team: ¦ Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants; ¦ Loan terms and conditions are monitored, financial statements are received on a regular basis, and any covenant breaches or exceptions are referred to CRM and the RM team for timely follow-up. ¦ Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit. All borrower relationships/loan facilities are reviewed and approved through the submission of a Credit Application at least annually. Computer systems must be able to produce the above information for central/head office as well as local review. Where automated systems are not available, a manual process should have the capability to produce accurate exception reports. Exceptions should be followed up on and corrective action taken in a timely manner before the account deteriorates further. 3. 4 Credit Recovery The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration (a Risk Rating of Sub Standard (6) or worse).Banks may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed over from Relationship Management to RU, a Handover/Downgrade Checklist should be completed. The RU’s primary functions are: ¦ Determine Account Action Plan/Recovery Strategy ¦ Pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate. ¦ Ensure adequate and timely loan loss provisions are made based on actual and expected losses. ¦ Regular review of grade 6 or worse accounts. The management of problem loans (NPLs) must be a dynamic process, and the