Sattlement of Back To Back LC In Bangladesh

[zahid]

Whether it should be in foreign currency or BDT?how can i determined that?if it settles in dollar nd the exporter doesnt export but he did the B2B LC then what can be the remedy?

[nesarul]

dear Sir,
Thank you for your posting.
query:1
First of all, one has to remember that Master L/C or export L/C whatever the term, is separate from the BTB. this two credit(master L/C and BTB) has got two different issuing bank's undertaking. Consequetly. types of currency at BTB can be any currency as opposit to master L/C.

however in our country, some of banker think that BTB credit is a part of master credit. which is wrong.
Query:2
Selection of borrower should me sound.
thanks
nesar

[shahriar]

dear zahid,

i agree with nesar. i believe that if u chk your bank, you will find a lots a lcs are opened in USD or BDT while the master lc is in euro and vice versa. one thing i must add that the BTB lcs that you generally see at your counter are actually separate lcs. so far i understand that for btb lcs there are certain things need to me common with master lc; the commodity. but here we are importing raw material. to me the master lc is a merely a security of the new lc. but i believe that in general practice, we apply the "However named Theory" here.

shahriar

[zahid]

thank u nesar nd shahriar for ur reply. if the b2b payment term in USD but the exporter doesnt export then such b2b payment how can b settled?so far i know cash dollar purchase is not the ultimate solution then what will be the ultimate remedy?

[Md.zakir Hossen]

One L/C backed by another.
The second one can be in the same currency of the L/C or any other currency permitted by regulatory body or may be in locla currency.
Generally, BTB payment is done from the EXPort proceed(s).But
it may be happened that said customer may not shipped the goods or fail to collect export proceeds for various reason.In that case the BTB payment is from his own sources.Issuing Bank should make payment on due date either by providing Term loan,Forced loan.
See the Guideline For Foreign Exchange Transaction.

[kamal]

01.BTB LC is seaprate form Master Export LC; though the BTB LC is issued backed by/secureid by Master LC.

02. In Bangladesh Local BTB LC can issue in Foreign Currency. If the Local BTB LC is issued in Foreign Currency than it must pay in Foreign Currency that was mantioned in the BTB LC through FC Clearing Account maitained with Bangladesh Bank(BB).

03. The Sttelment of BT B LC should be from the proceeds of master LC, but in case of failur in export or non realisation of proceeds the liability must pay at maturity from the applicat`s own sources or by forced loan. In such cases post facto approval of BB is needed. Pl. See GFET-1996. V-1 Ch-15, Para-33.

[nesarul]

Dear All,
this are risk factor that we have to assess. Where internationally bankers are usually advised the beneficiary to use transferable credit instead of BTB in order to avoid the risk associate with the BTB. But in our country,the situation is completly different. From my point of view BTB is the most risk associate mechanism as compare to others.
thanks
nesar

[zahid]

Dear Sir,
I am very much agreed with you. Thing is that in our country usual practice/thinking is that as the BTB backed by the Master LC, so virtually there is no major risk associated with this. Thats why bankers are little bit relaxed in this issue. But in my point of view, banker must be as cautious as like other regular credit line regarding the BTB. All sort of risk mitigation tools (ex. financial, relationship, experience, security, collateral, support etc. whichever is applicable to mitigate the risk) should be applied.


Zahid

[callzr]

01.BTB LC is seaprate form Master Export LC; though the BTB LC is issued backed by/secureid by Master LC.

02. In Bangladesh Local BTB LC can issue in Foreign Currency. If the Local BTB LC is issued in Foreign Currency than it must pay in Foreign Currency that was mantioned in the BTB LC through FC Clearing Account maitained with Bangladesh Bank(BB).

03. The Sttelment of BT B LC should be from the proceeds of master LC, but in case of failur in export or non realisation of proceeds the liability must pay at maturity from the applicat`s own sources or by forced loan. In such cases post facto approval of BB is needed. Pl. See GFET-1996. V-1 Ch-15, Para-33.

Can a B2B LC be a foreign one and the master LC be a local one? Like one local company issues an LC (BDT)and taking that as master LC and the beneficiary asks the bank to issue an B2B foreign LC (USD).

Thank you all in advance.

Zia.

[callzr]

dear zahid,

i agree with nesar. i believe that if u chk your bank, you will find a lots a lcs are opened in USD or BDT while the master lc is in euro and vice versa. one thing i must add that the BTB lcs that you generally see at your counter are actually separate lcs. so far i understand that for btb lcs there are certain things need to me common with master lc; the commodity. but here we are importing raw material. to me the master lc is a merely a security of the new lc. but i believe that in general practice, we apply the "However named Theory" here.

shahriar

May I ask you to clarify the meaning of "However named Theory", Sire.

Khanti banglay koile josh lagbe. (will be felt the best if explained in pure Bengali)

[zahid]

very interesting proposition & question:

1. Can a B2B LC be a foreign one and the master LC be a local one? Like one local company issues an LC (BDT)and taking that as master LC and the beneficiary asks the bank to issue an B2B foreign LC (USD).

Then what would be the payment procedure? what would be the risk & mitigation? we would be better off to know the procedure rather than to know the circular, reference no, guideline etc.

2. May I ask you to clarify the meaning of "However named Theory"

Would someone reply on it?


zahid