Importance of credit report in int’l trade finance
June 24, 2010
Ibnat Islam Etu
and Ibsan Islam Edi
Business environment is changing rapidly that demands the banks to be more alert and dynamic. Many financial and business institutions collapsed during the devastating world economic recession that started in 2008. Amidst all these bankers are to work with the exporters and importers managing risks.
Bangladesh Bank (BB) issues guidelines to all scheduled banks in managing all kinds of risk in bank business. According to the Guidelines for Foreign Exchange Transactions (GFET) 1966, (revised dated 31.05.2009) Volume-I, Section 11, Para 23(b), “The Authorized Dealers (ADs) should obtain confidential report on the exporters from their branches or correspondents abroad or in their discretion, satisfy themselves as to the standing of the exporter by consulting standard books of reference issued by international credit agencies of international standing such as Seyds, Dun and Bradstreet in all cases where the amount of the LC/Contract exceeds BDT 5 lac against proforma invoices issued direct by foreign suppliers and BDT 10 lac against indents issued by local agents of the suppliers. Such reports should be obtained by the ADs themselves and the reports if submitted by the importers should not be accepted. The ADs may also, at their discretion and in their own interest, verify the standing of the beneficiaries even in cases where the value of the credit is lower than the limits mentioned above. Credit report may remain valid for a period of maximum twelve months from the date of issuance if no adverse report comes to the notice of the AD. Moreover, credit report of the same supplier collected for one importer may be used for other importers within the same validity.”
Bangladesh Bank does not advise to obtain such credit report of foreign buyers. Nothing has been mentioned in GFET, 2009 regarding the credit report of foreign buyers, who are to remit our export proceeds. But it seems to be very urgent to know the standing and strength of the buyers, whether they are capable to effect payment against our exports.
Another vital term is to be cited that Bangladesh Bank only suggested obtaining credit report through Seyds and Dun and Bradstreet (D&B). D&B is an American company, which was established in 1841. It has worldwide experience in conducting ratings for companies in more than 214 countries.
Currently it maintains the world’s largest information base of more than 140 million businesses. D&B provides effective tools to pre qualify and monitor risks and also exploit the potential of a prospective relationship when identifying profitable business partners.
D&B has been addressing the banking fraternity in Bangladesh for more than a decade. This experience has helped D&B attain the leadership position as the most trusted source of information creditworthiness of any business anywhere.
So to say, D&B has been working as an undisputed monarch since it does not have any rival in the world market.
However, Bangladesh Bank suggested obtaining credit report from ‘Seyds’. It needs to be mentioned that having an intensive web search no trace of seyds was detected. Bankers from the government, private and foreign banks in the country take credit reports of the suppliers through D&B only.
They are reluctant to prefer Seyds for reliable credit report. D&B is enjoying the monopoly in the market.
Apart from this, credit report experts say that a period of three months is enough for a company to collapse. They suggest obtaining credit report by a company in every three months. Otherwise, wrong decision on the part of bankers may lead to irreparable harm to the business.
Rules of Credit Information Bureau (CIB) of Bangladesh Bank (BB) supports this logic because as per prevailing rules, scheduled banks are to submit CIB report to BB every month for the clients having liability worth Tk. 1.0 crore and above and every three months for the clients those have liability of Tk.0.50 lac and above.
The bottom line is that the export and import business has to be done cautiously against the backdrop of world’s economic recession. It has become imperative to obtain credit report of both exporter and importer on the part of bankers to take right decision.
The credit report may be obtained in every three months for international trade finance. And in case of unknown or new exporter and importer obtaining credit report is a must.
Source: thedailystar.net
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