HNB’s trade services – import/export operations ISO certified since 2004

Wednesday, 24 July 2013 00:00 - - {{hitsCtrl.values.hits}}

Banks play a major role by providing assistance to facilitate international trade

International trade is a key economic activity in Sri Lanka. While the country produces some items needed in abundance, there are also many goods that cannot be sourced within the country and have to be acquired from other countries. For example, Sri Lanka exports tea and imports fuel, said Nilam Usoof Jumat, AGM – Trade & International Trade, Hatton National Bank (HNB). Responding to a question on how international trade impacts Sri Lanka, he said: “Imports relate to the goods and services we buy from foreign countries. Therefore, we have to pay the country we import them from. Unlike in domestic trade, where we make payments in local currency, for imports, we have to make payment to the country we import from, in foreign currency. We should have sufficient foreign currency to make payments for these imports.” “On the other hand, when we export, we sell goods and services to foreign countries and therefore earn foreign currencies, also known as foreign exchange. We can use these foreign exchange earnings to pay for our imports. In 2012, our expenditure on imports was US$ 19 billion against an export earning of only US$ 9.7 b, thus creating a trade deficit of US$ 9.3 billion,” he noted. Jumat explained that the shortfall is supplemented by other factors such as from the foreign exchange Sri Lanka receives by way of expatriate worker remittances, FDIs, tourism and Inflows. Following are excerpts of the interview:

Q: Why is it said that international trade is also a global activity? A: In many instances, the need to obtain goods from overseas is essential because no local alternatives exist. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for resources they need. While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialisation, advanced transportation, globalisation, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalisation. Without international trade, nations would be limited to the goods and services produced within their own borders. In a global economy, no nation is self-sufficient. Each is involved at different levels in trade to sell what it produces and to acquire what it cannot produce. Q: Can you explain how banks facilitate international trade? A: Banks play a major role by providing assistance in many ways to facilitate international trade business which encompasses financing working capital requirements, financing capital goods, identification of potential markets for international trade, identification of buyers and sellers, facilitating payment for international trade transactions, issuing import letters of credit and guaranteeing payment under letters of credit issued by other banks. Banks also work closely with institutions like the Export Development Board, SLECIC, the Central Bank, chambers of commerce, etc. to provide additional services to importers and exporters. In order for banks to assist in identifying potential markets or prospective buyers and sellers, a bank should have a wide network of relationships with banks globally. HNB has a wide network of relationships with banks globally in order to facilitate international trade in almost any part of the globe. Q: With such an extensive global reach, how would you describe HNB’s credentials in handling import/export transactions? A: When an exporter or importer wants to identify a bank they feel confident in dealing with, in the country of their trading partner, he would like to view a satisfactory unbiased report on the identified bank, given preferably by a reputed third party, rather than reading the highly projected capabilities mentioned by the bank itself on its web page. An opinion expressed by a reputed third party is more valuable and has a greater impact on an importer or exporter in deciding whether the bank can be relied upon to facilitate a trade transaction in the most professional manner. The management system of trade services operations at HNB, which is involved in handling import and export transactions, has been ISO certified since 2004. The ISO certification initially obtained in 2004 is periodically renewed by a stringent audit of the import export operations of the bank every three years by Bureau Veritas accredited by UKAS (United Kingdom Accreditation System). In April this year, the ISO certification was renewed for the third time for a further period of three years and was awarded the ISO 9001:2008 certification for import export operations. Q: How do exporters get their payments? A: In effecting payment there are various methods involved such as advance payment, open account trading, documentary collections and letters of credit. In open account trading, the exporter sends the goods direct to the buyer without the intervention of either the exporter’s bank or the importer’s bank. After receipt of the goods, the importer will effect payment to the exporter through the bank on the date agreed with exporter. In this instance, the exporter runs a risk as the importer, after receiving the goods, can refrain from making the payment to the exporter. In Sri Lanka, this method of payment under international trade transactions was permitted only recently. Under advance payment, the importer makes payment to the exporter prior to shipment of the goods by the exporter. In this instance, the importer runs the risk of not receiving the goods after having effected payment. In order to have a control of the foreign exchange remitted out of the country for this purpose, it is required that advance payments for goods to be imported be limited to a maximum of US$ 50,000 per import. However, if the item to be imported is to exceed US$ 50,000 the exporter should first provide an advance payment guarantee from a bank, acceptable to the bank through which the importer will remit the full value of the export before the shipment is done. In the documentary collection method of payment, the exporter sends documents relating to the exports direct or through his bankers to the importer’s bank for release to the importer either against payment or acceptance. If it is against payment, the importer has to make the payment to the importer’s bank and take up the related documents. If it is against acceptance, it means that the exporter is giving a credit period to the importer to make payment after the goods have been cleared. The term of credit given by the exporter can vary on the arrangements made with the importer. When an exporter does the shipment, the goods will arrive in the country of the importer. However, if the importer is not interested in taking up the imported goods, he will refuse to accept documents and therefore not effect the payment. By this, the exporter will not get his money and the goods are also not under his control as it has already been shipped to the importer’s country. It will be quite a costly and difficult task to get the goods shipped back to his country or even locate an alternate buyer in the country of the import of country to sell the goods. In most cases the new buyer demands for high discounts, knowing very well the situation that the exporter is placed in and finally the exporter can incur a loss. Under documents against acceptance, if the importer has accepted to pay at a future agreed day by way of accepting a bill of exchange or giving a letter of undertaking to that effect, there is a possibility that the importer will not affect the payment on the due date. The exporter will have to initiate legal action which would be very costly to recover his dues. In the letters of credit (LC) method of payment, the risk of non-acceptance by the importer of the goods exported can be overcome. Under this system of payment, a bank undertakes to make payment to an exporter, when he has shipped the goods mentioned in the LC and submits documents in compliance with the LC to the LC issuing bank. Banks play a very important role in facilitating international trade. For this purpose, a bank should have a large network to cater to the entire population involved in international trade. HNB has 250 customer centres spread effectively across the country.