Welcome to International Banking

Operations Training Program

2015 EC
Addis Ababa

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International Banking Operations
 Preface
We have prepared a summary note on the operational activities of International
Banking Department as part of the training program. The training focuses on permit
approval of Import, Export, Invisible payment, Forex Operations, Money Transfers,
exchange rate, interbank foreign exchange markets and trading of foreign currency
cash notes.

The main objective of this training is to acquaint and familiarize the participants with
the operational activities of International Banking Department. In general, the
training is tailored to meet the needs of the participants that will allow them to apply
in their day-to-day operational activities.

Lastly but not the least, we trust this training will be informative, valuable and
educational to all participants of the training
International Trade
Import /Export

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 What is International Trade
• International trade is the exchange of products, services, and money
across national borders; essentially trade between countries.

• The backbone of any foreign trade between nations are those

products and services which are being traded to some other location
outside a particular country's borders.

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Why Nations involve in international trade
International trade arises due to uneven distributions of resource in different
countries which gives rise to relative differences in costs and prices of goods and
services. This fact initiates people to maximize their satisfaction by exchanging goods
and services for another goods and services based on the principle of comparative
advantage.
Some nations are adopt at producing certain products at a cost-effective price.
Perhaps it is because they have the labor supply or abundant natural resources which
make up the raw materials needed. No matter what the reason, the ability of some
nations to produce what other nations want is what makes foreign trade work.
the products produced in a foreign trade situation are very similar to other products
being produced around the world, at least in their raw form. Therefore, these
products, known as commodities, are often pooled together in one mass market and
sold. This is called trading commodities.

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1. Objectives

• The main Objective of International Banking Operations is to

assist and serve its customers in acquiring foreign exchange
facilities and in getting other financial services.
2. The Need for International Banking
• International Banking is one of the major functions of any commercial bank. It
facilitate the transactions of international trade and finance. It makes possible
the exchange of goods and services among the nations of the world.

• The payment instruments, which makes possible the exchange of goods and
services, are governed by international conventions, laws, rules and compliances
as well as national regulations and directives.
 3. Parties involved in International Trade
• Importers
• Exporters
• Banks
• Insurance companies
• Customs Authorities
• Standard
• Transistors
• Transport Companies
• Freighters etc.
4. Trade Payment Methods

• There are different kinds of instruments or trade payment methods to

process the international banking transactions. The choice of one mode of
payment over the other mainly depends on the financial magnitude involved
and the level of trust developed between the buyer and the seller.
• There are 5 trade payment methods in International Banking Operations as
stated as follows.
1. CASH IN ADVANCE - The seller receives cash from the buyer
prior to shipment.
• Advantage to buyer
None
• Risk to Buyer
No control over the goods
Use of the funds is lost
Seller may refuse to ship
• Advantage to Seller
Goods shipped when convenient
Use of buyer’s funds
• Risk to Seller
None
2. OPEN ACCOUNT- Goods are shipped to the buyer and payment is
made on terms negotiated in advance with the seller.
• Advantage to Buyer
Control over the goods
Pays when convenient
• Risk to Buyer
None
• Advantage to Seller
None
• Risk to Seller
No control over the goods or payment
Buyer may refuse to pay
3. ON CONSIGNMENT - The seller ships goods to the buyer, but retains
ownership. Payment is made if and when the buyer sells the goods.
• Advantage to Buyer
Pay only as goods are sold
• Risk to Buyer
None
• Advantage to Seller
Retains ownership of the goods.
• Risk to seller
Limited control of goods
Payment contingent upon sale of goods
4. COLLECTION - The goods are shipped to the buyer. The seller’s
draft and documents covering the shipment are presented through the
buyer’s bank for payment.
• Advantage of Buyer
May refuse to pay or accept the draft
• Risk to Buyer
Goods may not be as represented in the documentation
• Advantage to Seller
Title documents controlled through the banking system.
• Risk to Seller
Buyer may refuse to pay or accept the draft
5. LETTER OF CREDIT
It is an important payment method and it gives assurance of payment to
the seller.
• Advantage to the Buyer
The buyer is assured that its bank will refuse payment to the seller
unless the seller’s documents comply with the terms and conditions
of the Letter of Credit.
• Risk to the Buyer
In Letters of Credit, banks deal only in documents, not in goods. The
merchandise might not be as it is represented in the documents.
• Advantages to the Seller
The seller can rely on bank’s creditworthiness rather than buyer’s.
The seller is more confident when it has a bank’s commitment to pay
upon presentation of complying documents.
The seller can reduce the risk that payment for the goods might be
delayed or otherwise jeopardized by political or foreign exchange
problems in the buyer’s country.
 The seller may be able to obtain financing for the purchase or
manufacture of goods that will be shipped under the Letter of Credit.

• Risk to the Seller

The seller’s document must comply strictly with the terms and
conditions of the Letter of Credit to ensure payment.
 Sources and Uses of Foreign Exchange

 The main sources of foreign exchange are

 Export proceeds
 Inward Remittances
 Purchase of cash notes and T/cks
 Purchase of Commercial Cheques
 Money Transfers
○ The main uses of foreign exchange are
 To cover payments for trade finance
 To cover payments for invisible payments
Outgoing and Incoming Payment
Incoming Payment

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Sending remittances to Ethiopia for credit to customers
account is very simple and convenient with the
commercial banks' wide correspondent banking
arrangement with banks world wide.

In Ethiopia currently, inward transfers could be sent in

any one of the following ways:
• Telegraphic/SWIFT,
• Through money transfer agencies like: Western
Union, Money Grams, etc.
• Demand Drafts, Personal checks or Traveler's
Checks in foreign currency,
General Objective:

The main objective of this training manual is to serve as a major

reference for Branch Managers on the operations transfers through
Money transfer operators, and Swift ,with the intention of improving the
existing experience on the related operational areas.
Inward Foreign Currency Transfers by
SWIFT
 It is the fastest means of receiving funds

 Funds should be received within a few days depending on the currency,

destination period, and the agent bank used. Commercial banks should have
extensive network of correspondent banks, therefore, they can receive funds in
various currencies from most parts of the world
What is Money Transfer/Wire transfer ?

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A wire transfer is simply an electronic transfer of funds.

A wire transfer allows people on opposite sides of the

globe to quickly and easily exchange money
 Procedure for Incoming SWIFT Payment Messages

• Message Type
• NBE Directive
• Currency and Applicable Rate

MT 103 – Single Customer Credit Transfer

MT 910 – confirmation of credit
MT 202 – Bank to bank transfer
• MT103 is the direct payment order to the beneficiary's bank that
results in the beneficiary's account being credited a specific funding
amount. The MT202 COV is the bank-to-bank order that instructs
funds movement in alignment with the MT103 messages. ... The
MT202 is the original standard message format.
Inward Foreign Currency Transfers by
Money Transfer Agents

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Foreign remittance is a transfer of money from a foreign worker to
their family or other individuals in their home countries. Foreign
remittances transferred back to a migrant's home country are
typically used for living expenses, such as food and clothing.
 What are the major institutions eligible to provide low cost
international remittance service in Ethiopia?

a) International money transfers operators in association with banks, which

are licensed entities to provide money-transferring services internationally.
These are Western Union, Money Gram, etc;

b) Commercial banks, which are, licensed business organizations to provide

financial intermediation;

c) Non-Financial organizations, which are business organizations that are

allowed to engage in remittance services through their branches overseas.
These are:
- Ethiopian Postal Service.
Ethiopia

Remittance is an extremely important source of foreign exchange for

Ethiopia, perhaps larger than the export earning of the country in its
foreign exchange generation capacity.

The flow of remittance to Ethiopia

USD 2.4 billion in 2012/13,
USD 2.9 billion in 2013/14 and
USD 3 billion in 2014/15
USD 7.4 Billion 2016/2017 USD 979.80 Million VIA RSP
USD 8.1 Billion 2017/2018 USD 863.30 Million VIA RSP
USD 14.3 Billion 2018/2019 USD 858.68 Million VIA RSP
Remittance Service Providers (RSPs) must obtain approval from the National
Bank of Ethiopia before entering into new agency agreement with international
money transferring operations. RSPs shall make agency agreement only with
licensed money transfer operators and send the following documents to NBE;
Copy of the money transferring agent’s valid document which is
Authenticated by Ethiopian Embassies abroad or other pertinent
organizations (License)
Draft contractual agreement
Proof of Business relationship with 50+ countries
AML policy

Contractual agreements between RSPs shall be renewed every Four

years upon receipt of consent from NBE;
Money
Gram Thunes
Under Ria Under
Process Process

Western Union
-Under Process

TerraPay -
Under
Process
Dahabshill
 Transaction Cycle

Sending Agent
Sender visits agent location …completes the SEND form …verifies the identity
…collects cash (funds & fee)
…enters transaction details into system
…provides sender with unique NO

Agent Server

Within minutes receiver visits

a Hijra location

Hijra Operator verifies transaction Pay out in cash

…completes the RECEIVE form

 Agent – HIJRA Structure

Bank Agent

Branch 1 HO/Correspondent banking

and Remittance
Branch 2
management division

Settlement Reconciliation Compliance & New Location Branch Support

Renewal

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 Remittance
Senior Officer – Remittance CSO/FLA
Management and Correspondent
Banking

Settlement/Reconciliation Officer
 Outward S.W.I.F.T
Foreign Currency Transfers

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• Clean outward foreign currency transfers are payment arrangements
made between the Remitting Bank and the paying Bank

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 Remitting Bank :
• Bank which gives payment instructions to a certain individual or an organization on the
request of the customer

Paying Bank:

 Which effects payment of a certain amount of money in foreign currency to a

certain individual or an organization on the request of the remitter.

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Directives of the National Bank of Ethiopia (NBE) on Clean Outward
Foreign Currency Transfers.

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 Directive No.FXD/07/1998. Directive to Transfer NBE’s Foreign
Exchange Functions to Commercial Banks.

 In line with this directive, commercial banks are implicitly authorized to allow
invisible payments. Accordingly, on February 1999, NBE has issued lists of clean
(invisible) transaction in which commercial banks are authorized to allow to their
customers against submission of required documents.

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The major invisible transactions listed by the National Bank of Ethiopia are as follows:

• Consultancy fee, royalty fee,

• Education Fee
• Medical Expenses
• Payments of Suppliers
• Membership Fees
• Salary Remittances
• Profit Transfers
• Travel Expense
• Seminar Fees and participations allowance
• Workshop and conference
• Personal transfers(By NR account holders)
• Return Of Funds
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• Outward Bills for Collection (OBC)
• Purchase of Bills Outward Bills Purchased (OBP)
Forex Bureau Transaction
 Procedure for Approval of Forex Bureau Transactions

• Foreign currency cash notes are sold at the prevailing selling cash rate.

• Travellers cheque and foreign draft are sold at the prevailing selling
transaction rate. /Currently not available /

• The amount of foreign exchange is limited in accordance with the directive

of NBE.

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• Holiday Travelers = USD 4,000

• Business Travelers = USD 10,000

• Foreign Curr. A/c Hold=USD10,000

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Holiday Travel
Receive the following documents from the applicant:-

• Foreign exchange application in three copies.

• Valid Ethiopian passport or if the applicant is a foreigner, a valid
resident I.D card is required in addition to the passport.
• Air ticket.

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Handling Procedure

• Check if the foreign exchange application and the relevant documents are
in order.
• When authorized, register, assign permit number and put stamp on the
permit.
•

• Put the approved amount and the date on the passport of the applicant.
• Put “clearance required prior to refund” stamp on the air ticket.
• Convert the approved foreign currency cash note into local currency at
the prevailing selling cash rate

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Business Travel

• Documents required for holiday travel stated above shall apply

• But the following documents are additionally required

• copies of licenses for foreign trade, investment or industry.
• A letter from his/her organization if the applicant is authorized to travel
for business.

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Medical Travel

• Documents required for holiday travel stated above shall apply

• But the following documents are additionally required

• Medical Board Certificate from the Ministry of Health.
• Undertaking letter to produce a bona-fide medical bills in the future.

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 Reconversion of Birr into Foreign Currency

• Reconversion of Birr into Foreign Currency

• General Conditions
• Reconversion of Birr into foreign currency is applicable only to Non-
resident foreigners and/or tourists as follows:-

• Upto USD150.- without evidence.

• In excess of USD 150.- with the presentation of authenticated bank advice that the
equivalent amount is lawfully converted into local currency.

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 Foreign Draft
• Foreign drafts are negotiable instruments prepared in favour of
specified beneficiary drawn on a bank and delivered to a person to
authorized by the remitter.
• Foreign drafts could be prepared for one of the following purpose:
• Education Fee
• Subscription Fee

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Re-transfer of Incoming Funds

• Incoming transfer that is not possible to apply funds due to

insufficient details shall be kept in M.T., T.T. payable account in local
currency temporarily. Upon the request of the remitter bank, the
amount kept in M.T., T.T. payable account will be converted at the
buying transaction rate of the value date less the handling and SWIFT
charges as per Bank’s terms and tariff and the net amount shall be
wired back to the

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Purchase of Bills

• Outward Bills Purchased (OBP)

OBPs are money instruments that are expressed in the form of

negotiable instruments such as cheques, drafts, travellers cheques,
cashier cheques, international money orders etc. purchased by the
bank.

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 All bills are purchased at the prevailing buying transaction rate.
 The seller of the bill shall bear any cost that the bank at any time may incur in
sending the bill for collection and securing settlement.

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Any one who stops learning is old whether at
twenty or eighty. One who keeps learning
stays young. The greatest thing in life is to
keep your mind.
THANK YOU
00/00/2015

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