12.international trade finance

8/22/2019 12.International Trade Finance

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Chapter outline:

Term Loan

Letter of Credit

Trust Receipts

Banker Acceptance

Shipping Guarantee

Export Credit Refinancing(ECR

INTERNATIONAL TRADEFINANCE


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TERM LOAN


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Term Loan

A loan with a regular repayment date

Medium to long term in duration

Risk is greater; interest charged is higher

Purpose: to finance expenditure of a capital nature

Borrowers past performance will be ealuated


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Term Loan!nterest: depends on the repayment schedule

Monthly repayment; monthly rest interest will be charged

"uarterly repayment; #uarterly rest interest will be charged

$alculated using simple interest formula

Principle %P& x Rate #uoted %R& x 'ime %'&

(ebited to loan account releant to repayment interal


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LETTER OF CREDIT


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INTRODUCTION(ocumentary letters of credit %)$& is a written document undertaking given by a

banker at its customers request to an exporter/seller of goods to the effect that the

exporter/seller would be paid for his consignment of goods to the importer/buyer

providing the stated terms and conditions of the credit have been compiled with

Most acceptable instruments of payment

*ies protection to both buyer + seller

*oerned by the rules contained in the Uniform Customs and Practice for

Documentary Credits


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PARTIES INVOLVED

1. Applicant

'he importer who asks the bank to open the credit

2. Beneficiary

'he exporter who is entitled to receie payment under the credit

3. Issuing bank

'he bank, also known as the opening bankwhich established the

credit on behalf of the applicant


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PARTIES INVOLVED

4. Advising bank

'he bank which credit is sent by the issuing bank for deliery to the beneficiary

5. Reimbursing bank

'he paying bank, appointed by the issuing bank to proide repayment to the

negotiating bank for negotiations effected under the credit

May be the issuing bank, another bank in beneficiarys country or

correspondent bank in a large financial center


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PARTIES INVOLVED

6. eg!tiating bank

'he bank authori-ed to negotiate drawings under the credit + disburse

proceeds to the beneficiary

May or may not be the adising bank

". #!nfirming bank

'he adising bank, acting under instructions of the issuing bank mayalso confirm the credit thereby guaranteeing to the beneficiary that the

bill will be paid accordingly


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HOW LC WORKS?

Importers bankIssuing bank/

Reimbursing bank

Exporters bankAdvising bank

Negotiating bank

Exporter

Beneficiary

Importer

Applicant

riginal !"

BE # documents

$resent !"

%&ips goods

Applies !"

'

(

)

*

+

,

-

Enters agreement.

.0


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TYPES OF LC1. Rev!cable

May be amended or cancelled by the issuing bank at any time and without prior

notice to the beneficiary

2. Irrev!cable

$an only be amended or cancelled if all parties to the credit agree to the

alteration or cancellation

3. Irrev!cable c!nfirmed

!n addition to %.&, the confirming bank will either promise the payment or act as

a guarantor


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PAYMENT PROVISIONS

1. $ig%t payment

Beneficiary will draw the draft %B/0& payable at sight on a bank

'o obtain payment immediately

'o be paid on presentation to the correspondent bank

2. &sance payment

Beneficiary will draw the draft %B/0& payable at some future point in time

%usually a specified number of days after it has been sighted&


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PAYMENT PROVISIONS

3. 'eferred payment

Parties to )$ agree a draft %B/0& need not be drawn

After goods hae been exported, the re#uired documents would

be sent to the nominated bank for inspection

(ocuments would be retained + passed on to the issuing bank

'he issuing bank will issue )$ + the beneficiary would be paid at

the time specified in the )$ %deferred date&


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PAYMENT PROVISIONS

4. (ayments under a neg!tiati!n

A bank will buy the documents that relate to )$

Bank gies full immediate alue to the beneficiary under the credit

Bank has made promise of payment

1aing purchase the documents, the negotiating bank will attend to

their presentation on the drawee bank

!t would then be paid on sight or on the agreed date


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IRREVOCABLE LC

1. )ransferable *#

*ies the beneficiary the right to pass the credit in whole or in part to a

third party or another beneficiary

2sed in financing a middleman for the purchase of goods from a

supplier

2. Back+t!+back *#

"uite similar to transferable credit

2sed by a middleman with limited financial resources


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IRREVOCABLE LC

2. Back+t!+back *#

3eller + buyer do not know each other, thus allow middleman to

earn profit

Middleman obtains credit in his faor from the buyer

'he middleman arranges for his bank to issue a new credit in faor

of the actual supplier with new terms + conditions

4ot goerned by the rules specified in the 2niform $ustoms +

Practice for (ocumentary $redit


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IRREVOCABLE LC

. Red clause ,p%rase- *#

$ontains a special clause, printed in red 5 adising bank is authori-ed to gie

adance to the beneficiary up to the extent of the total alue of the credit prior to

the shipment of goods

A form of oerdraft to the exporter + guaranteed by the importer

/nly for exporter who is reliably known by the importer


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IRREVOCABLE LC

!. $tandby *#

Re#uires certain performance on part of the applicant

Beneficiary is assured of payment only when he performs under the contract

(oes not proide guarantee to the beneficiary of payment, acceptance or

negotiation of bill

Proide guarantee to beneficiary against default by applicant

!ssues to coer the non performance situation by the applicant


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SPECIAL TYPES OF LC

". Rev!lving *#

0stablish when the importer has regular shipments to be made oer a

period of time

/ne credit to coer all the shipments

$an be issued + reoled on the basis of time, shipments or alue

$an be on cumulatie or non6cumulatie terms

$umulatie means credit that is not utili-ed for a particular month or

shipment will become aailable for the following month or shipment


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TRUST RECEIPTS


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!s a document executed "# a customer (the pledge

of the goods or documents of title

$hen the goods are released to him "# the "ank

!n order that he ma# sell the goods % pa# the

proceeds to the "ank

&pon receipt of TR document' the "ank ill lend the

customer the mone# to pa# the seller)exporter for

the goods

TRUST RECEIPTS #TR$%


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*eeded hen importer imports on sight term

&pon sighting of documents pertaining to the

shipment of his order' he has to make pa#ment

!n the e+ent of insufficient funds' importer ill

appl# to the "ank to release the documents of

title to him

!n return' he ill execute a TR



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The "ank ould then pa# the seller)exporter for

the goods

TRs is an ad+ance)credit gi+en "# a "ank to the

importer

As a trustee' the importer promise to get the

goods from shipping compan#' sell the goods %

pa# the proceeds to the "ank



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The importer need to settle the pa#ment to

the "ank ithin the period stated in the TR

,eriod for settlement is usuall# "eteen -. to/0. da#s



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BANKER ACCEPTANCE


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&sed "# "oth importer % exporter for short1

term financing (-. 2 3.. da#s

!t4s easil# traded in the mone# market

5ore fa+ora"le either "# exporter or importer

due to loer interest rate as compared to

other t#pes of financing

BANKER&S ACCEPTANCE #BA$%


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Being used "# importer hen he imports the

goods on sight term

!s a usance B6E

7ran "# the customer to his order

Accepted "# his "anker

,a#a"le on a specified future date



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Being used "# exporter hen he exports the

goods on usance term

After sending the goods' the exporter ill

present the usance B6E % BA to his "ank for

collection

&pon acceptance' the exporter4s "ank ill grant

an ad+ance)credit to the exporter



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The "ank ill then present the B6E % BA to

importer4s "ank for reim"ursement

&pon maturit# of the B6E' importer ill makepa#ment to his "ank

!mporter4s "ank ill reim"urse the pa#ment to

the exporter4s "ank



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SHIPPIN' 'UARANTEE


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An indemnit# gi+en "# the

consignee)importer to a shipping compan#'

so that the shipping compan# ma# release

the merchandise ithout the presentation of

the rele+ant "ills of lading

Sign "# the importer % the "ank

SHIPPIN' 'UARANTEE


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Being used hen goods arri+ed at the port of

destination "efore the transport document

Shipping compan# ill not release goodsithout proper transport documents

5a# result in expensi+e dela#s' una"le to meet

deli+er# schedules or goods ma# "e perisha"les

SHIPPIN' 'UARANTEE


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Bank4s role is to ensure that the importer

fulfill his o"ligations

7ue to the high risk exposure' "ank ill onl#prepare the shipping guarantee to certain

customers

SHIPPIN' 'UARANTEE


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BANK 'UARANTEES


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!s an irre+oca"le o"ligation of a "ank to pa# a

sum of mone# in the e+ent of a non1

performance of a contract "# a third part#

("ank4s customer

BANK 'UARANTEES


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T#pes of Bank Guarantees

/8 Bid or tender guarantee

38 ,erformance guarantee

-8 Credit guarantee

98 Guarantee for pa#ment of cheues

;8 Ad+ance pa#ment guarantee

BANK 'UARANTEES


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E(PORT CREDITREFINANCIN'

#ECR%


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!s a scheme to promote the export of

manufactured goods that are resource "ased

and +alue added8

A series of re+isions of the eligi"le goods

ere made such as related to production

process' +alue added and local content8

E(PORT CREDIT REFINANCIN'


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,romotes the export of manufactured products'agricultural products and primar# commodities

To t#pes of facilities are a+aila"le to exporters: )re*

$+,)men- ECR an )o$-*$+,)men- ECR

Co+ers an/ )ro01- or e3)or- rom Ma4a/$,aexcept turtle eggs' rattan and poisonous chemicals

Both ,re1-(manufacturing companies' agricultureproduct producers' trading companies and ,n,re1-e3)or-er$(suppliers of domestic input are eligi"le

under this scheme

FEATURES


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ECR #Po$-*S+,)men-%

To ena"le exporters to o"tain immediate fund upon shipment of

eligi"le goods "eing exported on credit terms or usance terms of

minimum of -. da#s8

To promote the export of manufactured and agriculture food

products that ha+e significant +alue added

&nder post1shipment facilit#' exporters can o"tain immediate fund

upon of export documents after shipment of goods8

TYPES OF ECR


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ECR #Pre*S+,)men-%

!ts o"


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,a#ment should "e made upon receipt of export proceeds

or in the case of post1shipment ECR' upon maturit# of the

post1shipment "ill' hiche+er is earlier8

REPAYMENT


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Types of

financing Pre-shipment ECR

Post-shipment

ECR

Methods offinancing

Order BasedCertificate ofperformance

Bill discounting

UserDirect exporterIndirectexporter

Direct exporterwhose total

exports of eligiblegoods for the last12 months is RM1 million andabove

Direct exporter

who exportseligible goods onsight usanceterms

Tenor Maximum of !months

Maximum of !months

Minimum of "

da#s andmaximum of $

months

Direct exporter%&pon receipt of

&pon receipt of

E(PORT CREDIT REFINANCIN'

12.international trade finance

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