Trade Finance and Documentary Operations
Trade financing – a product to support Exporters and Importers
It is one of the priority and successfully developing lines of activities of the International Bank for Economic Cooperation (IBEC) in accordance with the Bank’s strategy.
It is both a short-term financing and long-term financing. Transactions are made in Euro, US Dollars, and in currencies of member-countries.
Short-term (up to 1 year) financing and mid-term (up to 3 years) financing
1. Pre-export financing:
- IBEC finances an Exporter. Export proceeds are covered by an export credit agency (ECA), transferred to the Exporter’s account with IBEC; the Bank has a right of claim with respect to this money;
- IBEC finances an Exporter for replenishing a working capital, replenishment of a temporary deficit of funds. Loans are secured by ECA;
- IBEC confirms L/Cs with a “red clause”.
- IBEC confirms L/Cs opened by a bank of an Importer and provides financing to an issuing Bank;
- IBEC extends direct loans to an Importer or its bank for trading transactions;
- IBEC confirms L/Cs performed via negotiation
- IBEC discounts L/Cs with a deferred payment, by providing funds to an Exporter before the expiry of a grace period;
- IBEC makes forfeiting transactions in partnership with forfeiting companies.
- IBEC opens/confirms L/Cs (including L/Cs with a deferred payment) and provides financing/undertakes negotiation.
4. IBEC issues irrevocable reimbursement undertakings (IRUs) under the instruction of partner banks.
5. IBEC actively participates in syndicated lending for trade.
Structured financing (against the coverage by ECA) and long-term
1. IBEC finances capital-intensive projects for business development (contracts in the sphere of engineering, equipment, production complexes), investment projects. ECA of a country of Exporter undertakes insurance of loans against political risks (up to 95% of losses) and commercial risks (up to 90% of losses). Insurance or security coverage by ECA decreases a collateral burden on a borrower, creates a low level of risk for banks thereby promoting the raising of substantial volumes of long-term financing by economic entities under advantageous terms. Financing of an insurance premium is also possible.
2. IBEC finances exports of member countries within governmental programs of financial and guarantee support for Exporters, obtaining governmental guarantees as a security.
1. IBEC issues direct guarantees of all types (bid bonds, performance bonds, advance repayment bonds, payment guarantees, credit guarantees, surety for a bill (aval), service performance bond, etc.) to counterparties of clients (including the guarantees issued against counter-guarantees of partner banks).
2. IBEC issues counter-guarantees.
3. IBEC opens and confirms Stand-by L/Cs as a tool for obtaining a loan from a producer (supplier, Exporter).
Bilateral and syndicated loans to banks
1. Trade Related Bilateral Loans:
- IBEC, as a lending bank, extends funds on a bilateral basis to a borrowing bank to finance particular foreign economic transactions of its clients/counterparties by this bank with participation/to the benefit of IBEC member countries.
2. Trade Related Syndicated Loans: are provided on a multilateral (syndicated) basis by a few lenders to a borrowing bank. The principles below will be applied:
- Execution of one multilateral credit facility agreement between a borrower, on the one part, and all lenders, on the other part;
- The lenders will be liable to the borrower to the extent of obligations assumed by every one of them, and the borrower will be liable to all lenders simultaneously;
- All lenders are in equal conditions. All payments received under the credit facility agreement are distributed between the lenders in proportion to the amount extended by every lender;
- One of the participants of the syndicated credit facility is an agent bank responsible for settlements under the syndicated credit facility.
Documentary transactions beyond trade financing
IBEC undertakes the entire range of transactions on guarantees, L/Cs, and collection, including on irregular schemes with a complicated structure; provides a number of services on operational support of documentary transactions.
- opening of covered letters of credit;
- advising of L/Cs from partner banks and notification of a client regarding the L/Cs opened to them;
- performance of letters of credit;
- examination of commercial documents and provision thereof for payment to an issuing bank which opened the L/C;
- transfer of a letter of credit;
- performance of a full set of transactions relating to the settlements on L/Cs (including making amendments to the terms of opened L/Cs, examination of documents, effecting of payments on L/Cs issued, and demanding of payments on advised letters of credit, crediting of export proceeds);
- performance of obligations of a reimbursing bank on L/Cs of counterparty banks without the issuance of any irrevocable reimbursement undertakings;
- effecting of payments on account of reimbursement powers.
- IBEC advises guarantees of partner banks to Beneficiaries all over the world;
- IBEC authenticates guarantees issued by its partner banks to IBEC clients;
- IBEC sends claims on guarantees to guaranteeing banks.
Documentary collection is a transaction when a bank acts as an intermediary between a seller (exporter) and a buyer (importer). The Bank receives collection orders along with the instructions from a seller and provides documents evidencing the actual supply of the goods to a buyer in exchange for a payment or acceptance of a bill pursuant to the instructions of the seller. The funds are paid to a payee not earlier than the receipt of payment from a bank whereto the documents were sent. Since the exporter does not have any definitive certainty at the time of dispatching the goods that the importer and its bank would effect a payment, a documentary collection order is only applied in the case of trust relationship between the buyer and the seller. Collection is a simplified and cheaper settlement mechanism.
IBEC performs a full set of services on collection of commercial and financial documents.
Advantages of trade financing transactions and documentary
The cost of trade financing is substantially lower than the traditional lending due to a lower risk for banks participating in the transactions.
Application of documentary transactions (L/Cs, guarantees) underlying the trade financing allows to:
- minimize risks: credit risks, including to mitigate the risk of non-payment, untimely receipt of export proceeds (a possibility to receive a payment at once, right after a goods dispatch), commercial risks, including the risk of non-receipt of goods, and risk of non-receipt of goods within the timeframes agreed, currency risks, country risks;
- reduce or exclude prepayments on imports;
- use mechanisms to cut costs on a deal;
- receive a longer payment deferral from counterparty or to provide the same to the counterparty;
- organize a deal with an unfamiliar counterparty;
- enhance business transparency and to improve the reputation of deal participants;
- finance up to 100% of a contract price;
- set attractive purchase prices or to maintain the existing discounts for goods due to risk mitigation;
- to expand supplies of the goods;
- to receive a reliable legal protection due to the utilization of uniform international regulations;
- to obtain additional control, flexibility of approach, and consultancy support from the Bank;
- get a reliable and fast performance of transactions and settlements.
Advantages of cooperation with IBEC in trade financing
- reliability of the international and intergovernmental financing organization, high business reputation of the Bank;
- wide network of partner banks all over the world;
- individual approach when indentifying the terms of cooperation organization, provision of services, and to every deal, and every L/C or guarantee;
- fast decision making;
- active participation of the Bank in solving clients’ issues with settlements with counterparties and their banks: negotiations with the clients, their counterparties and banks participating in transactions regarding their possibility and conditions to use different forms and instruments of settlements, recommendations on an optimal way of making a deal and selection of banks participating in the deal, elaboration of terms of foreign economic contracts and L/Cs in the course of their accommodation by the contract parties, examination of documents whereunder a payment should be made, by competent bank specialists;
- full range of banking products and services;
- free information and consultancy support for clients on the matters of organization and holding of any trade financing transactions.
- flexible client oriented approach;
- high professional training of specialists, long-term experience in trade financing and documentary business;
- high quality of client servicing.