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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”.

    2.Post-export financing:

    • 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.

    3.Post-import financing:

    • 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 financing

    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.

  • Guarantee transactions

    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.

  • L/C 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.
  • Guarantee transactions
    • 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.
  • Collection

    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

  • Advantages of trade financing transactions and documentary transactions

    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.

Bank requirements to Insurance Companies, Independent Appraisers, Independent Surveyors

  • Criteria for Selection of Insurance Companies

    1. The Insurance Company has a valid license for insurance activity, in particular, for the insurance activities of interest for the Bank and performs the actual insurance activities without revocation, suspension and/or restrictions of license in the activity types of insurance for the Bank, at least 3 years (except for the revocation of the license due to a refusal of the activity not related to the lending transaction being considered by the Bank or in view of the merger/acquisition of insurance companies).

    2. For subsidiary insurance companies operating in the IBEC’s member countries whose parent companies have long-term investment-grade credit ratings by one of the international rating agencies (Standard&Poor's and Fitch Ratings "BBB-"or higher, Moody's “Baa3” or higher), the minimum period activities is not limited.

    3. With respect to the insurance company, there is no bankruptcy procedure, and in relation to the insurance company, the following negative information is missing: no enforcement proceedings, no seizure of property of the insurance company; the insurance company and its affiliates are not included in the registers of mala fide counterparties, etc.

    4. The insurance company has no outstanding orders of its regulators at the time of analysis.

    5. The insurance company has no final and binding court judgments to recover from it amounts that may have a significant negative impact on its activities. Impact is recognized significant, when it may limit or suspend the activities of the insurance company or cause revocation of its license; in addition, impact is recognized significant when it changes the value of the assets of the company by 10% or more, or the amount of net profit (loss) changes by 10% or more.

    6. The insurance company does not have a current index on settlement and other accounts, obligations to the budget and extra-budgetary funds, or other lenders which remained outstanding for 30 days or more and exceed 3% of the share capital of the company; it has no wage arrears.

    7. The insurance company has financial statements for the last 3 completed reporting years, confirmed by an independent auditing company.

    8. With respect to the ultimate beneficiary there must be no following negative information: initiation of bankruptcy proceedings against it or declaring it bankrupt; and if the owner/owners are an individual, on institution of a criminal case against him and/or putting him on the wanted list (whether federal and/or international), or information about his death.

    9. Positive business reputation of the Insurance Company.

    10. The activities of the insurance company and documents and information provided by it to the Bank, including with regard to its ultimate beneficiaries meet the requirements of the compliance control of the Bank, and, inter-alia, the Bank has information about members/shareholders of the insurance company, owning 5% or more of stocks or shares in the authorized capital of the company; information on the ultimate beneficiaries is disclosedх. /p>

    11. The stable financial position of the insurance company meets the requirements established in the legislation of the host country of the insurance company, and the following criteria:

    • assets of the insurance company for the last three completed reporting years have not declined by more than 30% as compared to the maximum level reached during the same period.
    • revenue of the insurance company for the last three completed reporting years has not declined by more than 25% as compared to the maximum level reached during the same period.
    • no net loss for the last three completed reporting years.
    • share of high-risk assets should not exceed 20% of the insurance company’s equity. High-risk assets include: investment in affiliated/interrelated/related parties (except for state-owned companies and organizations with an investment rating by at least one of the international rating agencies (Standard&Poor's and Fitch Ratings “BBB-” or higher, Moody's "Baa3" or higher)), (membership, debt securities, loans, deposits and accounts), and those structures, whose financial stability is estimated by the Bank as low;
    • The insurance company meets the regulatory requirements established in the legislation of the host country of the insurance company.

    12. No Bank's negative experience of dealing with the Insurance Company.

    Ceteris paribus, the Bank prefers the Insurance Company that is depositing temporary available cash and/or that has provided services to the Bank in a successful lending transaction and/or has an account/has agreed to open an account with the Bank and/or has an office in the country of interest for the Bank.

    The Bank may change and/or cancel one or more of the selection criteria, if the Insurance Company has experience of successful work in the member country of the Bank, in the absence of another Insurance Company specialized in the area of interest of the Bank, which meets all the criteria established by the Bank.

  • Criteria for Selection of Independent Appraisers

    1) The Independent Appraiser may be a legal entity or an individual involved in the valuation, which has the authority to valuate in accordance with the legislation of the country of location of the collateral;

    2) The duration of core activities of the Independent Appraiser in the domestic market, where the collateral is located, shall be not less than 3 years.

    3) The corporate Independent Appraiser shall have at least three full-time employees with specialized education and experience in valuation services not less than 3 years in the activity area of interest for the Bank, which have

    4) The corporate Independent Appraiser shall employ at least one appraiser with the international certification according to training and refresher training programs for appraisers, as generally recognized in the world (RICS, SSIM, etc.). When using the services of the individual Independent Appraiser, its international certification is obligatory.

    5) The corporate Independent Appraiser shall have an effective company’s liability insurance contract for valuation activities with the amount insured under an insurance (policy) contract not less than equivalent of EUR 800,000.00 (Eight hundred thousand).

    6) The individual Independent Appraiser and full-time employees of the corporate Individual Appraiser shall have a voluntary third-party insurance policy for the amount not less than equivalent of EUR 80,000.00 (Eighty thousand).

    7) The experience of the Independent Appraisers in cooperation with major credit institutions and/or with international financial institutions (banks for development), and with companies in the relevant activities area of interest for the Bank, have international credit rating of at least "BB-" (according to the classification of the rating agency Standard&Poor's and/or similar classification rating agencies Fitch Ratings and/or Moody's).

    8) The corporate Independent Appraiser shall have a reports quality control system.

    9)Stable financial position of the corporate Independent Appraiser, including:

    • company is not in bankruptcy and/or liquidation or reorganization;
    • the company’s property is not seized;
    • the company's economic activities have not been suspended;
    • revenue received from valuation for the last financial year is not less than the equivalent of EUR 150,000.00 (One hundred and fifty thousand).

    10) Positive business reputation of the Independent Appraiser; for a corporate Independent Appraiser - including:

    • company has no overdue obligations payable to budget and extra-budgetary funds or lenders;
    • no initiation of criminal and administrative cases against appraisers in connection with their professional activities;
    • no other negative information: no court judgments confirming the incompetence or low professionalism of employees of the Independent Appraiser or other negative information in open sources of information.

    11) No Bank's negative experience of dealing with the Independent Appraise.

    12) The activities of the Independent Appraiser and documents and information submitted by it to the Bank meet the requirements of the compliance control of the Bank.

    Ceteris paribus, the Bank prefers the Independent Appraiser that has provided services to the Bank in a successful lending transaction and/or has an account/has agreed to open an account with the Bank and/or has an office in the country of interest for the Bank.

    The Bank may change and/or cancel one or more of the selection criteria specified in paragraph 2, paragraph 3, paragraph 4, paragraph 5, paragraph 6, paragraph 7 and paragraph 9d), if the Independent Appraiser has extensive or unique experience in the area of interest for the Bank and/or narrow specialization in the activity area of interest for the Bank and/or experience of successful work in the member country of the Bank, in the absence of another Independent Appraiser in the area of interest of the Bank, which meets all the criteria established by the Bank.

  • Criteria for Selection of Independent Surveyors

    1) The Independent Surveyor must be a legal entity.

    2) The duration of core activities of the Independent Surveyor in the domestic market, where the collateral is located, shall be not less than 3 years.

    3) The Independent Surveyor shall have at least three full-time employees with specialized education and experience in survey services not less than 3 years in the activity area of interest for the Bank.

    4) The Independent Surveyor shall have a liability insurance contract with the amount insured under insurance (policy) contract not less than equivalent of EUR 800,000.00 (Eight hundred thousand).

    5) The Independent Surveyor shall have experience in cooperation with major credit institutions and/or with international financial institutions (banks for development).

    6) The Independent Surveyor shall have a reports quality control system.

    7) Stable financial position of the Independent Surveyor, including:

    • company is not in bankruptcy and/or liquidation or reorganization;
    • the company’s property is not seized;
    • the company's activities have not been suspended;
    • revenue for the last financial year is not less than the equivalent of EUR 150,000.00 (One hundred and fifty thousand).

    8) Positive business reputation of the Independent Surveyor, including:

    • company has no overdue obligations payable to budget and extra-budgetary funds or lenders;
    • no initiation of criminal and administrative cases against employees of the Independent Surveyor in connection with their professional activities;
    • no other negative information: no court judgments confirming the incompetence or low professionalism of employees of the Independent Surveyor or other negative information in open sources of information.

    9) No Bank's negative experience of dealing with the Independent Surveyor.

    10) The activities of the Independent Surveyor and documents and information submitted by it to the Bank meet the requirements of the compliance control of the Bank.

    Ceteris paribus, the Bank prefers the Independent Surveyor that has provided services to the Bank in a successful lending transaction and/or has an account/has agreed to open an account with the Bank and/or has an office in the country of interest for the Bank.

    The Bank may change and/or cancel one or more of the selection criteria specified in paragraph 2, paragraph 3, paragraph 4 and paragraph 7d), if the Independent Surveyor has extensive or unique experience in the area of interest for the Bank and/or narrow specialization in the activity area of interest for the Bank and/or experience of successful work in the member country of the Bank, in the absence of another Independent Surveyor in the area of interest for the Bank, which meets all the criteria established by the Bank.