It is a bank product that provides payment to the Seller for the amount specified in the letter of credit opened at the instruction of the Buyer. This payment is made in exchange for the Seller sending the goods (or providing work, service) and fulfilling other conditions stipulated in the letter of credit, including the submission of relevant documents as per its terms. In the globalized world, various factors have become extremely important, such as speeding up business processes, increasing trust and confidence between partners through the creation of new companies and products, minimizing time and financial losses, managing banking and country risks, and ensuring the security of settlements. The letter of credit is considered the most widely used product for the smooth implementation of international trade operations and risk elimination. Bank ABB OJSC, having extensive relations with foreign financial institutions in the country, offers letters of credit to clients as part of its cooperation with world-class banks.
The main advantages of a letter of credit are:
- It represents an irrevocable obligation;
- It helps in establishing new trade relations with foreign partners;
- It is less risky compared to other payment instruments;
- The payment obligation is transferred to the Bank;
- It is regulated by international rules and instruments;
- It stands as an independent commitment.
- If the Seller fulfills all the terms of the letter of credit, assurance that the funds will be received regardless of the Buyer;
- When the goods are in transit (without having been handed over to the Buyer), and the documents are submitted to the Bank in the appropriate manner, payment is made in favor of the Seller by the final party;
- If the letter of credit is approved, insuring the risks related to the purchase of additional funds for the Seller;
- When the Buyer requests a deferred payment from the Seller, the Bank receives funds from the Seller on time with the subsequent financing service of the letter of credit etc.
- A guarantee that the Seller will not receive the funds if the contractual conditions for the shipment of the goods are not fulfilled;
- The possibility of using the letter of credit as a means of financing and as a guarantee of financing;
- If the wishes and confidence of the seller are satisfied, the purchase of the goods needed by the buyer without delay;
- When the Buyer requests deferred payment, the Bank will pay the funds to the Seller, and the Bank will grant the Buyer an appropriate extension, etc.
Types of letters of credit offered by Bank ABB OJSC:
- Irrevocable Letter of Credit: It cannot be canceled or changed without the consent of the Seller (Beneficiary). An irrevocable letter of credit represents the final obligation of the Issuing bank.
- Revocable Letter of Credit: This type can be changed or canceled by the Issuing Bank at the request of the Buyer (Principal) without prior agreement with the Seller (Beneficiary). In this case, Eminent Bank does not bear any obligation to the Beneficiary.
- Reserved Letter of Credit (Stand-by/SBLC/SLOC): Despite having the word "credit" in its name, it is essentially considered a guarantee. Payment under SBLC occurs as a result of making a demand to the Issuing Bank by the Seller if the Buyer fails to fulfill their obligation as in the guarantee.
- Confirmed Letter of Credit: It involves confirmation by the Seller of the letter of credit opened on the basis of the Buyer's (Principal's) order by another high-rated bank.
- Unconfirmed Letter of Credit: In this case, only the Bank that opened the letter of credit is responsible for making the payment.
- Transferable Letter of Credit: It gives the Seller (Beneficiary) the right to direct one or more parts of the received letter of credit to other Sellers.
- Mutual Letter of Credit (Back-to-Back Letter of Credit): This refers to the opening of another letter of credit by the bank, accepting any letter of credit received as security.
- Red Clause Letter of Credit: This allows the seller to receive an advance payment in the amount of a certain part of the letter of credit before sending the goods and submitting the required documents.
- Demand Letter of Credit (Sight Letter of Credit): Payment is made promptly in favor of the Beneficiary by the Bank when the Seller (Beneficiary) correctly presents the documents required by the letter of credit.
- Deferred Letter of Credit: Payment is made on a later date specified in the letter of credit when the Seller (Beneficiary) correctly submits the required documents.
ABB Bank offers you the following services for letters of credit:
- Opening of letters of credit and carrying out other settlement operations (changes of conditions, verification of documents, implementation of payments);
- Provision of consulting services;
- Notifying the Beneficiary of letters of credit opened by other banks;
- Approval of letters of credit by highly rated correspondent banks;
- Opening letters of credit at the expense of clients' own funds or the Bank's funds;
- ABB Bank's approval of letters of credit opened by other banks;
- Subsequent financing of Letters of Credit at the expense of ABB Bank and other financial institutions, etc.