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Trade financing

Eurasian Bank offers you to take advantage of a full range of services in documentary operations and trade finance transactions, using world-recognized instruments thanks to their reliability and convenience and allowing you to achieve a significant mitigation of commercial and financial risks in export-import transactions:

  • Import and export documentary letters of credit;
  • Trade finance;
  • Documentary collection;

A well-developed correspondent network allows the Bank not only to conduct all types of banking transactions effectively and efficiently, but also to resolve issues related to uninterrupted provision of customer foreign economic activity.

At the stage of signing a contract, Eurasian Bank employees are ready to provide customers with the necessary recommendations on types of trade finance transactions, their specifics, as well as assist in drawing up the payment terms of the contract that best protect the customer interests.

Please contact trade finance subdivision if you have any questions related to trade financing

Tel.: +7 (727) 250-87-11, +7 (727) 250-87-75

E-mail: TF@eubank.kz

Documentary letters of credit

A documentary letter of credit is essentially the Bank’s obligation to pay the beneficiary a certain amount in the agreed currency, upon timely provision of documents that meet the conditions of the letter of credit.

 

These obligations of the Bank do not depend on the claims of the seller and the buyer to each other (for example, no arbitrary offset of claims). If the seller has submitted to the Bank documents that meet the conditions of the letter of credit, the Bank shall be obliged to pay him without asking the buyer’s consent again.

The main advantages of using the letter of credit method of payment for customers are:

  • The importer has a guarantee that the Bank will not execute the payment at his expense until he receives documents confirming the shipment of the goods and makes sure that the documents are presented in strict accordance with the conditions and terms of the letter of credit. In particular, documents may specify deadlines and points of shipment and unloading, etc. Banks will refuse to pay under documents at the importer’s expense if the documents for the goods do not meet the conditions of the letter of credit, thereby protecting the importer’s interests.
  • The exporter no longer depends on the buyer’s solvency and his willingness to pay, immediately after the goods are shipped, he can get payment against provision of documents to the Bank certifying shipment of goods to the buyer and these documents will strictly comply with the letter of credit terms.
  • Flexible settlement instrument.
  • High legal reliability, the rules for the use of which are determined by a reputable international organization and are recognized worldwide.

The fundamental document governing the relationship of the parties as regard to documentary letters of credit shall be the Uniform Customs and Practice for Documentary Credits (UCP 600, Edition 2007), published by the International Chamber of Commerce in Paris.

The basic principle of banks working with letters of credit shall be:

“Banks deal with documents, and not with goods, services or other types of performance of obligations, which may include documents” (Article 5 UCP600).

If you are an importer, when opening a letter of credit with Eurasian Bank, you are required to:

  • Register a transaction passport.
  • Fill in a standard application for opening a letter of credit.
  • Conclude Contract on letter of credit issuance with the Bank.
  • Provide on your bank account the amount of coverage of the letter of credit, as well as the fee amount, or enter into a separate agreement with the Bank on opening a credit line. At availability of a credit line, money reservation by the Buyer is not required.

When concluding a contract, the exporter and importer should stipulate a letter of credit in it.

Opening a letter of credit normally takes from 1 to 3 business days, the term depends on the form of the letter of credit and banks participating in the transaction.

After receiving the letter of credit text, the Seller shall ship the products and submit relevant documents to the Bank, after which Eurasian Bank shall pay the amount due to the Seller at the expense of funds provided by the Buyer (i.e. by writing off the letter of credit coverage account or by providing funds under the credit line).

Information updated on 10.10.2011

Recommendations for drafting a contract

A letter of credit can only be irrevocable, “divisible” or “indivisible” (means allowing or not allowing, respectively, partial shipments and payments).

In addition, it is possible to issue a transferable letter of credit.

The “revolving” letter of credit requires provision of the security for the total amount of the obligation.

If 100% payment for the goods delivered is made under a letter of credit, “for the amount of the contract” shall be indicated in the contract.

If the letter of credit is issued for a part of the cost of the goods, the corresponding percentage of its total cost paid under the letter of credit shall be indicated, it is also possible to indicate the amount with a tolerance (admissible tolerance), in percentage terms.

Validity of letter of credit is determined based on the planned shipment date and time, required for preparation and submission of the documents to the Bank.

For our importing customers – Eurasian Bank.

The nominated bank shall be entitled to verify documents for compliance with the terms of the letter of credit and take a decision on payment or non-payment. It is recommended not to designate a European or American bank as the Nominated Bank if the documents issued in Russian only (railway invoices, customs documents) are submitted. It is not desirable to designate a little-known bank as the nominated bank as it is practically impossible to negotiate with it about the fate of documents and payments.

When choosing the confirming bank that should be agreed with Eurasian Bank, it is required to take into account that:

the confirming bank should be simultaneously authorized to execute a letter of credit (i.e., to check and pay for documents);

the confirming bank should have a better financial standing than the issuing bank, or be located in the Seller’s country;

confirmation of the letter of credit with another bank implies additional costs (confirmation fees, additional fees will be charged for checking documents, making payment, etc.).

Determination of the ensuring the confirmation of the letter of credit shall be the prerogative of the issuing bank and confirming bank.

The Uniform Customs and Practice document is practically the uniform international standard for conducting credit operations (UCP600), however, the participants to the credit operation shall be entitled to stipulate terms different from UCP600, containing the common concepts and norms.

The list of documents submitted by the beneficiary under the letter of credit is one of the most important points that should be agreed at the stage of concluding a contract.

The list of documents upon submission of which the payment is made under the letter of credit should be drawn up based on the contract terms that are to be monitored using them.

If possible, the list of documents should be minimized.

The set of documents as little as practically possible may consist of an invoice and a transport document or an act of delivery and acceptance.

The standard documents, certifying fulfillment of contractual terms, shall normally be:

  • for shipment – a consignment note, a duplicate of a waybill, air waybill, road waybill (CMR consignment note);
  • for insurance – certificate of insurance;
  • for quality – certificate of quality;
  • for origin – certificate of origin;
  • for import clearance – customs declaration;
  • for quantity of goods – certificate of weight or certificate of quantity.
  • For full and accurate indication of the document you can specify the following in the Contact:
  • the name of a document;
  • by whom it should be issued or verified;
  • required content or particularly important details;
  • language (English, Russian, etc.);
  • a number of copies.

Bank charges and fees under the letter of credit should be fairly allocated to the parties of the contract.

As a rule, bank charges under a letter of credit are distributed between the buyer and seller in one of the following ways:

  • all costs are charged to the buyer;
  • all costs are charged to the seller;
  • all costs in Kazakhstan — at the buyer’s expense, outside of Kazakhstan — at the seller’s expense;
  • all costs in Kazakhstan and the confirmation fee of the confirming bank — at the buyer’s expense, all others — at the seller’s expense.

The two latter methods of costs allocation are widely used, at that fees are equally allocated to the parties of the contract. The fees of foreign banks for their own clients may be significantly lower than fees for foreign companies, thus it is difficult to estimate the foreign banks fees at the stage of issuing a letter of credit.

If the foreign seller insists on participating in the confirmation of the letter of credit, or in provision of additional services by his bank, it is reasonable to insist on payment for these services by the seller.

An example of the Contract terms, providing for settlements in the form of a documentary letter of credit

1. The amount of 1, 000, 000. 00 (one million) US Dollars or 100% Contract amount shall be paid by the buyer through issuing a documentary, irrevocable letter of credit, confirmed by the principal European bank (hereinafter referred to as “the letter of credit”).

2. The Confirming Bank shall be the Nominated Bank under the letter of credit.

3. The letter of credit shall be governed by the Uniform Customs and Practice for Documentary Credits, Edition 2007, Publication ICC 600.

4. Payment under a letter of credit shall be made against submission of the following documents to the Nominated Bank:

  • Invoice – 1 original and 2 copies.
  • Duplicate of a waybill – 1 original and 1 copy.
  • Certificate of quality – 1 original and 1 copy.
  • Certificate of goods origin – 1 original and 1 copy.

5. Partial shipments are permitted. Transshipment is not permitted.

6. The documents shall be submitted to the Bank within 21 days from the date of issuance of shipment documents, within the term of the letter of credit.

7. All the Bank fees for opening, confirmation of the letter of credit and settlements under the letter shall be charged to the Buyer, at the Seller’s Bank they shall be charged to the Seller. Changes in the terms of the letter of credit shall be made at the expense of the initiating party.

8. The validity of the letter of credit shall be 120 days. The supplier undertakes to deliver products during the validity term of the letter of credit.

9. The advising bank shall be Nordea Bank, SWIFT: NDEAFIHH.

Collection

Documentary collection is a form of payment, according to which documents related to supply of goods or provision of services are transferred to the importer or customer of services through bank institutions only against payment of a collection amount or acceptance of a bill issued to the importer or customer of services.

In order for collection to be used as an effective method of payment, the seller and the buyer should agree all the detailed terms and conditions of collection. When conducting collection, banks shall be guided by the international ICC Uniform Customs and Practice for Collection and generally accepted bank practice.

The main advantages of collection for clients are:

  • the buyer benefit is in that if agreement on deferred payment is reached, the buyer may delay a payment until goods are delivered or even later
  • the seller benefit is in that that the documents of title to the goods shall not be transferred to the buyer until payment or acceptance is made
  • documentary collection is simple and inexpensive

Information updated on 10.10.2011

Fees for documentary transactions

Trade finance

Foreign trade finance transactions are different from ordinary loans. The main purpose of using trade finance instruments is not only provision of credit resources, but also mitigation of risks of the parties involved in a commercial transaction.

At optimal wording of the terms of the letter, the buyer can be sure that the product will be paid only after delivery (if the contract does not provide for advance payments) and only if the conditions of the contract are met.

The popularity of trade finance instruments in international practice is due precisely to the fact that they allow companies to increase the efficiency of using their own funds without diverting resources from their working capital.

Post-financing of letters of credit

Eurasian Bank arranges financing for its importing customers under foreign trade contracts with settlements through a confirmed documentary letter of credit. Funding is provided for the full amount of the letter of credit or part of it. At the same time, in order to reduce client costs, the Bank uses cheaper financial resources of foreign banks.

Under this scheme, it is possible to delay payment within the framework of a letter of credit at a reduced rate.

The advantages of the letter of credit method of payment with attraction of financing from foreign banks:

  • At appliance of the credit line under letters of credit, the credit resources of the foreign confirming bank are used, the credit rate of the confirming European bank is lower than in Kazakhstan.
  • Under this scheme, delayed payment within the framework of the letter of credit or an advance payment at a reduced rate are possible.
  • Under this scheme, the terms of lending to a Eurasian Bank client may vary.
  • The client should not divert funds from circulation at the time of issuing a letter of credit.
  • The European supplier receives funds under the letter of credit immediately after the documents are submitted to the confirming bank, and the funds under our client’s letter of credit are written-off by Eurasian Bank only at the end of the post-financing period.

The scheme of work on confirmed letters of credit with financing of foreign banks:

  1. The Kazakhstani importing client and foreign supplier enter into a contract for supply of goods.
  2. The Kazakhstani importing client submits an application to Eurasian Bank to open a letter of credit with financing of a foreign bank.
  3. Eurasian Bank issues the letter of credit, hands it over to the foreign bank with an inquiry for confirmation and financing without transferring coverage.
  4. The foreign bank advises the letter of credit to the supplier, adding its confirmation.
  5. The supplier ships the goods.
  6. The supplier submits shipment documents to the confirming bank.
  7. The confirming bank pays for the shipment documents from its own funds.
  8. Upon expiration of the financing period, Eurasian Bank shall pay to the confirming bank the amount of financing and interest on it.
  9. The importing client shall reimburse to Eurasian Bank the amount of financing and interest on it.

Information updated on 10.10.2011

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