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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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