Letters of Credit in Asia

Transcription

1 Letters of Credit in Asia Hugo Verschoren Senior Product Manager Trade Finance Services ING Group Amsterdam International Business Week October 2012

2 WHAT IS A LETTER OF CREDIT? 2 2

3 What is a Letter of Credit? Independent undertaking of a bank At the request of the buyer (= applicant) To make payment to the seller (= beneficiary) Against presentation of documents evidencing delivery of goods or services Conforming to the terms and conditions of the Letter of Credit 3 3

4 Outline 4 4 4

5 Outline BUYER 1 SELLER 5 1 Negotiation of contract between buyer and seller 5 5

6 Outline ISSUING 2 BUYER 1 SELLER 6 2 Application for opening of the Letter of Credit 6 6

7 Outline 3 ISSUING 2 BUYER 1 SELLER 7 3 Risk analysis 7 7

8 Outline 3 ISSUING 4 ADVISING 2 BUYER 1 SELLER 8 4 Opening of the Letter of Credit 8 8

9 Outline ISSUING 4 ADVISING BUYER 1 SELLER 9 5 Analysis authenticity, risk and compliance 9 9

10 Outline ISSUING 4 ADVISING BUYER 1 SELLER 10 6 Notification (= advising), possibly with confirmation 10 10

11 Outline ISSUING 4 ADVISING BUYER 1 SELLER Analysis of the Letter of Credit 11 11

12 Outline ISSUING 4 ADVISING BUYER 1 SELLER Shipment of goods 12 12

13 Outline ISSUING 4 ADVISING BUYER 1 SELLER Presentation of documents 13 13

14 Outline ISSUING 4 ADVISING BUYER 1 SELLER Checking of documents 14 14

15 Outline ISSUING 4 ADVISING BUYER 1 SELLER Payment 15 15

16 Outline ISSUING 4 12 ADVISING BUYER 1 SELLER Remittance of documents 16 16

17 Outline ISSUING 4 12 ADVISING BUYER 1 SELLER Checking of documents 17 17

18 Outline ISSUING 4 12 ADVISING BUYER 1 SELLER Payment 18 18

19 Outline ISSUING 4 12 ADVISING BUYER 1 SELLER Documents against payment 19

20 Outline 3 ISSUING 2 BUYER SELLER ADVISING Contract negotiation 2. Application for opening 3. Risk analysis 4. Opening 5. Analysis risk, auth. & compl. 6. Advising 7. Analysis 8. Shipment 9. Presentation of documents 10. Checking of documents 11. Payment 12. Remittance of documents 13. Checking of documents 14. Payment 15. Documents against 16. Payment 20 20

21 Letters of Credit Are also known as Documentary Credits or LCs Can be Advised: without engagement of the advising bank Confirmed: with engagement of the advising bank (the advising bank takes over the engagement of the issuing bank) Can be payable at sight Can have a deferred payment period Instead of the funds, the beneficiary will receive Either a deferred payment undertaking Or an accepted Bill of Exchange (Draft) Alternatively, beneficiary can request for a discount (without extra credit limits!) Are always subject to UCP

22 THE ASIAN KITCHEN AND LETTERS OF CREDIT 22 22

23 The Asian kitchen and Letters of Credit Importer s view Typically, Asian exporters use a letter of credit in their favour as a source for financing LCs in their favour, issued by a reputable bank are widelike accepted by Asian banks as a collateral for pre-export financing Common practice in China, Hong Kong, India, Viet Nam, Routing the LC to another bank than exporter s bank will therefore be a problem for your supplier 23 23

24 The Asian kitchen and Letters of Credit Exporter s view Asian banks sometimes have the reputation to refuse payment for minor or even spurious discrepancies, in particular when (commodity) prices are falling Prepare your documents with extra care! Do not take the risk of unpaid LCs due to discrepancies! Call your bank in case you do not understand a condition in an LC or in case of doubt! A Waiver for discrepancies, granted by your buyer is not a valid document and a dangerous procedure! In general, trade payment track record has been very good Confirmed Letters of Credit can shelter you from spurious discrepancies Places like Hong Kong have an important trading community Your sale might be the first leg in a transaction whereby your goods are resold to an second buyer Your documents under your LC might be needed for a second LC (Backto-back) 24 24

25 About some countries: China Positive evolution over the last years in regulating trade and banks: Provision of the Supreme People s Court on Some Issues in the Adjudication of LC-Related Cases (Effective 1st Jan. 2006) CARPALs About the way legal action around LCs is organised Principle of independence of an LC, when can a Stop Payment Order be issued, which court is authorised in case of disputes, adherence to UCP, The number of court cases and payment injuctions coming from China has decreased substantially Capital adequacy, Asset quality, Risk concentration, Provisioning coverage, Affiliated institutions, Liquidity and Swindle prevention control Rules of the central bank for international banks with regard to the Basel II and Basel III regime 25 25

26 About some countries: India Reserve Bank of India controls trade flows: Raw material: payment term up to one year Capital Machinery up to 3 years, pricing capped at Libor + 3,5%pa. Indian importers like usance LCs (deferred payment or acceptance) Are discounted by foreign paying banks, with interests payable by the Indian importer Discount from supplier for early payment Interest rates calculated by foreign banks usually more favourable Indian interest rates at about 8% 26 26

27 About some countries: Viet Nam Going through difficult times again Increasing bad debts Asia Commercial Bank: bank-run Limits on many banks frozen pricing (for confirmation of LCs) rising 27 27

28 TRADE FACILITATION TOOL: AT YOUR SERVICE! 28 28

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36 Trade Facilitation Tool 5 modules Country Profiles Market Information Finding Counterparts Trade Compliance Customs Calculator Visitor s profile: All visitors can create a profile Create own profile with preferences as to country, specific goods or industries (based on HS codes), Import and/or export, currency, etc. Automatic profile creation: the system will create automatically the visitors profile and set the preferences by means of HS codes used, country pages visited, etc. In some cases, the dialogue boxes (used to perform queries in the system) will be pre-populated according to the customer s profile to make queries easier Queries out of profile always possible 36 36

37 Trade Facilitation Tool Country Profiles Practical and business information on how to buy, sell, invest, run a business and travel to a country => up to 185 country profiles Business Environment (Economic and Political Outline, Trade Profile, Business Practices, Tax System, Legal Environment) Doing Business in Country (ex: Japan - Reaching the Consumers, Selling to Japan, Buying from Japan, Operating a Business in Japan, Investing in Japan) Travelling and living in Country" (Entry Requirements, Once in the Country, Living in Japan) 37 37

38 Trade Facilitation Tool Market Information Perform a product specific business study in a chosen country - databases of import/export flows, market studies, trade shows, professional associations Import-Export Flows Best Trading Countries is a wizard that identifies the top partner countries for a given product Market Surveys search engine contains 25,000 market reports and memos which are sector and country specific The Trade Shows database The Professional Associations section provides a list of organizations chosen from a database of 3,000 bodies representing individual business sectors. The Professional Magazines The weekly Business Alert 38 38

39 Trade Facilitation Tool Finding Counterparts Search for counterparts and market your products online The country or industry specific online directories The country or industry specific online marketplaces section is an automated service that offers a list of 650 marketplaces classified by continent and/or activity sector Find overseas suppliers: Piers powered database of companies worldwide supplying the US US exporters, based on the data from the US customs and synchronized with D&B data Find US importers Validated list of business counterparts (for imports or exports). The listing provided presents names and contact details of qualified business partners. Global directories such as KOMPASS, THOMAS REGISTER and Dun & Bradstreet are used, as well as national Directories. Every company is qualified by phone by Export Entreprises 150 correspondents worldwide

40 Trade Facilitation Tool Trade Compliance Find out the regulatory and document requirements applicable to a product in a given country. The Shipping Documents facility Import Controls identifies product-specific barriers to importing, such as quotas, licensing requirements, anti-dumping and countervailing duties, prohibitions, embargoes, and others for imports into the world's leading trade nations Export Controls identifies license requirements for goods, including "dualuse" goods that are exported from the world's leading trade nations to any other Customs territory. Export embargos are also identified. Denied Party Screening Labeling Rules and Regulation The Standards section helps the user find technical standards to which a given product must conform from and to specific countries. This information is provided within 48 hours after the user s request

41 Trade Facilitation Tool Customs Calculator Find your HS number, identify the customs duties & taxes applicable to a product and calculates your export/import selling price The Customs Duties automated tool allows the user to obtain precise values for duties and taxes to be paid in relation to the transport of a product to the country of import in accordance with its local customs classification number. Various search engines on Harmonized Classification Number Local Customs Classification Number in 120 countries The Landed Cost Calculator enables a user to rapidly calculate duties and other import taxes as well as transportation and insurance charges associated with an international shipment. The Selling Price Calculator is an effective tool to determine the selling price of a specific product ensuring that it includes all necessary costs related to trade in a given country. Currency Converter and Measurement Converter 41 41

42 Trade Facilitation Tool Free of charge For licence holders of InsideBusiness Trade only InsideBusiness Trade: ING s web based platform for Letters of Credit and Collections (Free) licence Inside Business Trade only for the use of ING s Trade Facilitation Tool available See your ING contact for more information 42 42

43 Thanks for your attention and your hard labour 43 43