An overview of int'l trade finance latest

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AN OVERVIEW Of

INTERNATIONAL TRADE FINANCE

Md. Abdus SalamFaculty Member (SPO)JBSC, Dhaka

January 28, 2017

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Objectives of the Session

To enhance the customers services and

maintained it by negotiating with AD

Branches. To discusses the overall process or

structure of international trade.

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Session Outline

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Foreign Exchange Activities

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International Trade? International trade is exchange of capital, goods,

and services across international borders or

territories.

In most countries, it represents a significant share

of gross domestic product (GDP).

While international trade has been present

throughout much of history, its economic, social,

and political importance has been on the rise in

recent centuries.

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International Trade? International trade is exchange of capital, goods,

and services across international borders or

territories.

In most countries, it represents a significant share

of gross domestic product (GDP).

While international trade has been present

throughout much of history, its economic, social,

and political importance has been on the rise in

recent centuries.

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Importance of International TradeWithout international trade, nations would be limited

to the goods and services produced within their own borders.

International trade is the backbone of our modern commercial world,

as producers in various nations try to profit from an expanded market, rather than be limited to selling within their own borders.

There are many reasons that trade across national borders occurs, including lower production costs in one region versus another, specialized industries, lack or surplus of natural resources and consumer tastes.

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Process of a Typical Foreign Trade Transaction

Importer’s Bank Exporter’s Bank

Importer Exporter

Money Market Investor

Purchase order1

L/C

app

lica t

ion

2Letter of Credit3

L/C

not

ifica

tion

4 Ship

pin g

do c

umen

ts

and

time

draf

t

6

Paym

ent

disc

o unt

ed v

a lue

of

B/ A

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5 Shipment of goods

Paym

ent f

ace

B/A

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Sign

ed p

rom

isso

r y n

o te

for

f ace

val

ue o

f B/A

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Ship

ping

do

cum

ents

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Shipping Documents and

time draft accepted7

Payment-discounted value of B/A

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B/A

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PV B/A

13 Face Valu

e

B/A16 B/A presented at maturity15

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Int’l Products and ServicesTrade Products & Services Commercial Letters of Credit

- Import & Export Standby Letters of Credit Documentary Collections Export Credit Insurance

Trade Finance Working Capital Loans for

exports e.g ECC Import Financing Export Financing Overseas Investment

Financing

Sources of Import Finance Cash – Cash reserve of BB Wage earners FC balance (living in abroad) External Financial Aid (Loan or Grant) Commodity exchange (Barter & STA)

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Wings of Int’l Trade Finance

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Import Finance

Import Finance

Pre-Import

Post Import

Opening of L/C

Payment against Document (PAD)

Loan against Imported Merchandise (LIM)

Loan against Trust Receipt

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Export Finance:

Export Finance

Pre-shipment

Post-shipment

Packing Credit (PC)

Back-to-Back Letter of Credit (BBLC)

Negotiation of Export Bill

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Foreign Remittance

Foreign Remittance

Inward

Outward

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Payment Methods & Risk ComparisonINTERNATIONAL METHODS OF PAYMENT

Exporter Risk

High

Importer Risk

Low

Trade Terms

Open AccountOpen Account

Documentary Collection (Time)Documentary Collection (Time)

Documentary Collection (Sight)Documentary Collection (Sight)

Letters of Credit (Time)Letters of Credit (Time)

Letters of Credit (Sight)Letters of Credit (Sight)

Cash in AdvanceCash in Advance

INTERNATIONAL METHODS OF PAYMENT

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Guideline, Regulations and Practices

Import Policy Order (2015-2018)Export Policy (2015-2018)UCPDC- 600 : ICC Uniform Customs and Practice for

Documentary Credits (UCP-600) INCOTERMS-2010: International Commercial Terms ISBP : International Standard Banking Practices

(ISBP-745)Foreign Exchange Regulations Act-1947(up to date

amendments).Guidelines for Foreign Exchange Transactions (Vol. I

& II)- 2009.

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Guideline, Regulations and Practices

Guidelines for Foreign Exchange Transactions (Vol. I & II) - 2009.

URR: Uniform Rules for Bank-to-Bank Reimbursements (URR- 725).

URC: Uniform Rules for Collection (URC- 522).URDG- Uniform Rules for Demand Guarantee

(URDG-758). ISP-98Other related ICC PublicationsForeign Exchange Circulars of Foreign Exchange Policy

Department of BB

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International Methods of Payment

Time of Payment: SIGHT at time of presentation of the draft

Time of Payment: TIME at a future date. Goods available to Buyer: after payment if ALL Ocean

Bills of Lading are included with the documents and after the cargo has arrived.

Risk to Seller: possible non-payment of the draft. Risk to Buyer: has assurance of shipment, but Seller may

not ship goods as ordered. Must pay to get title to goods. Not recommended for sales on extended terms

Documentary CollectionsDraft or Documents Against Payment Or Acceptance

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Documentary Collections

Benefits

More secure than Open Account Goods available to Buyer: after payment if ALL Ocean


Risk to Seller: possible non-payment of the draft. Risk to Buyer: has assurance of shipment, but Seller

may not ship goods as ordered. Must pay to get title to goods.

Don’t encumber Buyer’s line of credit Inexpensive

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A payment instrument issued by a bank on behalf of its customer. The issuing bank substitutes its own credit standing for that of its

customer. The issuing bank undertakes to pay for the goods or services provided by

the beneficiary of the LC; the beneficiary looks to the bank for payment, instead of the buyer (applicant of the LC).

The LC assures the beneficiary (exporter) of payment when the terms of the credit are met.

The exporter is not obligated to perform if the terms of the LC are not acceptable.

Commercial letter of credit can be paid “at sight” or at period in future Time Letter of Credit can be discounted if seller doesn’t want to wait until

LC maturity. Simple form of trade finance.

What is a Letter of Credit?

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Letters of Credit Benefits

• More secure than Open Account• Foreign Bank promises to pay exporter if documents

are in compliance with letter of credit • Goods available to Buyer: after payment if all Ocean


• Risk to Seller: LC void if seller docs are not in compliance, i.e. have discrepancies

• Risk to Buyer: has assurance of shipment, but Seller may not ship goods as ordered. Must pay to get title to goods.

• Versatile– can build in terms for buyer and still have assurance of payment from overseas bank

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International Trade Finance

TRADE FINANCE TOOLS These traditional payment methods are fine, but what if your customer

wants extended terms of payment or your competitors are offering better terms? You need financing to put the order together?

Trade Finance may be the solution to your customer’s needs and the way to make exports a manageable part of your growth strategy.

SBA Export Express

SBA Export Working Capital Program

EXIM Bank Working Capital Program

Insured Foreign Receivables Financing

Both SBA and EXIM assists US exporters to obtain loans to produce Both SBA and EXIM assists US exporters to obtain loans to produce goods or services for export. They guarantee repayment to the lender, goods or services for export. They guarantee repayment to the lender, making it possible for banks to extend financing to the exporter. They making it possible for banks to extend financing to the exporter. They do not compete with commercial lenders, but assumes the risks they do not compete with commercial lenders, but assumes the risks they cannot accept. cannot accept.

SunTrust Bank is a delegated lender for both SBA and EXIM Bank SunTrust Bank is a delegated lender for both SBA and EXIM Bank ProgramsPrograms

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SBA’s Export Express Working Capital Guarantee Program

The program supports single transactions or multiple sales under a revolving line

Maximum loan amount limited to $500,000

Guarantees 90 percent of a commercial bank loan up to $350,000 and 75 percent from $350,000-$500,000

Program minimizes government mandated forms. Streamlines processing and costs of smaller SBA loans for exporters

VERSATILE -- Can be used for working capital, issue standby letters of credit for advance payment guarantees, participation in foreign trade shows, or translation of product literature for use in foreign markets

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SBA’s Export Working Capital Guarantee Program

The program supports single transactions or multiple sales under a revolving line

Guarantees 90 percent of a commercial bank loan up to $5,000,000

Can be used to purchase goods and services or pay for labor & materials to put together an export order– Pre Export Financing

Can be used to support standby letters of credit for performance bonds or advance payment guarantee

At the minimum, loan must be collateralized by export- related AR and inventory

No US content requirement or military sales restrictions

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FEES and RATES

Guarantee Fee:

Maturities of 12 months or less = 1/4 percent

Maturities greater than 12 months = 2-3.75% depending on loan size

Interest Rates/Lender Fees are Negotiable

ELIGIBILITY

A business must meet SBA’s industry size standards and have been in business for at least 12 continuous months

SunTrust Bank is a delegated lender for SBA’s Export Working Capital Guarantee Program

One of few banks in country to be awarded this designation

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Export Import Bank of the US Export Working Capital Guarantee Program

• The program covers 90% of the loan’s principal and accrued interest

• STB minimum loan request is negotiable – there is no maximum amount

• At the minimum, loan must be collateralized by export-related AR and inventory

• Goods must have at least 50% US cost content to guarantee the entire transaction

• Loans Can Be either Transaction Specific or RevolvingLoans Can Be either Transaction Specific or Revolving

• High Advance Rates on Inventory and Receivables, including work in ProcessHigh Advance Rates on Inventory and Receivables, including work in Process. . • Some restrictions to the program (military exports and some countries are Some restrictions to the program (military exports and some countries are

excluded) excluded)

• Financing Provided for Short, Medium, and Long TermFinancing Provided for Short, Medium, and Long Term

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Export Credit Insurance & Insured Foreign Receivables Export Credit Insurance & Insured Foreign Receivables Financing Financing

Insurance Available through EXIM Bank Insurance Available through EXIM Bank andand Private Sector Insurers Private Sector Insurers

Commercial risk insurance (buyer bankruptcy and insolvency) Commercial risk insurance (buyer bankruptcy and insolvency)

Political risk (war, inconvertibility of currency)Political risk (war, inconvertibility of currency)

Short Term & Medium Term Insurance Policies, Multi Buyer or Single Buyer Short Term & Medium Term Insurance Policies, Multi Buyer or Single Buyer Policies Policies

Enables US exporters to extend “open account” terms to international buyersEnables US exporters to extend “open account” terms to international buyers(protect US exporters against foreign buyer default)(protect US exporters against foreign buyer default)

Insured export receivables looked upon favorably by banks. Insured export receivables looked upon favorably by banks. Exporters may be Exporters may be able to borrow against insured foreign A/R. able to borrow against insured foreign A/R.

Good option for service companies who have little inventory for collateralGood option for service companies who have little inventory for collateral

© Copyright 2005 SunTrust Banks, Inc.

Contact:

Marsha Sompayrac Director, Global Trade Solutions919 E. Main Street, 2nd FloorSunTrust Bank Richmond, VA 30303Tel: 804-782-5558 Marsha.Sompayrac @ Suntrust.com

Hai-nah Ellison Vice President, Global Trade Solutions 919 E. Main Street, 2nd FloorSunTrust Bank Richmond, VA Tel: 804-782-7476Hai-nah.Ellison@ Suntrust.com

An overview of int'l trade finance latest

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