ENG B14 Other Banking Operations

8/2/2019 ENG B14 Other Banking Operations

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14. OTHER BANKINGOPERATIONS

Deposit business

Neutral banking operations

Guarantee operations

Non-credit – Non-classic

operations Operations for own use

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B. Deposit banking business

Mobilization and concentration of financial

resources

increasingly important segment of bank’sbusiness policies,

the most important source of deposit,

optimal concentration of the funds in thebank.



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1. Short-term deposit businessoperations

deposit operations,

rediscount operations,

relombard operations,

issuance of treasury bills, bonds and other

short-term securities,

short-term loans from other banks.

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2. Long-term deposit business

operations

issuance of shares,

issuance of bonds, and

issuance of mortgage-backed

securities?



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Issuance of mortgage-backedsecurities

Mortgage banks usually perform theseoperations.

Mortgage loans and certain immovables (land,

buildings, factories, certain assets etc.) are

usually base for emission of mortage-backed

securities.

It’s widespread in the countries with market

economy.

They are usually subject of stock exchange

operations.

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C. Neutral banking operations

INTERMEDIATE: for account and on behalf of others:

payments in the country,

foreign payment operations,

various payments, collection (documentary collection

operations).



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C. Neutral banking operations

COMMISSION: on its own behalf and forothers account

issuance of shares and other securities,

letters of credit,

issuance of guarantees,

storage and management of securities, commissioning credit transactions, etc.

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Neutral short-term operations

payments in the country and abroad,

short-term commission operations,

documentary collection operations (collection)

operations with letters of credit,

currency and foreign exchange transactions,

receiving depots and storage.



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Neutral long-term operations

financial consulting, and

asset management for client (custodial).

Special segment of non-credit operations:

guarantee business

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Performance guarantees:

Guarantee for tender (bidding) – when an investor issues apublic tender, each tenderer is required to have guarantee from hisbank and bank guarantees that tenderer will conclude the contract if its offer was accepted.

Guarantee for repayment of advance – in cases where advancepayment from customer is provided for delivery of goods or forfulfillment of works, bank guarantees to user of guarantee thatorderer according to guarantee will do repayment part or whole of advance which user of guarantee paid, in case of default inperformance of delivery or works.

Guarantee for the quality of the works – in case that companyis contractor, investor needs a bank’s guarantee that orderer underthe guarantee will do agreed works according to contract date andquality in accordance with contract.

Guarantees



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Guarantee for the warranty period – bank’s guarantee to user of guarantee that orderer under the guarantee will maintain quality of works at his own expense or eliminate any possible defects that mayoccur in contracted period.

Customs guarantee – bank’s guarantee in favor of the ITA (Indirect Taxation Authority) where is guaranteed that orderer underthe guarantee will pay all customs duties or individual obligationsfrom leasing, temporary import of goods, etc.

Consignment guarantee – if you represent a foreign company,while the imporatation of goods to consignment warehouse,guarantee is needed where bank guarantees to user of guaranteethat orderer under the guarantee will pay goods or return goodsfrom consignment warehouse.

Guarantee for regular payment of the leasing – bank guarantees to user of guarantee that orderer under the guaranteewill properly settle obligations under the leases.

Performance guarantees:

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Payment guarantees

Payment guarantee is issued for security of payment of delivered goods and its is the most common form of theseguarantees. Payment guarantee may be used forrepayment of financial loans where banks undertakes topay the debt if the borrower do not perform the paymentin agreed period.

Letter of intent

Not compulsory document where bank expresses intentionto issue guarantee for the client on the basis of properlysubmitted documentation and in accordance with legalregulations of bank.



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D. Non-credit, non-classicbanking operations

factoring,

forfeiting,

leasing,

providing guarantee andacceptance of bills,

participation in the stock exchange operations.

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FactoringRepresents purchase of short-term claims beforethe maturity date based on delivery of goods orservices to customers in country and abroad (30

to 120 days) with taking of “del credere” risk andusually without right of recourse.

Factor agrees that, in addition to mature claims,he buys, also, future claims from the seller. Allclaims must be executed in local currencybecause factor, by definition, does not take risksof exchange rates, currency and transfer risk.



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Participants in the businessoperation:

seller,

buyer,

factor – undertakes debt collection

Open and closed (hidden)

Factor charges fee for its services whichdepends on the type of business, amount of claims, maturity date and risk assessment.

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Procedure: First time only:

rating the creditworthiness of the company and its debtor,

concluding the special contract with defined amount of purchased claims, commissions and discount rates, collateral...

Each purchase:

request for purchase with attached invoice/contract,

receiving the confirmation of the debtor,

signing the deal between bank and companies, payment of the discounted value of the purchased claims



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SELLER BUYER1

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1. sales contract2. delivery of payment security

instruments (PSI)

3. delivery of goods

4. sale of claims

5. payment of discounted value

6. presentation of PSI

7. collection of claims

BANKFACTOR

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FACTORING

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Forfeiting

Represents a method of export financing which isrealized through the sale of export claims to thebank with presenting of documents whichguarantee payment from the importer.

Bank buys an export claim which exporter obtainedfrom its foreign customer and bank renounces from

any right of recourse from seller of claims ( in case the

claim under the maturity remain uncollected).

Forfeiter – buyer, Forfeitist – seller.

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ForfeitingClaims are covered by guarantees orsecurities.

Seller of claims guarantees for theclaims and the validity of guarantee.

With sale of claims all economic and political

risk are transferred to the forfeiter.

Forfeiter becomes the owner of claims and hecan trade with them.



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Forfeiting

With sale of claims seller receives liquidfunds and frees up of risk of payment.

The basis for determining the price iscertain reference interest rate.

Medium and long-term foreign trade

(FT) transactions (3-7 years) are covered.They are secured by securities.

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EXPORTER IMPORTER1

BANK OFIMPORTER

BANK OFEXPORTER

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1. sales contract

2. request for payment securityinstruments (PSI)

3. issuance of PSI

4. notification of PSI

5. delivery of goods

6. sale of PSI

7. payment in cash

8. delivery of documents for

payment

9. payments in line with maturity

10.information on payment

11.payments in line with maturity

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FORFEITERBANK

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FORFEITING



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Advantages of export factoring IGA BiH

for exporter:

liquidity (the advance billing of 80-90% of export invoice, rest

by collection of claims...),

no request for mortgage as collateral,

favorable discount rates,

support to growth of export sales, efficient collection of claims,

administration of claims.



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Advantages of export factoring IGA BiH forbank:

participation in profit,

good control of the exporter’s business connections,

release of mortgage for other lines of loans,

inflow assignment by factoring as an additionalsecurity,

providing greater liquidity for exporter in order to payother bank loans,

increase of creditworthiness of the exporter,

increase of competitiveness of exporter...

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Difference between factoring and forfeiting

FORFEITING FACTORINGMain contractor : usually bank other business entity

Maturity of

claims which are

sold:

from 3 to 7 years(medium and long-term)

from 30 to 120 days(short-term)

Business

cooperations:

only one claim long-term cooperation

Origin of claims: Foreign Trade (FT) usually from domestic

market

Price: expensive operation because it

includes: interest, higher costsand bank fee

cheaper deal

Risk

Right for

recourse:

higher because it takes claims

from FT

without right for recourse

lower risk,

with or without right for

recourse



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LeasingRenting or transferring certain items fortemporary use by recipient of the lease.

User of the lease pays fee or rent, but he is,also, obliged to pay compensation in case of damage or destruction of an object of leasing.



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LeasingBank usually finances leasing company orleasing provider (producer) by leasing, andthus indirectly finances user of leasing.

The leasing company is often owned bybanks.

Bank approves loan to leasing company by

which it obtains asset and rents it to user of leasing.

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Advantages for providers of leasing:

safety (ownership of the equipment and the simple procedure

of return),

relatively simple documentation,

less regulation (non-deposit institution),

greater efficiency.



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Advantages for user of leasing:

without providing additional resources(less than a traditional loan),

convenience and speed (ideally for a single day),

flexibility (suitable for small and startup business, annuities

adjusted to needs of the client),

providing additional services through the leasing

provider (eg. favorable maintenance of equipment).

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E. Operations for own use

Arbitration operations (earnings by thedifference in rates of securities on differentstock exchanges)

Speculative stock exchange transactions(purchase of securities on the stock exchangefor later sale with higher rate),

Establishment of own companies or participating in other companies tomaximize profits.

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Guarantee of a billRepresents bill of guarantee of the bank.

The bank guarantees that someone of signatories of the bill will fulfill itsobligation to the bill.

By signing the bill of guarantee, bank

accepts the obligation that in case thatdebtor of the bill does not pay itsobligation to the creditor bank willcompletely settle that obligation.



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ENG B14 Other Banking Operations

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