An overview discussion on International Trade Finance in Bangladesh aspect

2. 2
AN OVERVIEW
Of
INTERNATIONAL
TRADE fINANCE
Md. Abdus Salam
Faculty Member (SPO)
JBSC, Dhaka
January 28, 2017

3. 3
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.

4. 4
Session Outline

5. 5
Foreign Exchange Activities

6. 6
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.

7. 7
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.

8. 8
Importance of International Trade
Without 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.

9. 9
Process of a Typical Foreign Trade Transaction
Importer’s Bank Exporter’s Bank
Importer Exporter
Money
Market
Investor
Purchase order1
L/Capplication
2
Letter of Credit3
L/Cnotification
4
Shippingdocuments
andtimedraft
6
Payment
discountedvalue
ofB/A
9
5 Shipment of goods
PaymentfaceB/A
14
Signedpromissorynote
forfacevalueofB/A
10
Shipping
documents
11
Shipping Documents and
time draft accepted
7
Payment-discounted value of
B/A
8
B/A
12
PV
B/A
13 Face Value
B/A16
B/A presented at maturity
15

10. 10
Int’l Products and Services
Trade 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)

11. 11
Wings of Int’l Trade Finance

12. 12
Import Finance
Import
Finance
Import
Finance
Pre-ImportPre-Import
Post ImportPost Import
Opening of L/COpening of L/C
Payment against Document (PAD)Payment against Document (PAD)
Loan against Imported
Merchandise (LIM)
Loan against Imported
Merchandise (LIM)
Loan against Trust ReceiptLoan against Trust Receipt

13. 13
Export Finance:
Export
Finance
Pre-shipment
Post-shipment
Packing Credit (PC)
Back-to-Back
Letter of Credit (BBLC)
Negotiation of Export
Bill

14. 14
Foreign Remittance
Foreign
Remittance
Inward
Outward

15. 15
Payment Methods & Risk Comparison
INTERNATIONAL
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

16. 16
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.

17. 17
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-98
Other related ICC Publications
Foreign Exchange Circulars of Foreign Exchange
Policy Department of BB

18. 18
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 Collections
Draft or Documents Against Payment Or Acceptance

19. 19
International Methods of Payment
Documentary Collections
Benefits
 More secure than Open Account
 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.
 Don’t encumber Buyer’s line of credit
 Inexpensive

20. 20
International Methods of Payment
 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?

21. 21
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
Bills of Lading are included with the documents and
after the cargo has arrived.
• 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

22. 22
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 produceBoth 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. Theymaking it possible for banks to extend financing to the exporter. They
do not compete with commercial lenders, but assumes the risks theydo 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 BankSunTrust Bank is a delegated lender for both SBA and EXIM Bank
ProgramsPrograms

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International Trade Finance
 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

24. 24
International Trade Finance
 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

25. 25
International Trade Finance
 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

26. 26
International Trade Finance
 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 areSome 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

27. 27
International Trade Finance
 Export Credit Insurance & Insured Foreign ReceivablesExport Credit Insurance & Insured Foreign Receivables
FinancingFinancing
 Insurance Available through EXIM BankInsurance Available through EXIM Bank andand Private Sector InsurersPrivate 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 BuyerShort Term & Medium Term Insurance Policies, Multi Buyer or Single Buyer
PoliciesPolicies
 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 beExporters 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

28. © Copyright 2005 SunTrust Banks, Inc.
Contact:
Marsha Sompayrac
Director, Global Trade Solutions
919 E. Main Street, 2nd Floor
SunTrust Bank
Richmond, VA 30303
Tel: 804-782-5558
Marsha.Sompayrac @ Suntrust.com
Hai-nah Ellison
Vice President, Global Trade Solutions
919 E. Main Street, 2nd Floor
SunTrust Bank
Richmond, VA
Tel: 804-782-7476
Hai-nah.Ellison@ Suntrust.com