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Trade & Export Finance , Malmö Ann Wallström

Trade & Export Finance , Malmö Ann Wallström. International Law on Shipping and Trade 2012 University of Lund. Handelsbanken Trade & Export Finance - Agenda. Presentation Short about Handelsbanken Trade Finance in Handelsbanken Clean Payments Letters of Credit Collections Guarantees

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Trade & Export Finance , Malmö Ann Wallström

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  1. Trade & Export Finance, MalmöAnn Wallström International Law on Shipping and Trade 2012 University of Lund

  2. Handelsbanken Trade & Export Finance - Agenda • Presentation • Short about Handelsbanken • Trade Finance in Handelsbanken • Clean Payments • Letters of Credit • Collections • Guarantees • Export Finance • Transferring a Letter of Credit • Financing a Letter of Credit

  3. Svenska Handelsbanken Group • Founded in 1871 • Higherprofitabilitythan the other major Swedish banks for 40 yearsrunning • One of the mostcost-effectivelisted universal banks in Europe • Lowerloanlossesthanother major banks • Moresatisfiedcustomersthanother major banks* • High rating • Operating profit: SEK 3.4 billion (Q2 2012) • Loans to the public: SEK 1.632 billion (Q2 2012) • 11, 095 employees • Operations in 22 countries • 461 branches in Sweden, 148 in other Nordic countries, 117 in Great Britain and 34 in the rest of the world • *Source: Swedish Quality Index 2011 Subsidiaries: • Handelsbanken Liv • Handelsbanken Fonder • Handelsbanken Finans • Stadshypotek

  4. Handelsbanken’s organisation The branch always has the right to delegate business responsibility to the regional head office or central business areas. Customer Central departments Central business areas Regional head offices 740 branches ”Always responsible for the customer” Within the limits of their product responsibility, the central business areas are always obliged to provide business support to the branches, regional head offices and other central departments.

  5. Handelsbanken International August 13, 2012 Banking activity in 17 countries 32 branches and 6 representative offices Representantive offices Banking activity Representantive offices Brazil – Sao Paolo (soon) Greater China – Beijing, Taipei India – Mumbai (Bombay) Malaysia – Kuala Lumpur Russia - Moscow Spain – Marbella Office network with universal banking Denmark (54) Norway (49) Finland (45) Sweden (461) Great Britain (120) Branch offices in rest of Europe Austria -Vienna Estonia - Tallinn France – Paris, Nice Germany – 7 branches Latvia – Riga Lithuania – Vilnius Luxembourg - Luxembourg Branch Offices in Asia China –Shanghai Hong Kong Singapore Netherlands – 12 branches Poland – Warsaw Switzerland - Zürich * Branch Office in America USA - New York * Only asset management

  6. Handelsbanken Trade & Export Finance The agreement is the basis for the whole transaction • Description of goods • Delivery terms • Payment terms • When, where and how will the payment be made? • Bank relations • Bank charges • Financing • Breach of contract

  7. Handelsbanken Trade & Export Finance What decides the choice of payment form? • Laws • Risks • Time • Charges • Financing

  8. RISKS Handelsbanken Trade & Export Finance • Political risk • Commercial risk • Own risk • Currency risk • Financial risk

  9. Handelsbanken Trade & Export Finance International payments DOCUMENTARY CLEAN Collection Electronic remittance L/C Cheque - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Guarantees

  10. Clean Payments in Handelsbanken Foreign Bank Internetbank Sender Currancy - amount Payment reference Value day Receiver name/address Account Number (IBAN) BIC (ex. HANDSESS) Swift • Way of payment • Normal • Express Handelsbanken

  11. Terms of payment for the importer Rank Advantages Disadvantages 1. Clean payment - Low charges after delivery - Goods to be checked before payment 2. Letter of Credit - The delivery complies - Security in with the agreement the bank before payment - Extra charges 3.Bank Guarantee - Cheeper than L/C - Security in the bank 4. Collection - The goods will be - Risk for wrong released before payment goods - Extra charges 5. Payment in advance - Risk for incorrect or non-delivered goods

  12. Terms of payment for the exporter Rank Advantages Disadvantages 1. Clean payment - Low charges - Possible advance payment in advance - Security for payment guarantee of goods 2. Confirmed L/C - Security for payment - Extra charges of goods - Demand for L/C may be taken as a lack of confidence 3. Bank guarantee - Cheaper than L/C - No fixed time of payment - Security for payment of goods 4. Collection - Security for non- - Extra charges delivery of goods - Risk for return of goods if not paid 5. Clean payment - Risk for non-payment of goods

  13. LETTER OF CREDIT Handelsbanken Trade & Export Finance

  14. Handelsbanken Trade & Export Finance WHAT IS A L/C?(L/C=Letter of credit, D/C=Documentary credit)__________________________________________ • An undertaking by a bank to pay against creditconform documents • Only the documents are involved - not the goods

  15. Handelsbanken Trade & Export Finance contract Exporter Importer swift Importer´s bank Exporter´s bank

  16. Handelsbanken Trade & Export Finance • CONFIRMED L/C by request from the opening bank • GUARANTEED L/C (silent confirmation) by request from the beneficiary

  17. Handelsbanken Trade & Export Finance DIFFERENT L/C MODES • Irrevocable - revocable • Confirmed - unconfirmed • At sight - usance (or deferred payment)

  18. Handelsbanken Trade & Export Finance DIFFERENT TYPES OF L/C • Standby Letter of Credit (guarantee) • Transferable • Back to back • Revolving

  19. Handelsbanken Trade & Export Finance Letter of credit (L/C) • Payment instrument • Guarantee instrument • Financing instrument

  20. Handelsbanken Trade & Export Finance L/C - PLACE OF PAYMENT • Payable in exporter´s country: • The right to decide on credit conformity of documents and payment against them lies with the exporter´s bank • Payable in importer´s country: • The right to decide on credit conformity of documents and payment against them lies with the opening bank

  21. Handelsbanken Trade & ExportFinance L/C - TERMS OF PAYMENT • Irrevocable letter of credit payable at sight (at 90 days sight) with and confirmed by: • Svenska Handelsbanken • Box 50104 • SE-202 11 Malmö • Sweden • SWIFT HANDSESSMLM

  22. Handelsbanken Trade & Export Finance L/C • ADVANTAGES • Secure mode of payment • The exporter can start production • The importer is certain of right-time delivery • The bank guarantees the buyer´s payment obligations • Large possibilities of variation • Uniform rules through ICC (International Chamber of Commerce)

  23. Handelsbanken Trade & ExportFinance L/C • DISADVANTAGES • The importer´s credit limit is used • Requires meticulous handling of documents by the exporter • Opening bank often in buyer´s country • Transfer risk • Payment under L/C is not connected with stipulations in underlying contract

  24. Handelsbanken Trade & ExportFinance L/C - the most common discrepancies • validity expired • shipment date expired • stale documents • underinsured • erroneous goods description • the documents are inconsistent • B/L not stamped ”shipped on board”

  25. Handelsbanken Trade & ExportFinance TERMS AND CONDITIONS TO BE INCORPORATED IN YOUR DOCUMENTARY CREDIT APPLICATION TO YOUR BANKERS: The L/C is to be irrevocable, advised by Swift/telex through, payable with and confirmed by: • SVENSKA HANDELSBANKEN, MALMÖ Swift address: HANDSESS MLM The L/C must be confirmed by the advising bank by request of the opening bank! All bank charges outside Sweden are for applicant´s account. The L/C to be opened in favour of: EXPORT AB for the amount of: ...................................... available: at sight at.........days from B/L date valid for shipment until: ......................................... against the following documents: - signed commercial invoice in threefold - full set clean on board ocean B/L - insurance policy /certificate endorsed in blank for 110 percent of invoice value - certificate of origin in duplicate, etcetera shipment from:.................. shipment to:.................. part shipment: allowed/not allowed transhipment: allowed/not allowed goods description: .................. other conditions: ................................ THIS DOCUMENT SHALL BE A PART OF EVERY OFFER AND EVERY PROFORMA INVOICE THAT WE PRESENT TO OUR BUYERS.

  26. Handelsbanken Trade & ExportFinance DOCUMENTARY COLLECTIONS

  27. Handelsbanken Trade & ExportFinance COLLECTIONS EXPORTER IMPORTER 1. 4. 2. EXPORTER´SBANK IMPORTER´SBANK 5. 3. 1. Agreement 2. Documents to exporter´s bank 3. Documents to importer´s bank 4. Delivery of documents 5. Payment of proceeds

  28. Handelsbanken Trade & ExportFinance IMPORTANT TO THINK OF: • The bank has nothing to do with the goods nor does the bank guarantee the correctness of the documents. • The collecting bank must handle the transaction in accordance with the instructions received from the ordering bank. • The principal decides how the charges shall be divided. • Consign the goods to the forwarding agent

  29. Handelsbanken Trade & ExportFinance COLLECTIONS • Documents against payment (D/P) or Cash against documents (CAD) • Documents against acceptance (D/A)

  30. Handelsbanken Trade & ExportFinance COLLECTIONS • Higher degree of security than clean payment • The bank supervises the outstanding receivables • The importer does not have to tie up his collateral • Uniform rules through ICC ADVANTAGES DISADVANTAGES • Does not guarantee any payment

  31. Handelsbanken Trade & ExportFinance BANK GUARANTEES

  32. Handelsbanken Trade & ExportFinance WHAT IS A BANK GUARANTEE?An undertaking by the bank to: ”pay up to a maximum amountif the applicantdoes not fulfil his contractual obligations, provided that the claim is madewithin the validity of the guarantee”

  33. Handelsbanken Trade & ExportFinance IMPORTANT TO THINK OF • THE GUARANTEE IS NO MEANS OF PAYMENT • THE GUARANTEE IS ONLY AN INSURANCE

  34. Handelsbanken Trade & ExportFinance GUARANTEES (BONDS) TENDER/BID BOND ADVANCE PAYMENT BOND ( 1-5%) ( 5-20% ) WE …………….HEREBY PROMISE TO PAY ON YOUR FIRST DEMAND, NOTWITHSTANDING ANY CONTESTATION……………………………………. PERFORMANCE BOND PAYMENT BOND ( 5-10% ) ( 100% )

  35. Handelsbanken Trade & ExportFinance THE TWO BASIC FORMS OF GUARANTEES CONDITIONAL ”as for our own debt” (could requiry a court verdict) UNCONDITIONAL ”On-demand” guarantee or stand-by L/C (immediate payment)

  36. Handelsbanken Trade & ExportFinance EXAMPLES On-demand guarantee ...we hereby irrevocably and unconditionally undertake to pay the above-mentioned amount to the Beneficiary on their first written demand….. Guarantee …we hereby guarantee towards the Beneficiary as if for our own debt...

  37. Handelsbanken Trade & ExportFinance Guarantee directly to beneficiary Instructing bank Guarantee Instruction Applicant -------------------------------- Seller Beneficiary ----------------------------- Buyer Agreement

  38. Handelsbanken Trade & ExportFinance Guarantee advised through the beneficiary´s bank Instructions for advising of guarantee Advising bank, i.e. the local bank Instructing bank transaction Beneficiary ----------------------------- Buyer Applicant ------------------------------ Seller Agreement

  39. Handelsbanken Trade & ExportFinance Guarantee issued by the beneficiary´s bank Instructions for issuance of guarantee Issuing bank, i.e. the local bank Instructing bank transaction Beneficiary ----------------------------- Buyer Applicant ------------------------------ Seller Agreement

  40. Handelsbanken Trade & ExportFinance HOW THE GUARANTEE IS CANCELLED • After the maturity date • By beneficiary´s release

  41. Exporter 1.Purchase Agreement 2.Deliveries 5.Disbursement 3.Bills of Exchange 4.Bills of Exchange Buyer Handelsbanken 6.Repayment Handelsbanken Trade & Export Finance Supplier’s Credit

  42. Handelsbanken Handelsbanken Trade & Export Finance Bank - to - Buyer Credit 1.Purchase Agreement Buyer/ Borrower Exporter 3.Deliveries 5.Repayment 4.Disbursement Documents 2.Loan Agreement

  43. 1.Purchase Agreement Buyer Exporter 4.Deliveries 5.Disbursement Documents 3.Agreement Buyer´s Bank = Borrower 2.Loan Agreement Handelsbanken 6.Disbursement 7.Repayment Handelsbanken Trade & Export Finance Bank - to - Bank Credit

  44. Banksyndicate Purchase Agreement Offer Refinancing/ guarantee Loan Agreement Refinancing/ assignment Agreement Loan Agreement Guarantees Handelsbanken Trade & Export Finance The Swedish Export Credit Scheme Exporter Buyer Buyers bank

  45. Handelsbanken Trade & ExportFinance Transferable LCFlow Chart Goods shipped SHB Funds paid via SHB–1.5 MUSD Funds paid via SHB – 1 MUSD 500 TUSD to Middleman Transferable Letter of Credit 1,5 MUSD Onward transfer of Letter of Credit 1 MUSD Company Middleman Supplier in China Shipping documents presented under Letter of Credit Value 1,5 MUSD Shipping documents presented under Letter of Credit Value 1 MUSD Invoice substituted by the Middleman

  46. Handelsbanken Trade & ExportFinance Usance Export Letter of Credit Risk on Issuing bank A Z Goods shipped Usance Export LC received. Handelsbanken confirmation added Documents presented LC discounted Funds immediately paid to beneficiary LC matures Funds received from issuing bank LC discount period

  47. Handelsbanken Trade & ExportFinance Export Letters of Credit Financing Opportunities • Open Confirmation • Silent Confirmation / Commitment to Negotiate • Negotiation of a Sight LC • Discounting of Term / Usance LC • Transferable LC

  48. Handelsbanken Trade & ExportFinanceCONTACT YOUR BANK ON AN EARLY STAGE! • The sales people within the company have often information at an early stage • We will assist you with any problem that may occur • www.handelsbanken.se/tradefinance

  49. Handelsbanken Trade & ExportFinance THANK YOU AND GOOD LUCK!! • www.handelsbanken.se

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