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Letters of credit

A documentary letter of credit is an irrevocable firm undertaking by the issuing bank to fulfill an obligation (to pay) on presentation to the issuing bank or performing bank of documents in compliance with the terms of the letter of credit, Unified rules and customs for documentary letters of credit (ICC Publication No. 600, revision 2007) and international standard banking practice. The beneficiary may request confirmation of the letter of credit, which constitutes a firm undertaking by the confirming bank in addition to the issuing bank's obligation to perform (pay) upon presentation of documents in compliance with the terms of the letter of credit, the Unified rules and customs for documentary letters of credit (ICC publication No. 600, revision 2007) and international standard banking practice.

CJSC ''Zepter Bank'' operates with import and export letters of credit of various types: confirmed and unconfirmed, revolving, transferable, stand-by, with red clause, etc.

CJSC ''Zepter Bank'' opens import letters of credit with and without a cover transfer by the client to the letter of credit account, confirms export letters of credit with and without a cover transfer from a foreign bank.

The main advantages of the letter of credit form of settlements:

for the exporter (seller):

  • the letter of credit is an obligation of the issuing bank, not of the customer. Even if the importer objects to payment under the letter of credit, the issuing bank, if the beneficiary submits documents corresponding to the terms of the letter of credit, is obliged to pay;

  • the exporter may ask the exporter's bank or a third bank to confirm the letter of credit, which gives an additional guarantee of payment;

  • if the exporter grants the importer a deferred payment in the framework of the letter of credit (commodity credit), the exporter may achieve more favourable terms in the foreign trade transaction;

  • the exporter may receive an advance under the letter of credit (e.g., under a letter of credit with a "red clause" or a "green clause");

for the importer (buyer):

  • the buyer can be sure that the beneficiary will not receive payment until the goods have been shipped/serviced and the documents confirming the shipment/service have been drawn up and presented to the executing bank in full conformity with the terms of the letter of credit;

  • if the documents do not comply with the terms of the letter of credit, the bank will pay for such documents only upon the consent of the buyer;

  • the bank may open a letter of credit without the client's cover on the letter of credit account (without cash cover) under different kinds of collateral (pledge of real estate, securities, third party surety, bank guarantee, etc.) at more favourable interest rates as compared with direct lending;

  • upon agreement with the bank and the exporter, the buyer may receive a deferral of payment under the letter of credit;

  • the buyer can obtain a commodity credit from the exporter by using a letter of credit with deferred payment;

  • due to maximum security of the letter of credit form of settlements the buyer can obtain more favourable payment terms from the exporter (e.g. lower prices for goods/services delivered);

  • the letter of credit allows the buyer to confirm his solvency, which is especially important when establishing new trade relations.

In addition, the actions of the participants of a letter of credit transaction are clearly regulated by the Unified rules and customs for documentary letters of credit (ICC publication No. 600, revision 2007), which are recognised by banks around the world. This allows the parties to minimise the risk of disputes during the letter of credit settlement process and relieves them of the need to be familiar with the specific laws of different countries.