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
• Export Finance
• Transferring a Letter of Credit
• Financing a Letter of Credit
Svenska Handelsbanken Group
• Founded in 1871
• Higher profitability than the other major Swedish banks for 40 years running
• One of the most cost-effective listed universal banks in Europe
• Lower loan losses than other major banks
• More satisfied customers than other 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 Finans
•Stadshypotek
• Handelsbanken Liv
• Handelsbanken Fonder
Handelsbanken’s organisation
The branch always has the right to delegate
business responsibility to the regional head office
or central business areas.
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.
Customer
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
Netherlands – 12 branches
Estonia - Tallinn
Poland – Warsaw
France – Paris, Nice
Switzerland - Zürich *
Germany – 7 branches
Latvia – Riga
Lithuania – Vilnius
Luxembourg - Luxembourg
* Only asset management
Branch Offices in Asia
China –Shanghai
Hong Kong
Singapore
Branch Office in America
USA - New York
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
Handelsbanken Trade & Export Finance
What decides the choice of payment form?
• Laws
• Risks
• Time
• Charges
• Financing
Handelsbanken Trade & Export Finance
RISKS
• Political risk
• Commercial risk
• Own risk
• Currency risk
• Financial risk
Handelsbanken Trade & Export Finance
International payments
DOCUMENTARY
CLEAN
Electronic
remittance
Collection
L/C
Cheque
------------------------------------------Guarantees
Clean Payments in Handelsbanken
Foreign Bank
Internetbank
Receiver name/address
Sender
Account Number (IBAN)
Currancy - amount
BIC (ex. HANDSESS)
Payment reference
Value day
Way of payment
• Normal
• Express
Handelsbanken
Terms of payment for the importer
Rank
Advantages
1. Clean payment
after delivery
- Low charges
- Goods to be checked
before payment
2. Letter of Credit
- The delivery complies
with the agreement
before payment
- Security in
the bank
- Extra charges
3.Bank Guarantee
- Cheeper than L/C
- Security in
the bank
4. Collection
- The goods will be
released before payment
- Risk for wrong
goods
- Extra charges
5. Payment in advance
Disadvantages
- Risk for incorrect
or non-delivered
goods
Terms of payment for the exporter
Rank
Advantages
Disadvantages
1. Clean payment
in advance
- Low charges
- Security for payment
of goods
- Possible advance payment
guarantee
2. Confirmed L/C
- Security for payment
of goods
- Extra charges
- Demand for L/C may be taken
as a lack of confidence
3. Bank guarantee
- Cheaper than L/C
- Security for payment
of goods
- No fixed time of payment
4. Collection
- Security for nondelivery of goods
if not paid
- Extra charges
- Risk for return of goods
5. Clean payment
- Risk for non-payment
of goods
Handelsbanken Trade & Export Finance
LETTER OF CREDIT
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
Handelsbanken Trade & Export Finance
contract
Exporter
Importer
swift
Importer´s
bank
Exporter´s
bank
Handelsbanken Trade & Export Finance
• CONFIRMED L/C
by request from the opening bank
• GUARANTEED L/C (silent confirmation)
by request from the beneficiary
Handelsbanken Trade & Export Finance
DIFFERENT L/C MODES
• Irrevocable - revocable
• Confirmed - unconfirmed
• At sight - usance (or deferred payment)
Handelsbanken Trade & Export Finance
DIFFERENT TYPES OF L/C
• Standby Letter of Credit (guarantee)
• Transferable
• Back to back
• Revolving
Handelsbanken Trade & Export Finance
Letter of credit (L/C)
• Payment instrument
• Guarantee instrument
• Financing instrument
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
Handelsbanken Trade & Export Finance
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
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)
Handelsbanken Trade & Export Finance
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
Handelsbanken Trade & Export Finance
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”
Handelsbanken Trade & Export Finance
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.
Handelsbanken Trade & Export Finance
DOCUMENTARY
COLLECTIONS
Handelsbanken Trade & Export Finance
COLLECTIONS
1.
IMPORTER
EXPORTER
4.
2.
5.
EXPORTER´S BANK
3.
IMPORTER´S BANK
1. Agreement
2. Documents to exporter´s bank
3. Documents to importer´s bank
4. Delivery of documents
5. Payment of proceeds
Handelsbanken Trade & Export Finance
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
Handelsbanken Trade & Export Finance
COLLECTIONS
• Documents against payment (D/P) or Cash against documents (CAD)
• Documents against acceptance (D/A)
Handelsbanken Trade & Export Finance
COLLECTIONS
ADVANTAGES
 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
DISADVANTAGES

Does not guarantee
any payment
Handelsbanken Trade & Export Finance
BANK GUARANTEES
Handelsbanken Trade & Export Finance
WHAT IS A BANK GUARANTEE?
An undertaking by the bank to:
”pay up to a maximum amount if
the applicant does not fulfil his
contractual obligations, provided
that the claim is made within the
validity of the guarantee”
Handelsbanken Trade & Export Finance
IMPORTANT TO THINK OF
• THE GUARANTEE IS NO MEANS OF
PAYMENT
• THE GUARANTEE IS ONLY AN
INSURANCE
Handelsbanken Trade & Export Finance
GUARANTEES (BONDS)
TENDER/BID BOND
( 1-5%)
ADVANCE PAYMENT BOND
( 5-20% )
WE …………….HEREBY
PROMISE TO
PAY ON YOUR FIRST
DEMAND,
NOTWITHSTANDING ANY
CONTESTATION…………
………………………….
PERFORMANCE BOND
( 5-10% )
PAYMENT BOND
( 100% )
Handelsbanken Trade & Export Finance
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)
Handelsbanken Trade & Export Finance
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...
Handelsbanken Trade & Export Finance
Guarantee directly to beneficiary
Instructing
bank
Guarantee
Instruction
Applicant
-------------------------------Seller
Agreement
Beneficiary
----------------------------Buyer
Handelsbanken Trade & Export Finance
Guarantee advised through the beneficiary´s bank
Instructions
for advising
of guarantee
Instructing
bank
Advising bank,
i.e. the local bank
transaction
Applicant
-----------------------------Seller
Agreement
Beneficiary
----------------------------Buyer
Handelsbanken Trade & Export Finance
Guarantee issued by the beneficiary´s bank
Instructing
bank
Instructions
for issuance
of guarantee
Issuing bank,
i.e. the local bank
transaction
Applicant
-----------------------------Seller
Agreement
Beneficiary
----------------------------Buyer
Handelsbanken Trade & Export Finance
HOW THE GUARANTEE IS CANCELLED
• After the maturity date
• By beneficiary´s release
Handelsbanken Trade & Export Finance
Supplier’s Credit
Exporter
1.Purchase Agreement
2.Deliveries
5.Disbursement
3.Bills of Exchange
4.Bills of Exchange
Buyer
Handelsbanken
6.Repayment
Handelsbanken Trade & Export Finance
Bank - to - Buyer Credit
1.Purchase
Agreement
Buyer/
Borrower
Exporter
3.Deliveries
5.Repayment
4.Disbursement
Documents
Handelsbanken
2.Loan
Agreement
Handelsbanken Trade & Export Finance
Bank - to - Bank Credit
1.Purchase Agreement
Buyer
Exporter
4.Deliveries
5.Disbursement
Documents
3.Agreement
2.Loan Agreement
Buyer´s Bank =
Borrower
6.Disbursement
7.Repayment
Handelsbanken
Handelsbanken Trade & Export Finance
The Swedish Export Credit Scheme
Purchase
Agreement
Exporter
Banksyndicate
Buyer
Offer
Refinancing/
guarantee
Loan
Agreement
Agreement
Refinancing/
assignment
Loan
Agreement
Guarantees
Buyers bank
Handelsbanken Trade & Export Finance
Transferable LC
Flow Chart
Goods shipped
Funds paid via
SHB–1.5 MUSD
SHB
500 TUSD to
Middleman
Transferable
Letter of Credit
Company
1,5 MUSD
Shipping
documents
presented under
Letter of Credit
Value 1,5 MUSD
Funds paid via
SHB – 1 MUSD
Onward transfer of
Letter of Credit
Middleman
Invoice
substituted
by the
Middleman
1 MUSD
Shipping
documents
presented under
Letter of Credit
Value 1 MUSD
Supplier in
China
Handelsbanken Trade & Export Finance
Usance Export Letter of Credit
Risk on Issuing bank
A
Usance
Export LC
received.
Handelsbanken
confirmation
added
Z
Goods
shipped
Documents
presented
LC matures
Funds
received
from
issuing
bank
LC
discounted
Funds
immediately
paid to
beneficiary
LC discount period
Handelsbanken Trade & Export Finance
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
Handelsbanken Trade & Export Finance
CONTACT 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
Handelsbanken Trade & Export Finance
THANK YOU AND GOOD LUCK!!
• www.handelsbanken.se