Understanding the Standard Bank Confirmation
Item
Particular
Point to note
1
Deposit, fixed or at call
Pledge and Interest income
Fixed deposits – Sums of money deposited
1.
for fixed terms at fixed interest rate of
interest.
Please note whether fixed deposit
pledged is stated under item 16.
2.
Interest income exempted if the
deposited pledge is in name of
company.
2 &3
Savings and current account
Foreign currency
Passbook or statement identification for
Multi-currency savings account – all
the savings and current account is
interests income are tax exempt if the
required. There are local and foreign
bank account is open in Hong Kong.
currency savings and current a/c.
4
Loan Account debit balances (excluding
Mortgage Loan and Hire purchase
loans in connection with inward cargo)
creditor
Fixed sums advanced to the customer to
1. Loan repayment schedule for the
be repaid by fixed periodical repayment
whole period with property
at interest rates specified margin over the
secured and interest rate quoted.
prime rate
2. Please note whether the property
pledged is stated under item 16.
5
Accounts closed during the year to
Obtain the last bank statement for the
confirmation date
closing account to ascertain the
account was closed
6
Advances to manufacturer and/or
Check point – accounting entry
packing credit accounts and/or export
1.
loans granted
account and credit the packing loan for
The book entry is debit bank
the advance usually 30 or 40% of the LC
Packing loan –granted to an exporter as
amount.
part of an arrangement involving a LC, and
2.
is to enable the exporter to purchase raw
against proceeds of bills negotiated
materials to manufacture merchandise.
under the L/C.
3.
The loan will later be deducted
Always find / Usual practice in
garment and electronic manufacturing
industry.
7
Acceptances Outstanding
Check point – accounting entry
a. Bills Receivable by banker
1.
-
Bills of exchange accepted by the
and credit to Bills payable upon the bill
customer (importer) in favor of the
of exchange is accepted by customer as
banker.
the goods imported to client. This kind
The book entry is debit Purchase
of bills settlement is normally under
b. Goods released against trust respect
D/P i.e. Document against Payment.
of (a)
-
Bankers release document before the
2.
In the case when goods released
maturity of a bill of exchange against
against trust receipt, the book entry is
Trust Receipt but the customer is
debit Purchase and credit to Trust
required to undertake to hold the
Receipt account.
goods on behalf of the bank and to pay
the proceeds of sale to the bank.
Purchase and Payment cycle
3. The exporter from foreign company
8.
c. Bills held by banker for collection
e.g. USA exports goods to Hong Kong
-
Bills of exchange accepted by the
client who is importer of the goods.
customer (importer) in favor of the
However, the client is not obliged to
supplier (exporter) who has given
pay unless the clients themselves
instructions to the banker to collect
accept the bill of exchange (i.e. D/A -
the proceeds on his behalf.
Document against Acceptance).
Partial payment held by banker
Please refer to item 7 point to note
This represents a partial settlement of the
bills of exchange in item 7(a) or (b)
9.
Irrevocable letters of credit
Irrevocable
The term irrevocable is significant as
A letter of credit (L/C) is an instrument
the importer could not alter the letter
issued by banker on behalf of customer,
of credit once the L/C has been issued
(importer) authorizing the exporter to
to exporter.
draw bills of exchange on the customer,
It is a contingent liability of the client
the banker or its corresponding banks for
as they are obliged to fulfill the terms
the account of the exporter, under certain
of settlement when the conditions
conditions stipulated in the credit.
stipulated in the L/C is met.
Understanding the Standard Bank Confirmation
Item
Particular
Point to note
10
Bills Receivable by customer
Terms of settlement under Letter of
a.
Bills purchased by banker (and
Credit
outstanding at confirmation date)
Usually the letter of credit has a D/P term
Bills of exchange drawn on
mentioned the mode of payment made
importer by the client (customer
after a specified period i.e. 30 days. Then,
& exporter) and negotiated to
the client (i.e. customer) negotiates with
banker i.e. instead of collecting it
the banker and sells it to the bankers so
himself, the client (customer)
that the client could receive money in
sells it to the banker who may
advance before the expired date.
-
have recourse against the client
(customer).
However, If the client could not fulfill the
terms of letter of credit but the importer
b.
Bills held by banker for collection
would settle the bill when the goods
-
Bills of exchange drawn on
exported to the foreign importer, the
importer by the client (customer
banker would act as agent for the client to
& exporter) and sent to banker for
collect the bills from importer under the
collection on behalf.
instruction of the client (i.e. exporter).
The banker
acts as an agent only.
11
Marginal Deposit held by banker
Normally, the banker would request the
a. On account of item 7
client uses the property pledged as security
(Acceptances outstanding) and
or deposit advance etc as a gurantee in
item 9 (Irrevocable letter of
granting the bank facilities including letter
credit)
of credit and inwards bill acceptance
b. On account of item 10 (Bills
Receivable by customer)
c.
12
Loans granted in connected with
Normally, the import loan granted is part
inward cargo
of the bank facilities. This loan, payable is
Import loans are very common when
secured by the assets pledged to banker.
the importer is required to pay at
sight of shipping documents. It is a
kind of loan arrangment.
Understanding the Standard Bank Confirmation
Item
Particular
Point to note
13
Guarantees
Performance Bond
a. Given by a banker on behalf of client
a. Sometimes, the customer of
i.
Shipping gurantees – Sometimes when a
the client company would
shipment arrives via a short sea route, goods
request the client to place a
may be released to the importer under a
Performance bond to the
shipping gurantee given by the banker.
customer’s bank.
Others – In lieu of giving a utility deposit by
The client then would request
ii.
14
himself, the client may request the banker to
the banker to issue gurantee for
issue a guarantee in favor of the utility
certain sum of money to the
company.
customer.
b. Received by a banker on behalf of client
b. The director may deposit or
-
The director of the client company may
issue gurantee to the banker for
issue a gurantee to the bank for the client’s
the company in granting bank
company
facilities etc.
Foreign exchange contracts outstanding
HKAS32 – Financial Instrument
A forward foreign exchange contract is
HKAS 21 – The effect of foreign
sometimes used by exporter/importer to hedge
exchange rate
against risks of exchange rate fluctuations.
15
Other direct or contingent liablities to banker
Seldom happened in normal
manufacturing or trading
business.
16
Securities and other document of titles held
Important note
by banker
1. We should have the banking
a. Against facilities granted – Title deeds of
facilities letter to verfiy the
property and motor car licence book etc
securities pledged and facilities
used as security given to the banker for bank
granted.
faciliies granted to the company..
b. For safe custody – share certificate and
time deposit held by the banker on behalf of
the customer for safe custody purpose.
2. Disclosure in notes to financial
statement is required.