Presentation

on
Letter of Credit Related Some News
 Presented By
Axiom Group
(6th Semester , BBA Program, Sec: A )
Department of Business Administration,
Leading University, Sylhet.
 Blockchain Technology Can Accelerate International Trade Flows, Say
Industry Experts
Lisa Froelings NOV 19, 2017

According to IBM and WEF experts, Blockchain technology has what it takes to
facilitate the workflow of cross-border trading transactions, particularly the handling
of document approval processes. Blockchain is the underlying technology behind
cryptocurrencies like Bitcoin.
Blockchain Technology Can Accelerate International Trade Flows, Say Industry Experts
Continues….

According to technology major IBM Vice President of Blockchain Solutions, Ramesh Gopinath, the
traditional way used by supply chains to physically move the large volumes of paper documents for
shipping transactions is very vulnerable to fraud, human error and inadvertent delays.

In addition, the administrative costs of processing, moving, verifying and securing the
documentation are very high.

“International trade demands a faster, more secure and more efficient way to handle the document
approval workflows needed to move goods across international borders. Traditionally, supply
chains have relied on the physical movement of large volumes of paper documents leaving the
window open for fraud, human error and inadvertent delays.”
Meanwhile, Supply Chain and Logistics Expert Wolfgang Lehmacher said that Blockchain or
digital ledger technology (DLT) is slowly but surely entering the goods transport sector via financial
instruments like letters of credit, as well as through the digitization of conventional trade and
shipping documents

“With roots in financial services, digital ledger technology is making inroads into goods transport
through financial instruments, such as letters of credit and through the digitization of traditional
trade and shipping documents.”
Blockchain Technology Can Accelerate International Trade Flows, Say Industry Experts
Continues….
Key Blockchain-based projects in the shipping industry

Several industry players have launched projects to test the use of Blockchain in shipping transactions.
Danish shipping major Maersk has partnered with IBM to test a Blockchain-based approach in tracking
shipments.

London-based startup Everledger has also piloted the use of Blockchain to monitor and protect its
valuable assets such as diamonds. A consortium of South Korean businesses has utilized the technology to
track reefer containers from shipment booking to cargo delivery.

Earlier this year, Wolfgang Lehmacher, head of Supply Chain and Transport Industries for World
Economic Forum, has also explored the benefits of Blockchain in international trade focusing on how the
technology could overcome usual trade hurdles:

“Blockchain-based open and secure platforms can also bring smaller businesses to the port, either to
perform tasks in the terminals or as customers operating in the port. They can easily access the port
services and connect with others via the digital port platform. Digital peer-to-peer collaboration tools and
payments ease doing business.”

Blockchain helps widen various international trade possibilities by getting rid of the redundant processes
while successfully minimizing the costs that usually come with international trades and operations.
 China Causing Banks Trade Finance Shops Nightmares

David Gustin- January 28, 2016 4:32 AM

As commodity prices increase in volatility, banks are getting much more involved in
technical cases where buyers in China using Letters of Credit use the discrepancy
management process to get out of paying for goods or ask for price reductions. This is
putting a lot of pressure on trade operations and the compliance checkers that are
responsible for looking at various exporter documents (eg. packing lists, inspection
certificates, insurance documents, etc.) to make sure they comply with the original
letter of credit issued.

With the IHS Materials Price Index, which tracks commodities (including energy),
down about 55% since July 2014, more banks tell me Chinese buyers and their banks
are playing tricks by stonewalling documentation and finding ways to delay taking
shipment and requesting price reductions.

For banks that claim they have low to zero losses in trade, the reality is that legal fees
can be very high in these cases. Banks are spending thousands on attorney fees to get
recovery on these deals. Ironically, in many banks, non trade finance executives tend
not to understand the risks involved. Bank trade operations are now conditioned to
have zero principal losses at the expense of incurring large legal bills.
 China Causing Banks Trade Finance Shops Nightmares
Continues……

The challenge with China is the inevitable tie of politics and economy.

The irony in all of this is that Letter of credit discrepancy management is

now front and center, despite all this move to digitization of documents
through networks like Bolero or the SWIFT’s Bank Payment Obligation.

This should remind all of us – while various supplier networks can

support a broad range of document types, combined with capable
matching engines , the reality is cross border trade does have risk and
trade between two parties is private and games will be played in the
name of survival, especially in emerging markets as commodity prices
continue to tumble.
 Pakistan to ditch dollar in trade with Iran
24 March 2016 13:40 (UTC+04:00

Pakistan is preparing to ditch the dollar and use euros in trade with Iran, The
Express Tribune reported on March 24.

Pakistani media quoted an the State Bank of Pakistan (SBP) as announcing in a

statement that a plan has been prepared to enable Pakistani businessmen to open
letters of credit (L/Cs) for imports from Iran in euros instead of dollars.

The policy has been devised because some US sanctions are still in place that could
obstruct payments to Tehran, the daily reported.

The SBP has accordingly informed the Ministry of Commerce and other stakeholders
in a recent meeting that it was not possible at this stage to open LCs in dollars in
trade with Iran.

If the L/Cs were to be opened in dollars, clearance from US intermediary bank would
be needed. This is while certain sanctions are still in place in the US and that would
cause trouble for the Pakistani businessmen, added the Express Tribune.
 Electronic Letter of Credit Faces Struggles to Gain
Global Recognition
Hossein Bagherinia
For centuries, letters of credit have been a useful commercial instrument in global
markets, facilitating trade not only for merchants but for governments, banks and
financial institutions. In recent years, the International Chamber of Commerce has
introduced a new version of LC named the electronic letter of credit (e-LC).

Although LCs have adapted themselves to changes in the market for many years, this
revolutionary e-LC was an important step toward simplifying trade more than ever.
This new financial instrument has been a revolution for a sector used to change in its
evolutionary form.

The aim of e-LC was simple: to transform the process of paper-based financial
transactions and make them paperless. However, e-LC failed to catch on and its
process of evolution halted even before it started.

In the digital age where we devour every bit of new technology that pops up, what
became of the seemingly auspicious marriage of the digital and commercial worlds?

To answer this crucial question, we should assess the real challenges facing e-LC in
the global markets from digital, legal and commercial standpoints.
 Electronic Letter of Credit Faces Struggles to Gain Global Recognition
Continues……

Technological Hole

There is an essential principle in the world of the letter of credit, namely the “principle of
strict compliance”. It requires that all the documents presented under the LC must be in
conformity with the requirements of the LC.

According to the last version of Uniform Customs and Practices of Documentary Credit
(UCP 600), the data in a document must not conflict with the data in any stipulated
document, or the credit; otherwise, the bank will refuse to pay the money.

Unenthusiastic Bankers

An LC involves three parties: buyer (applicant), bank or financial institution, and

beneficiary who receives payment upon the fulfillment of the required documents. Banks
and financial institutions have the most important role in LC agreements.
 Electronic Letter of Credit Faces Struggles to Gain Global Recognition
Continues……

According to Article e4 of the Uniform Customs and Practices for Electronic

Documentary Credits (eUCP), an eUCP credit must specify the formats in which
electronic records are to be presented. If the format of the electronic record is not
specified, the record may be presented in any format.

At present, the buyer can present documents in any format and the bank’s inability to
view the documents cannot be ground for refusal. The article, which transfers the risk for
the omission of a specified document format to the bank, has likely contributed to the low
adoption rate of e-LC.

As William Patrick Cronican says in his article “Buyer Beware: Electronic Letters of
Credit and the Need for Default Rules”, it is unlikely that the risk management model of a
bank would allow the express incorporation of a regulatory scheme where the result of a
somewhat trivial omission may lead to the bank’s exposure to substantial liability.

So, without the necessary tweaks in eUCP, the icy reception for e-LC, especially among
bankers, will continue.
 Bangladesh Bank: Rice imports require no credit till December
Shariful Islam
Published at 10:50 PM July 20, 2017 Last updated at 10:51 PM July 20, 2017

The rice market has become unstable and dramatically increased the price of the staple food item.

The central bank has issued a directive allowing the import rice without credit for a maximum of
three months, due to the shortage of rice stocks following recent flooding in the haor region.

Bangladesh Bank (BB) announced the directive through a circular on Thursday, issued to all
managing directors and CEOs of commercial banks.

The notice stated that, due to recent flooding in the haor region, heavy rainfall and other natural
disasters across the country, the rice market had become unstable and dramatically increased the
price of the staple food item.

“Because of the current circumstances, businesses will get the facility to import rice without any
credit for a maximum of three months, till December of this year.”

Usually, importers have to pay a fee in the opening Letter of Credit (LC) for the import of products
such as rice, lentils, chilli and salt.

Earlier on June 19, BB directed banks to allow businesses to open LCs for rice imports with zero
balance in the importers’ accounts.
 Govt To Buy 1.5 Lakh Tonnes Of Rice From India
Tribune Report Published at 10:11 PM December 7, 2017

The government in a desperate move to boost stock is going to import another 1.5 lakh
tonnes of rice from India after an initiative to bring in the staple from Cambodia has
recently failed.

The cabinet committee on purchase yesterday approved a proposal to import the rice
from India through state-to-state arrangement at $440 per tonne.

Earlier in October, the same committee approved a proposal to import 1 lakh tonnes
of rice from India at $455 per tonne.

This time the government is going to get at $15 less per tonne. The rice will arrive in
two months from opening of Letter of Credit (LC).

The cabinet committee has so far approved proposals to import about 15.5 lakh
tonnes of rice through state-to-state and open tender in last six months. The volume is
50,000 tonnes more than the government's rice import target in current fiscal year.
 Govt To Buy 1.5 Lakh Tonnes Of Rice From India
Continues….

Food ministry officials said the committee in August approved a proposal to import 2.5 lakh
tonnes of rice from Cambodia through state-to-state arrangement, but Bangladesh later
cancelled the deal due to shipment delay.

The officials added the government has decided to import more rice from India to make a
recovery.

The government is desperately trying to replenish its depleted stock through import after
production was hit by flash floods and fungal attacks. It has taken initiatives to import rice in
various ways including even import of 2 lakh tonnes through local traders.

Despite deals with several rice exporting countries including India, Myanmar, Thailand and
Vietnam, Bangladesh is still battling to increase its reserve, with rice import set to hit its highest
level in a decade.

The import of rice at both government and private levels has been stepped up lately. From July
1 to November 21, 18.18 lakh tonnes of rice was imported. Of the quantity, 4.12 lakh tonnes was
brought in by the government.
 Govt To Buy 1.5 Lakh Tonnes Of Rice From India
Continues….

Last fiscal year, the government did not have to import any rice, but 13.32 lakh tonnes of the
staple came through the private sector.

The government has also decided to import 20 lakh tonnes of food grains -- 15 lakh tonnes of
rice and 5 lakh tonnes of wheat -- this fiscal year. This is 11 lakh tonnes more than the
government's earlier projected food import target.

Through the imports, the government's food reserve, which had fallen below 3 lakh tonnes, has
started to gradually increase.
The food reserve on November 21 was 6.15 lakh tonnes, of which rice was 3.97 lakh tonnes. On
the same day last year the reserve was 7.94 lakh tonnes with the quantity of rice 5.04 lakh
tonnes.

The cabinet committee on purchase yesterday also approved a proposal to import 50,000 tonnes
of wheat at $245.35 per tonne to be supplied by Korea-based M/s Singsong Food Corporation.
 HSBC Bangladesh Issues Export Credit Package
Asia / 30-08-17 / by Finbarr Bermingham
HSBC Bangladesh has lent US$46mn to local apparel exporter Viyellatex
Group, for the purchase of a new spinning mill.

The finance is guaranteed by Swiss Export Risk Insurance (SERV) and

which marks its first private sector deal with HSBC Bangladesh.

The mill will cost US$121mn to purchase, with goods, equipment and
technology coming from exporters in Germany, India, Japan, Switzerland
and the UK. The remaining US$75mn will come in equity from Viyellatax.

The loan is US dollar-denominated and the Viyellatax chairman

commented on what he considers to be competitive pricing. “Interest rate of
the loan is much lower than other US dollar loans in the international
market,” Rezaul Hasanat told local media.

The mill, which has already been constructed, will produce 50 tonnes of
yarn each day, using 92,000 spindles. Ready-made garments account for
more than 75% of Bangladesh’s exports.
 HSBC Bangladesh Issues Export Credit Package
Continues……

While smaller exporters can often struggle to gain access to bank finance, the trade
and export finance market for larger exporters has been growing, with international
banks providing much of the foreign currency lending.

Speaking to GTR recently, Muhammad Shohiduzzaman, country head of global trade

and receivables finance at HSBC, says: “International trade is one of the major
economic activities in Bangladesh. Demand for trade finance has grown significantly
over the last few years. We have observed a shift from sight letters of credit (LCs) to
suppliers’ credit backed by usance LCs, which enable importers to access foreign
currency funding with a more favorable currency and interest cost. The mode of
export has also been gradually shifting from LC to contract and purchase orders with
longer credit terms, creating a demand for supply chain financing to meet working
capital needs.”

The bank’s CEO in Bangladesh, Francois de Maricourt, adds: “This transaction

highlights HSBC’s leading position in export credit agency financing in Bangladesh,
and demonstrates the growing relevance of export credit agencies for the local private
sector.”