Commodity Trade Finance
The Bank has established itself as a provider of a traditional Swiss banking product, namely Commodity Trade Financing (“CTF”). Under CTF, we understand an uncommitted working capital facility, advanced to a commodity trader and consisting of self-liquidating, short-term loans (up to 365 days) to finance the purchase, transportation, storage and sales of physical commodities.
- The bank retains security over the financed goods and very closely monitors the trade flow and collateral;
- The structure of the short-term loans or ‘sub-limits’ reflects the specifics of the trade and is taking into account the location of goods in the transaction cycle;
- Meaning of ‘self-liquidating’: financing of the purchase will be repaid by the sales of goods financed.
Documentary Credits provide for an independent payment mechanism, separate from the underlying trade agreements. Modern trade would be inconceivable without documentary credit instruments. General corporate financing is used to manage solvency or liquidity, but Documentary Credit instruments may not necessarily indicate a buyer’s lack of funds or liquidity. Instead, these trade finance products may be used to protect against international trade’s unique inherent risks, such as currency fluctuations, political instability, issues of non-payment, or the creditworthiness of one of the parties involved. In particular, these trade finance products work via:
Letters of Credit and Bank Guarantees both represent promises from a financial institution that a borrower will be able to repay his debt to another party, disregarding the debtor’s financial circumstances. A Letter of Credit represents an obligation taken, assumed by a bank to make a payment, once certain predefined criteria are met. Upon confirmation of fulfillment of such criteria, the bank will transfer the funds. Letters of Credit ensure the payment will be made as long as the services are performed and are therefore especially significant in international trade.
A documentary collection is a process by which an exporter’s bank collects funds from the importer’s bank in exchange for documents detailing shipped merchandise. A documentary collection is a trade transaction in which exporters allow their bank to act as a collection agent for payment of shipped goods to the buyer.
A Bank Guarantee is very similar to a Letter of Credit. It guarantees a sum of money to a beneficiary; however, unlike a Letter of Credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract.
Invoice Discounting is generally provided on a short-term and revolving basis. As invoices are paid by the off-takers, the facility amount automatically gets repaid and allows for redrawing against new invoices.
- Allows a company to gain access to instant funds secured by the value of the accounts receivable of its off-takers arising due to the deferred payment sales terms;
- Mainly designed to reduce cash flow strain of the company and free up funds for its payment needs;
- Can be provided on a full recourse or limited recourse basis.
Export Finance (ECA-backed)
Export Finance is the financing of capital goods and the development of related projects backed by Export Credit Agencies (“ECA”). An ECA is an institution that supports domestic companies’ international exports by underwriting the inherent political and commercial risks.