Quick guide for banks to Letter of credit guarantee scheme
This page is about UK Export Finance's Letter of credit guarantee scheme.
What is the letter of credit guarantee scheme?
Under the scheme we provide partial guarantees to UK banks under a master guarantee agreement in support of UK exports. Where a UK bank adds its confirmation to a letter of credit issued by an overseas bank to finance an export from the UK, we can typically guarantee between 50 per cent and 90 per cent of the value of the letter of credit.
How does it work?
What are the benefits of the scheme?
The benefits are:
- the UK bank is able to confirm a letter of credit even if it doesn’t have risk appetite on the foreign issuing banks for the full amount;
- the UK bank receives an guarantee from us to cover a percentage of the amount due to it if the issuing banks fails to reimburse the confirming bank for payments made by it under the letter of credit;
- the exporter is protected against a default of the foreign buyer and the foreign bank.
Risks covered
The UK confirming bank is protected against the failure of the issuing bank to reimburse it for payments properly made by the confirming bank under the letter of credit.
Eligibility
The following criteria must be met:
- the UK confirming bank must be carrying on business in the UK and be regulated by the Financial Services Authority (FSA);
- the foreign issuing bank must be based in a non-marketable risk country (not European Union or other ‘rich’ Organisation for Economic Cooperation and Development markets);
- the exporter must be carrying on business in the UK;
- the exports must be produced inand shipped from the UK, or imported into the UK before being re-exported;
- the period for presentation of documents under the letter of credit must not be longer than one year;
- any deferred payment period under the letter of credit must be less than one year.
Maximum amount
There is no minimum or maximum value of a letter of credit, although we have limits for countries and foreign issuing banks depending on our risk appetite. We can guarantee up to a maximum of 90 per cent of the full value of a letter of credit.
Cost
The UK confirming bank pays us a guarantee fee, which is typically a proportion of the fee it receives for confirming the letter of credit. The master guarantee agreement includes details of fee calculation and pricing.
How to apply
To apply to join the scheme, you should complete the application form, which you can find on the right hand side of this page.
Disclaimer
The information available in this brochure is not intended to be a comprehensive description of our letter of credit guarantee scheme and many details which are relevant to particular circumstances may have been omitted.
When considering applications from UK confirming banks, UK Export Finance will look at each case on its merits.
The brochure was last updated in May 2010.
To download the pdf go to the Quick guide to Letter of credit guarantee scheme which you can find on the right hand side of this page.
The quick guide is available in to download in portable document format (PDF). Go to Accessing PDF documents, which you can find on the right hand side of this page, for more information on how to view our PDFs.
