Letters of credit in UAH

Your guarantee of complete safety in settlements between contractors!

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Letter of credit types

A letter of credit is a contract stipulating an obligation of the issuing bank according to which the bank shall, on behalf of the customer (the letter of credit applicant) or on its own behalf, make payment to the supplier of goods or services, and shall nominate another (the nominated) bank to effect such payment against documents which meet the letter of credit conditions.

A letter of credit is an agreement separate from the sales contract or other document having the effect of an agreement on which it is based.

  • A covered (confirmed) letter of credit - is one for payment under which the payer funds in the full amount are booked in advance on a separate account with the issuing bank or the nominated bank
  • Uncovered (guaranteed) letter of credit - payment for which (if payer is temporarily out of funds) is guaranteed by the issuing bank for a bank loan.
  • A revocable letter of credit may be amended or cancelled by the issuing bank at any time without prior notice to the payee (supplier of goods or services).
  • An irrevocable letter of credit - is one which may be cancelled or terms of which can be amended only with the consent of the payee, to whose benefit the letter of credit was opened.

Letter of credit transactions

PrivatBank performs the following transactions involving documentary letters of credits in the national currency of Ukraine:

  • Opening a letter of credit – iissue of an obligation by the issuing bank according to instructions from the applicant (a customer of the bank) under which the bank shall, on behalf of the applicant or on its own behalf, make a payment to a supplier of goods or services, or nominate another (the nominated) bank to effect such payment against documents which meet the conditions of the letter of credit.
  • Confirmation of a letter of credit – issue of an additional obligation on paying a letter of credit opened by another bank.
  • Advising a letter of credit – official notification by the bank as to opening, amending or cancelling a letter of credit, furnished in hard copy or by electronic means of communication.
  • Executing a letter of credit – verification of documents under the letter of credit provided by the payee (supplier of goods or services), followed by advising the issuing bank on execution of the letter of credit (i.e., on the need for transferring funds, if the payment is to be effected by the issuing bank), provided the documents comply with the letter of credit conditions (if not, letter of credit execution is not effected or shall be effected subject to the bank obtaining the consent of the applicant as to payment under the documents with discrepancies).
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In which cases is a letter of credit used?

In terms of delivering goods and services risks may appear at different stages varying from raw material acquisition, manufacture and storage of goods to timely delivery/provision of services and payment. Use of a letter of credit as a payment instrument in such situations allows for protection of the interests of both the seller and buyer.

The most important issue for the buyer is properly-implemented delivery of goods/provision of services/work, while for the seller it is timely receipt of the payment. The associated risks are exacerbated in difficult economic situations, when it is onerous for the buyer to evaluate the seller's reliability. Naturally, the reverse holds true for the seller: while executing a sale the seller takes risks associated both with transport of the goods and with non-payment.

Most often, a letter of credit is used for settlements in the following cases:

  • Business partners have established new, untested business relationships
  • The seller is unsure about the buyer solvency, and the buyer is unsure about the seller's ability to deliver the goods/do work/provide services
  • Contracts are subject to large-scale projects or products made by special order.

A letter of credit is helpful in the following cases:

  • There is a need to obtain a guarantee of performing obligations under the contract by the other party
  • The parties bargain for a large amount
  • You start working with new partners in terms of an as-yet-untried business relationship
  • There is a need for strict control of a range of conditions and obligations of the parties to each other

Interest on your money in the coverage account which is accrued as on a current deposit An uncovered letter of credit is issued in the event you are using bank credit funds to secure the transaction. In this case, collateralisation is made with funds in deposit accounts, movable or immovable property of a legal entity or by an individual serving as collateral.

Benefits:

  • Minimum bank fees, since you are not using credit funds interest 
  • Interest on your money in the coverage account which is accrued as on a current deposit 
  • Formal registration term – not exceeding 2 days.

An uncovered letter of credit is issued in case you are using bank credit funds to secure the transaction. In this case, collateralization is made with funds in deposit accounts, movable or immovable property of a legal entity or an individual serving as collateral.

Benefits:

  • Monetary funds are not diverted from circulation
  • Competitive fees
  • Formal registration term - not exceeding 1 week.
Fees for use (in Russian)

What are the benefits of opening a letter of credit in PrivatBank?

If you decide to open a letter of credit with PrivatBank, our specialists will provide you with expert assistance regarding the following:

  • Drafting contracts providing for documentary forms of paymentdeveloping
  • Developing individual settlement schemes using letters of credit
  • Design shipping documents
  • Development of non-standard documentary operations, such as: Transfers (transferable), revolving or standby letters of credit

To open a letter of credit:

Step 1. Agree the letter of credit settlement scheme under the contract with your counterparty.

Step 2. Register documents at PrivatBank Regional Directorate:
1) on documentary credit operation:
- for covered letters of credit
- only your application
- for uncovered letters of credit
- your application, uncovered letter of credit opening agreement, collateral agreement
2) on identification (in the event you are not yet our customer).

Step 3. Pay the fee.

For consultancy on documentary operations for settlements in the territory of Ukraine put your question to the Head Office experts by emailing to garant@privatbank.ua

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Frequently asked questions

  • What documents should I submit for opening a letter of credit?
  • What should the list of documents in the letter of credit comprise?
  • What is a transferable letter of credit?
  • The remainder not transferred is the intermediate seller's profit.What is a revolving letter of credit?
  • What is a standby letter of credit?
  • What is an advising bank?
  • What is a nominated bank?
  • To which bank should the documents for payment under the letter of credit be provided?
  • How to correctly draw up payment section of the contract and to draft a letter of credit?
  • What if the letter of credit contains misprints (e.g., in names, addresses)?
  • What are the key regulatory documents the Bank is governed by when working with letters of credit?
  • What is advising?
  • What kind of verification is implied under the
  • In case of detecting discrepancies, the bank has the right to refuse payment.What is a
  • What is implied by sending messages to other banks?
  • What do the preliminary activities imply?
  • What is a payment under letter of credit?
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