Letters of Credit
Unity Bank issues import letters of credit on behalf of customers to the beneficiary (ies) anywhere in the world by highly reputed correspondent banks adding their confirmation. Our correspondent banks are well positioned in strategic business locations all over the globe.
- Approved trade finance facility is required if there is no cash collateral provided by importer
- Advance payment of up to 15% subject to documentation requirement - advance payment guarantee is required from a first class bank in the country.
- Payment is made after presentation of compliant documents by the exporter to the bank nominated in the Letter of credit
- LC is established under the Uniform Customs and Practice, UCP Article/Publication No. 600(latest version)
- It helps to reduce the risk of non-performance of the exporter. If goods are not shipped and documents are not presented, exporter will not get paid
- Shipment date is strictly adhered to by the exporter except with permission from the importer
- Foreign exchange can be bought from the official market when compliant documents and terms of the LC are adhered to
Bills for Collections
Bills for Collection is an underlying credit from the supplier to the beneficiary (importer) for which a Bill of Exchange ( IOU) is duly accepted by the importer and endorsed by his bank (Unity Bank).
- Used mostly by parties with long standing relationship or related entities
- Documents are released against accepted bill of exchange stating when payment will be paid (due date)
- Payment is made only after goods are cleared and Exchange Control Documents(ECDs) submitted to the Bank
- It is operated under the Uniform Rules for Collection, ICC Publication No. 522
- Used mostly by parties with long standing relationship or related entities. It is a business of ‘trust’
- Refinancing can be done
- Transaction dynamics is easier than LC
- Cheaper transaction charges as no confirmation charge is required
- Foreign exchange funds can be bought via the official market(RDAS or Interbank)
Not Valid For FX
Not Valid for FX is can be done by opening Form “M” with supporting documents such as insurance certificate and other regulatory approval required for the purpose of importation e.g. SON Product Certificate, NAFDAC import permit, DPR permit etc
- Payment can be made via domiciliary account
- No bank (importer) to bank (exporter) documentation is required as the case of LC and Bills for Collection
- Original shipping documents submitted can be used to process Pre-Arrival Risk Assessment Report(PAAR)
- Customer can access up to USD250,000.00 per annum forex purchase for non-regulatory products
Invisible Trade Transactions
Invisible transactions as the name implies, are transactions that cannot be touched or seen with the eyes e.g. services. There are various types depending on the transactions desired by customers. It should be noted that policies guiding invisible transactions change from time to time as the regulators of the economy realizes the need to vary the existing policies and guidelines. They do this by way of policies and circulars which are communicated to banks and also hoisted on the CBN website for the attention of the public.
The categorization of Invisible transaction includes:
- Personal home Remittance
- Offshore Training
- Medical Travel
- Education outside Nigeria
- Domiciliary Transfers
CORRESPONDENCE COURSES, SUBSCRIPTIONS AND EXAMINATION FEES (ORGANIZED LOCALLY)
- Duly completed form A
- Subscribers list and amount paid.
- Statement of account showing amount collected less local expenses.
- Evidence of operation of non-resident account in favour of the overseas principal (only for foreign bodies)
- An agreement between the overseas company and local body where the latter runs such a programme jointly with the overseas company
OFFSHORE TRAINING (INCLUDES SEMINARS AND CONFERENCE)
- Duly completed form A
- Letter of invitation and estimate of expenses issued by the organizing body overseas.
- Relevant pages of passport and return air ticket of the beneficiary.
- Letter of authority to travel from the Nigerian organization with the list of the nominees for the course.
PERSONAL HOME REMITTANCE
- Duly completed form A
- Certified Tax Deduction Card.
- Photocopy of relevant pages of passport.
- Resident permit (for the period applied for)
- Evidence of operation of current account with the bank
EDUCATION OUTSIDE NIGERIA
- Duly completed form A
- Letter of admission/course programme.
- School bill for the current period.
- Photocopy of first degree certificate if it is a postgraduate programme.
- Duly completed form A
- A letter of reference from a specialist doctor, or a specialist hospital in Nigeria.
- Travel documents including valid passport, visa and air ticket.
- Letter issued by the overseas specialist doctor stating the cost of treatment, maintenance.
SUBSCRIPTION AND PERIODICALS (ORGANISATIONS/INDIVIDUALS)
- Duly completed form A
- Invoice/debit note
BOOKS, MAGAZINE AND PERIODICALS (SINGLE COPIES)
- Duly completed form A
- Invoice/debit note.
A maximum of 5% is allowed for consultancy fees and is limited to projects of very high technology content for which indigenous expertise is not available.
Service agreement for such high technology joint ventures shall include a schedule for training of Nigerian personnel for take-over.
The required documentations include:
- Duly completed form A.
- Certificate issued by NOTAP approving the consultancy service agreement.
- Evidence that services were rendered locally (hotel bills and relevant pages of passport and air-tickets of the technical experts.)
- Certificates of satisfactory completion of the job issued by the Nigerian Employer.
- Evidence of tax paid on the amount to be remitted.
Domiciliary accounts are account basically fed and operated in foreign currencies other than the local currency, e.g. accounts operated in U.S Dollars, Pound Sterling, Euro, and other convertible currencies, as may be determined by the Central Bank of Nigeria.
(i) All authorized dealers are eligible to open domiciliary accounts for their Customers (ii) Foreign Nationals (iii) Foreign/indigenous company (iv) Embassies, High commissions, diplomatic mission’s operating in Nigeria including their staff. REQUIREMENT FOR TRANSFER (i) Customers request letter which must be duly verified. (ii) Indemnity form duly completed, and signed by the applicant, and signature verified. (iii) Branch’s covering memo forwarding customers request to Foreign Operations Department. EXPORT The current Exchange Control Regulation allows for export of tangible goods and services to other countries in the world. However, there are documentation requirements for these exports which vary with the transaction types. • Exports from Nigeria are broadly categorized into 3: Oil Exports – Exclusive right of NNPC Non-Oil Commercial Exports – Payment is expected Non-Commercial Exports – Payments are not expected
Documentation Requirements for exports are:
- Duly completed Form ‘NXP’
- Proforma Invoice
- Certificate of Registration
- Sales Contract (agreement) where applicable
- Nigerian Export Promotion Council (NEPC) Registration Certificate
- Federal Government grants and/or NDCC (Negotiable Duty credit Certificate
- Export proceeds from the beneficiary
Letter of Guarantee (Foreign)
A guarantee is an undertaking on the part of a third party i.e. the bank, to be responsible for liability of another i.e. the principal in case of default for payment by the principal to the beneficiary under the guarantee arrangement.
A guarantee is non-accessory payment undertaking that, with regards to scope and existence, is independence of the underlying transaction. Unlike a documentary collection or Letter of credit, a guarantee is arranged to provide the beneficiary with financial compensation for any damage or loss he may suffer if his trading partner or any other parties participating in the underlying transaction and named in the guarantee do not fulfill their agreed obligations. While documentary credits are issued for the purpose of actively using them in the payment and financing process, it is normally expected that a guarantee is not being claimed –provided that the underlying transactions are conducted smoothly.
Standby Letter of credit (SBLC) is an instrument that has its roots in United State law. It serves the same purpose as a Guarantee. Despite its name, it is not a credit in the strict sense of the word, but it is, nevertheless, regulated by the UCP 600 among others.
Guarantee is independent of the underlying transaction. As a matter of principle, the bank is not entitled to raise pleas or defences neither on account of the underlying transaction nor the contractual relationship existing with the principal of the guarantee. It may only raise a defence that is based on the guarantee itself. - Generally, guarantee is payable upon first demand and is therefore highly liquid, more like a quasi-cash that can be drawn on first demand.
Types of Guarantee
- Tender Guarantee: This is issued to secure a foreign importer against the risk that the offerer (exporter) does not evade his obligations resulting from his successful participation in the tender by refusing to accept the contract (e.g supplies) awarded to him and possibly does not replace the tender guarantee with a performance guarantee or prematurely withdraws his offer.
- Performance Guarantee: This provides the beneficiary with financial compensation for any loss he suffers if his business partner does not fulfill his contractual obligations or to protect the importer (buyer) against the risk that the exporter (seller) fails to fulfill his delivery commitments. In essence, it is used to replace a tender guarantee.
- Advance/Down payment Guarantee: The advance/down payment guarantee offers protection against a financial loss. At time a seller may only deliver the goods against the buyer’s down payment. In this case, the buyer runs the risk if the seller neither delivers the goods nor returns the amount paid in advance. • Payment Guarantee: A payment guarantee is a guarantee that provides the seller with a security in case the buyer fails fully or partially to meet his payment obligations.
PARTIES TO A GUARANTEE
The following parties are directly involved in a guarantee:
- The Principal/Applicant – This is the person or firm that applies for a bank guarantee.
- The issuing bank - which is instructed by the principal to issue a guarantee directly in favour of the beneficiary (direct guarantee) or to instruct a ‘’second bank’’ to issue a guarantee against the first bank’s counter-guarantee(indirect guarantee).Possibly, the second bank-requested by the first bank to furnish the guarantee against the first bank’s counter guarantee.
- The beneficiary – in whose favour the guarantee is issued.
TERMS AND CONTENT
Basically Unity bank approves guarantee to be issued for 180 days or 360 days. However, this is subject to extension after Credit Risk approval after expiration of the validity period.
Generally a guarantee document will consist of the following:
- Preamble/Preface: This contains the description of the underlying transaction. Although not required by law, it helps to better understand and identify the underlying transaction, its legality and validity.
- Payment Clause: This is the most important part of the guarantee, as it contains the guarantor bank’s exact statement as to the amount it will pay, when and under what conditions.
- Supplementary Conditions: A guarantee may contain an operative clause which defer the date it comes to force or a reduction clause which offers the possibility to reduce the guarantee amount after partial performance of the secured contract.
- Limitation of Validity clause: This stipulates an expiry date of the guarantee or expiry clause linked to the occurrence of a specific event that is verifiable and proven to the bank by presentation of specified documents.
The following documents are required before issuing a guarantee:
- Customer’s writing application signature duly verified.
- Proforma invoice
- Copy of contract agreement between the applicant and the beneficiary.
- Credit Risk Management (CRM) approval
- Gtee draft from the legal department to internationally acceptable standard
RISK AND MITIGANTS
- By having a guarantee issued, the principal avoids making a cash deposit with his supplier so as to avoid inherent risks. On the other hand, the guarantee blocks his credit line with the bank and may not be amended unless approval has been given by the bank and the beneficiary.
- The conditions for claims for payment and any documentation required should be worded and unambiguously described to the extent that they reflect the agreement made between the principal and the beneficiary and also verifiable by the bank.
- The beneficiary is facing, among other things, the country risk. The guarantee will only provide security to him in case of a complying claim for payment. Upon receipt of the guarantee documents he should, therefore, carefully examine whether the conditions contained therein are in accordance with the contract and whether he can fulfill them. Otherwise, he should request an amendment
- A guarantee may be amended provided all the parties involved agree to such amendment.
REGULATIONS GUIDING GUARANTEE
- Uniform Rules for Demand Guarantee (URDG758).
- Uniform Customs and Practice for Documentary Credits (UCP600)
- International Standby Practice (ISP98)
- Foreign Exchange Regulations – The Revised Version
- Monetary, Credit and Foreign Exchange Policy.
- CBN Circulars.
Third Party Transfer
This is also referred to as RTGS (Real Time Gross Settlement). This is where a customer request for the transfer of fund to a third party from any location/branch of the bank.
For a customer’s request, branch is to verify instruction, confirm amount in words and figures are ok, then debit customer for transaction amount plus NGN1,050.00 being RTGS charges and credit appropriate RTGS transit account with both transfers.
Foreign operations, upon receipt of this request treat accordingly.