The EXIM Letter of Credit policy can reduce a bank’s risks on confirmations and negotiations of irrevocable letters of credit issued by overseas financial institutions for the financing of U.S. exports.
This policy affords commercial and political coverage against the failure of an overseas financial institution (issuing bank), sovereign or private, to make payment or reimbursement to the insured bank on an irrevocable letter of credit. Coverage is also provided for the insured bank's refinancing of payments under a sight irrevocable letter of credit of the issuing bank.
What is Covered
The policy applies to only irrevocable letters of credit which conform with the Uniform Customs and Practice for Documentary Credits (UCP), 2007 revision, publication number 600 of the International Chamber of Commerce (as may be amended from time to time) where the insured has a relationship with the foreign issuing bank. Non-customary letter of credit structures such as those that are revocable, back to back, red clause, or conditional, are not presently accommodated under the coverage.
Terms up to 180 days from the date of first presentation of documents may be extended for consumer goods, spare parts and raw materials. On a case-by-case basis, agricultural commodities, fertilizer and capital equipment may be insured on terms up to 360 days.
Principal and interest are covered. Documented interest is covered up to 180 days after the date of the foreign issuing bank's default (or fewer days when the claim is settled earlier).
The policy may be issued to any bank doing business in the United States in accordance with applicable federal or state banking laws and regulations. The insured bank must act under the terms of the UCP as either the paying, accepting, or negotiating bank for the insured transaction.
How it Works
- Provides coverage against losses caused by commercial and political events that cause the foreign issuing bank to fail to reimburse or to pay the insured bank.
- Political risk only coverage is available.
- Coverage is 95% coverage for private foreign issuing banks and 100% for sovereign foreign issuing banks. Bulk agricultural commodity exports may qualify for 98% coverage.
- The policy affords coverage of specific foreign issuing banks for which the insured bank has an issuing bank credit limit (IBCL) application, or under a Discretionary Credit Limit (DCL) approved by EXIM, which allows the insured bank to confirm letters of credit up to pre-approved limits.
- The insured bank is required to obtain an Exporter Certificate certifying that a letter of credit has been established in support of the described transaction and that the goods are manufactured or produced in and shipped from the United States.
- Prior to the presentation of documents to the insured bank under a letter of credit and at the time an insured bank commits to finance or pay, the insured bank may obtain a pre-presentation agreement under which EXIM agrees not to withdraw coverage, add, delete, or amend any policy condition, credit limit or other limitation, including the country limitation schedule, for a period of up to 90 days.
- A risk-based pricing system is used that reflects the major risk elements of each transaction.
- An advance deposit of $2,000 is paid to establish the policy.