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Insurance of a letter of credit (Product L)

Insurance of a letter of credit (Product L)

Letter of credit insurance enables you to use the advantages of a bill of credit even with export to high risk countries in which commercial banks would be unwilling to accept risk. The insured in this case is the bank of the Slovak exporter.

A letter of credit is a commonly used instrument in international trade. The principle is that monetary transactions pass between the financing banks. By issuing a letter of credit a bank undertakes to pay a supplier through its bank a stipulated portion if it submits documents in line with the conditions of the letter of credit.

With confirmation of a letter of credit by your bank the bank undertakes that you will get payment from it, and thus you eliminate the foreign political risks in the country of the buyer.

Letter of credit insurance lowers the risk to your bank with confirmation of an irrevocable letter of credit. Upon contact with higher risk foreign countries the risk of confirmation of a letter of credit may be too large for the financing bank, which does not have to agree with it. With the insurance, however, the bank gains the certainty that you will not lose your money.

Advantages for the exporter

  • Thanks to the letter of credit you gain the certainty that after sending the goods and submitting of the necessary documents to the bank you get payment for your goods. You are thus protected against a situation that a buyer will not be willing to accept goods.
  • For complete elimination of political risks in a country you do business in, your bank confirms a letter of credit and thus you get the money directly from it.
    A bill of credit is advantageous bilaterally for you as well as for the foreign buyer.
  • Our experienced team will accompany you from the first contact during the entire duration of the contract. We offer you our long years of expertise in the field of export financing (risk analysis of the country, buyer, bank, impact on the environment, and others).

Frequently asked questions

When is such insurance most advantageous?
The insurance is suitable with payments with the use of a confirmed letter of credit.

What is the period of the insurance?
The period of the insurance is derived from the duration of the letter of credit, which usually does not exceed 24 months.

What are the basic conditions of the insurance?
• Delay of payment with a letter of credit usually does not exceed 12 years.
• The insurance relates maximally to 85% of the value of the letter of credit.
• The financing bank shares in the risk of non-payment of a loan minimally 15% of the value of the letter of credit.
• Our mission is, among others, to support employment and the development of production capacities in Slovakia. For this reason the Slovak share in the export is an important criterion when assessing your project.

What kind of risks does the insurance cover?
The insurance is intended for non-marketable risks, i.e. those which commercial banks and insurance companies are not willing or capable to insure. The insurance covers:
• political risks – risk of non-payment of a receivable for political and administrative accidental or hard to foresee events in the country of the buyer, such as, e.g. war or other armed conflict, terrorism, unrest, strikes, revolutions, nationalizations, embargo, impossibility of transfer, discrimination measures of the government and others. Natural disasters, such as floods or earthquakes, are also included here.
• commercial risks – the risk of non-payment of a receivable, especially due to insolvency or payment unwillingness of the buyer.

How much will it cost?
The amount of the premium rate depends on several factors, such as the amount of the insured receivable and the amount of participation of your bank, which confirms bills of credit. The premium rate is assessed for each project individually.

How is the insurance paid for?
The insured (the bank) pays the premium in one payment in advance. By payment of the premium the insurance policy acquires force.

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