Several ways of trade financing

Several ways of trade financing

Trade financing refers to short-term financing or credit facilities provided by banks to importers or exporters in connection with the settlement of import and export trade. Here are several ways of trade finance to introduce knowledge, together with the details.

1, credit opening:

refers to the bank for the customer in the credit limit to reduce the margin to open a letter of credit to the outside world.

2, import charge:

refers to the issuing bank in the receipt of a full set of documents under the letter of credit, to the applicant for the issuance of the letter of credit to provide, to pay the letter of credit payment of short-term capital financing. The import charge is usually operated in conjunction with a trust receipt. That is to say, the issuing bank with the issuing applicant issued to the bank's trust receipt to release the documents under the letter of credit to the applicant, the applicant in the case of non-payment for the first for the pickup, customs clearance, warehousing, insurance and sales, and the sale of goods after the return of the funds to pay for the bank for the amount of the letter of credit advance and related interest. The issuing bank and the applicant for the certificate form a fiduciary relationship due to the trust receipt, the bank retains the right to benefit from the proceeds of the sale of goods under the document, and the applicant for the certificate has the legal title to the document and is able to dispose of the goods under the document.

3, pickup guarantee:

refers to the letter of credit settlement of import trade, when the goods arrive at the destination before the freight documents, the issuing bank should be the importer's application, for its carrier or its agent to bear the responsibility for the liability arising from the release of goods first guaranteed documents.

4, export charge business:

refers to the beneficiary of the letter of credit in the shipment of goods, the full set of freight documents pledged to the location of the bank, the bank after deducting the interest and related costs, will be paid in advance to the beneficiary of the goods, and then to the issuing bank to claim the recovery of the payment of a trade financing business.

5, package lending:

refers to the exporter receives the importer's location bank issued a valid letter of credit without negotiation, the original letter of credit to the bank application, so as to obtain the letter of credit under the production of export commodities, purchasing, shipment of short-term RMB working capital financing.

6, foreign exchange bill discounting:

is the bank for the foreign exchange bill holders for the bill financing behavior, the bank in the foreign exchange bill before maturity, from the face amount of the discount interest, the balance will be paid to the foreign exchange bill holders.

7, international factoring financing business:

refers to the international trade in the acceptance of delivery (D / A), credit sales mode (O / A), the bank (or export factor) through the correspondent bank (or import factor) in a conditional waiver of recourse to the exporter's accounts receivable approved and purchased, so that the exporter obtains a guarantee that it will recover payment for the goods after export.

8, Forfaiting:

Also known as note package purchase or note buyout, refers to the bank (or package buyer) of international trade in deferred payment mode of the exporter's holdings of forward promissory notes or promissory notes discounted without recourse (i.e., buyout).

9, export buyer's credit:

It is a medium- to long-term credit issued to foreign borrowers for importers to pay Chinese exporters to promote the export of Chinese goods and technical services. Loans are granted to banks recognized by the Industrial and Commercial Bank of China (ICBC) as importers of goods from China, or in special cases, importers, and the export equipment supported by the loan should be mainly equipment made in China.

There are many different types of trade finance, and choosing the right type of trade finance for your situation can make all the difference.

Investment and financing research guidance, specializing in providing project investment, project financing and other related aspects of professional research guidance, to help you analyze the enterprise, project financing success or failure of the reasons, so that you in the financing of less detour, successful access to financing funds.

Development/Trade Finance

China's commercial bank financing business operation and management is sloppy, has not been fully established a variety of financing business strict standards and standardized business operation process, to carry out the international trade financing business to the reduction of the margin to open, the export of packaged loans, import and export of foreign exchange charge and other basic forms of the main, and like the more complex business such as international factoring. International factoring and other more complex business accounted for a smaller proportion of the volume of international trade financing business is very uncoordinated compared with the space provided by the market. Therefore, it is necessary to learn from the lessons of international trade financing, combined with the actual situation in China, to analyze the causes of financing risks.

Insufficient understanding of the importance and risks of trade financing business

First, the senior management of commercial banks and related departments lack of understanding of international trade financing business, and no experience, the risk of international trade financing business in general a more superficial understanding of international trade financing business is manifested in two tendencies: First, the wrong belief that international trade financing does not need to use the actual funds, only need to lend documents or open letters of credit can be obtained from the customer. Open a letter of credit can earn from the customer handling fees and financing interest, is a zero-risk business, which led directly to the mid-1990s due to a large number of letter of credit advances formed by the bank's non-performing assets; Second, when the problem, and that the risk of international trade financing is very large, and the measures taken lead to international trade financing credit than the general loan is difficult to approve a long time, restricting the development of the business.

Secondly, the traditional business of commercial banks is the local currency business, the proportion of international business is relatively small, in terms of institutions, talents, customers do not occupy an advantage, so that most people think that rather than spend a lot of manpower, material and financial resources to develop international trade financing, it is better to focus on the local currency business. In addition, the international trade finance business in improving the bank's profitability, optimize the quality of credit assets and other aspects of the role of the lack of understanding that the trade finance business in the overall credit assets in the number of small, little role.

Lack of effective preventive management system within the bank and backward means of risk control

The risks involved in international trade finance business include customer risk, country risk, foreign agent risk, international market risk and internal operation risk. The management of these risks requires advanced technical means to efficiently and organically link the relevant bank departments and branches together. However, Bank of China is relatively backward in the processing procedures of foreign exchange business, different branches and different departments operate independently of each other, lack of network resources *** enjoyment, lack of unified coordination and management, so that the purpose of *** enjoyment of resources, monitoring of risks and mutual constraints cannot be achieved. For example, the financing business is undertaken by a department of the International Business Department for credit risk control, business operation risk control and business development. Risk control both appear to be weak, and the lack of mutual constraints within the bank and the risk of professional control, in the face of China's import and export enterprises generally operating losses, with a large number of non-performing bank debt of the objective realization of the bank's trade financing lurks a huge risk.

Financing business disordered competition undermines risk management standards

China's international trade financing business is relatively short compared to foreign countries, the market is still immature, a variety of constraints are not sound, with the increasingly fierce competition in the international settlement business of the commercial banks, the form of business of the various banks and a single, in order to fight for a larger market share, competing to attract customers on favorable terms, the corporate credit review and requirements of customers. In order to win a larger market share, banks compete to attract customers with favorable conditions, and the credit review and requirements of customers are getting lower and lower, relaxing the control of trade financing risks, for example, some banks have reduced the proportion of the collection of the deposit for the issuance of certificates; some have even taken the issuance of certificates on credit and exempted the collection of deposits; and some have opened forward letters of credit in the case of insufficient deposits and incomplete guarantees or collateral formalities, etc., which undermine the risk management standards and exacerbate the risk of the bank's trade financing business.

Marketing team

Weak marketing team, lack of composite high-quality business personnel

The international settlement business is highly specialized and requires high quality of business personnel. However, Chinese commercial banks are short of talents in international trade financing, and the limited talent resources are highly concentrated in the management level, and at the same time, the talent has a single knowledge structure. As each bank operates international business as an independent business variety, the international business department is responsible for international settlement and the associated trade financing business in the institutional setup. This results in the relevant practitioners are only familiar with the international settlement and lack of financial accounting and credit management and other aspects of business knowledge, can not be accurately judged from the financial information and operating style and grasp the customer creditworthiness, the international trade financing of the whole process of each link does not have a full grasp of the international business to reduce the international business of the product function and market effect, the risk of a lack of a strong control efforts.

The legal environment of international trade financing business is imperfect

International trade financing business involves international financial instruments, cargo rights, mortgage of goods, pledge, guarantee, trust and other acts, requiring specific legal definition of the rights and responsibilities of various acts, but China's financial legislation obviously lags behind the development of the business. Some terms and practices commonly used in international trade financing have not yet been regulated accordingly in Chinese law. For example, what is the bank's right to the documents and goods in the charge business, what is the bond relationship between the bank and the customer, whether the trust receipt commonly used in the import charge is valid, and whether the bill of exchange that has been accepted by the bank in the forward letter of credit business can be paid by the court, and so on. As a result, this imperfect legal environment further increases the risk of China's trade finance business.

Development Countermeasures/Trade Finance

Raise awareness of the development of international trade finance business

With the further opening up of China, the international trade exchanges are becoming more and more frequent, and the total amount of imports and exports will be greatly increased, which will certainly provide great market space for the development of foreign exchange business, especially trade finance business. Commercial banks at all levels should update their concepts and improve their understanding of the development of foreign exchange business, especially international trade financing business. They should start from the severe challenges they face after the WTO accession, actively develop international settlement business with trade financing business as a tool, adjust their business strategies and working ideas, and pay close attention to the movements of foreign banks. Therefore, commercial banks should strengthen the search for market information and adopt various policy measures conducive to promoting the development of international settlement business.

Adjustment of institutional settings to implement the principle of separation of auditing and lending

In order to meet the needs of business development, it is necessary for banks to make adjustments to their internal institutions, redesign the operation mode of international trade finance business, divest the auditing and lending mode, and implement credit line management to achieve the purpose of both effective risk control and active service to customers. ① It should be made clear that trade financing belongs to credit business and must be included in the credit management of the whole bank. The credit department should assess the creditworthiness of trade finance customers and establish the credit limit accordingly. Through the establishment of a system of audit and credit separation, credit risk and international settlement risk by the Credit Department, Credit Approval Committee and the International Business Department, and ultimately to achieve the separation of audit and credit under a unified integrated credit management system, the risk of special control, so as to take different measures to control the right to property, to prevent and control the risk of the purpose. ② credit limit should grasp the following points: First, the credit limit to control the proportion of forward letters of credit, the longer the period, the greater the risk; second is to control the proportion of full exemption of letters of credit, through the payment of a certain amount of deposit to strengthen the constraints and control of the customer's business; third is the establishment of the assessment period; fourth is the implementation of the management of total credit limit under the sub-direction of the credit limit; fifth is the establishment of sound internal control system, tracking of basic customer import and export credit lines, and strengthen the coordination and cooperation within the department.

Establishment of a scientific risk management system for financing trade

Formulation of customer evaluation standards in line with the characteristics of international trade financing, and selection of customers who have been engaged in international trade for a long time and have good credit. The establishment of credit approval center and trade finance business department, the risk factors affecting international trade financing are relatively many, so risk prevention requires commercial bank personnel to have knowledge of credit business in order to analyze and evaluate the customer's credit. Thus, the use of human resources to take advantage of pre-emptive and post-dissolution of various business risks.

Improve the system to implement the whole process of risk supervision

(1) Do a good job of pre-credit preparation before financing, the establishment of a pre-credit risk analysis system, strict review and approval of the financing credit limit, control of operational risk, through the credit risk, market risk, natural risk and social risk, the risk of the country's macroeconomic policy, exchange rate risk, etc., as well as the analysis of the applicant enterprise, the issuer and the issuing bank's creditworthiness and other aspects of the creditworthiness of the applicant. By analyzing the credit risk, natural risk, social risk, exchange rate risk, etc., as well as strictly reviewing the creditworthiness of the applicant enterprise, issuer and issuer, we can detect the unfavorable factors in time and take preventive measures.

(2) Strict management of letter of credit business. Letters of credit in international trade has been recognized as a more reliable way of settlement. Audit letter of credit is the primary responsibility of banks and import and export enterprises. First of all, we must carefully review the authenticity and validity of the letter of credit, to determine the type of letter of credit, purpose, nature, circulation and whether it can be implemented; secondly, review the creditworthiness of the issuing bank, capital institutions, capital strength, business style and understanding of the true credit limit; thirdly, we must understand the price of the product in a timely manner, delivery of the mode of transportation, shipping documents and other circumstances, so that the applicant for the issuance of a letter of credit has a comprehensive evaluation of the business operation, and its expected repayment of the loan, and the applicant will have a comprehensive evaluation of the business operation. A comprehensive evaluation of its expected repayment ability and whether there is a fraudulent purpose to have an objective judgment; Fourth, we must carefully review the negotiable letter of credit, strict review of the issuing bank and the transfer of the bank's creditworthiness, and review the terms of the letter of credit.

(3) As soon as possible to establish a sound legal protection mechanism, strictly in accordance with the law. Should strengthen the existing relevant legislation to study, combined with the actual work and the trend of future development, to find out the incompatible places, through the relevant channels to call for as soon as possible to improve the relevant legislation. The use of legal weapons to maximize the protection of the interests of banks and reduce risks.

Strengthening cooperation with foreign banks

In the situation that many foreign investors are optimistic about the Chinese market and the development of foreign trade is good, state-owned commercial banks should seize this favorable opportunity, based on the *** with the same interests and interests, and the relevant foreign banks to join hands to develop and occupy China's foreign exchange market, *** with the same to strive for some of the settlement in China, the use of foreign investment in the big projects. The trade finance business of China's commercial banks is being expanded in many ways and at many levels.

Awareness and ability to prevent financing risks

International trade financing is a business with wide knowledge, strong technicality and complicated operation, which requires high business quality of relevant practitioners. China has been carrying out this business for a short period of time, and is in urgent need of composite professionals who understand international practices, operational technology and credit business. The competition of international settlement business of commercial banks is essentially the competition of bank management level and personnel quality. Therefore, to improve the quality of trade finance management personnel, enhance the awareness and ability to prevent risks has become an urgent task, should be trained as soon as possible a number of familiar with international finance, international trade, law and other knowledge of talent. First of all, we should introduce high-level and high-quality talents, can make full use of the characteristics of the agent bank's advanced technology, select the relevant topics to invite the agent bank's experts to give special lectures, and if possible, can also send employees to foreign commercial banks to study. Secondly, in the usual work, we should pay attention to the summary and analysis of cases, accumulate experience in a timely manner, and consciously strengthen the knowledge of international trade and transport insurance business, pay close attention to the dynamics of the international trade market, to understand the changes in the commodity market, to cultivate insight into the international trade market, and to enhance the ability to identify the potential risks in order to continue to improve their own business level. Thirdly, the company has organized post training to continuously improve the service quality and moral cultivation of the staff. The fourth is to strengthen the risk awareness, and constantly improve the staff's ability to identify and prevent counterfeiting, and strive to prevent and resolve international trade financing risks.

Expanding Knowledge: Commercial Banks' International Trade Finance Businesses

Commercial banks' international trade finance businesses include letters of credit (including international and domestic letters of credit), collections, remittances, factoring, and other businesses under the credit and financing (including the credit under the forward sale and purchase of foreign exchange derived therefrom) business and non-financing letters of credit under the local and foreign currencies. Credit facilities under letters of credit, collections, remittances, factoring, etc. and non-financing guarantees in local and foreign currency. The credit and financing business under letters of credit, collection and remittance includes packaged loans, export charge, export discounting, forfaiting, risk participation, import credit issuance, import charge, lading guarantee, credit issuance of domestic letters of credit and negotiation of domestic letters of credit. Risks include: export credit insurance exclusion risk, audit risk, capital risk, enterprise credit risk and bank credit risk.

Credit:

Credit refers to the funds directly provided by commercial banks to non-financial institution customers, or guarantees of compensation and payment liabilities that may be incurred by the customers in the relevant economic activities, including loans, trade finance, bill financing, financial leasing, overdrafts, various advances and other on-balance sheet businesses, as well as the acceptance of bills, Off-balance sheet operations such as issuance of letters of credit, letters of guarantee, standby letters of credit, confirmation of letters of credit, guarantees for bond issuance, guarantees for borrowings, sales of assets with recourse, and unused irrevocable loan commitments. Simply put, credit is the act of a bank providing direct financial support to a customer or guaranteeing the customer's credit to a third party in the relevant economic activity.

Credit is divided into short-term credit and medium- and long-term credit by term. Short-term credit refers to credit granted within one year (including one year), and medium- and long-term credit refers to credit granted for more than one year.

Financing:

Financing, in English, is financing, in a narrow sense, that is, the behavior and process of raising funds for an enterprise. From a broad sense, financing is also called finance, is the financing of monetary funds, the parties through various ways to the financial market to raise or loan funds behavior. The New Palgrave Dictionary of Economics explains financing as a monetary transaction to pay for purchases in excess of cash, or a monetary instrument used to raise funds to acquire assets.

Financing Detailed Explanation:

1, refers to the use of a variety of ways to financial institutions or financial intermediaries to raise funds for a business activity;

2, refers to the essence of the operation of mining rights is the financing of mining rights and mining development;

3, refers to the holders of money and demand for money between the holders of money and demand for money, either directly or indirectly, the activities of capital financing;

4, refers to the transfer of monetary funds financing is the socialization of large-scale production conditions between the social economic entities for the surplus and shortages of effective ways and means of adjustment;

5, financing in the broadest sense of the word refers to the funds in the flow of the holder in order to make up for the shortfall of a kind of economic behavior this is a two-way interaction of funds in the process of funds, including funds into the (source of funds) and Financing (the use of funds). Financing in the narrow sense refers only to the integration of funds;

6, refers to the flow of funds between the supplier and the demand, this flow is a two-way interactive process, including both the integration of funds, including the financing of funds.

7, refers to the enterprise from the relevant channels to use a certain way to obtain the funds required for the operation of the activities.

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