In case of documentary letter of credit the customer’s (purchaser’s) bank is obliged to transfer amount to the customer’s account for the supply of goods or services provided, if the supplier submits the documents specified in the letter of credit and meets the requirements.

In other words, documentary letter of credit is a monetary obligation which the bank assumes based on the customer instruction, that is to say the bank is obliged to make or ensure payment to the seller of goods after the documents set out under the terms of LC have been submitted.

The letter of credit helps to overcome a number of obstacles of international trade:

• Lack of mutual business confidence between the parties of trade transaction
• Numerous risks both for an importer (buyer) and exporter (seller)
• Lack of funds necessary to execute a transaction.

ARARATBANK offers:

• Unconfirmed letter of credit: The LC issued by the bank is directly sent to the notifying bank to notify the beneficiary about the LC. The notifying bank does not assume any extra obligations.
• Confirmed letter of credit: The LC may be confirmed by another first-rate bank as requested by the beneficiary. Moreover, confirming of the letter of credit implies an independent and extra obligation of the confirming bank to pay the letter of credit after the prescribed documents have been submitted.
• Standby letter of credit: This is a special type of LC and essentially closer to the bank guarantee, the aim of which is to mitigate possible risks of nonperformance of obligations. The standby letter of credit is expedient to use as an additional security for the payments to be made in favor of the exporter

LC advantages for the buyer (importer)

• The seller (exporter) supplies goods before the buyer (importer) makes the payment
• The payment is made after the seller (exporter) has supplied goods and presented the bills of lading, which mitigates the buyer’s (importer’s) risks
• If the seller (exporter) violates any preset term of lading, it may result in nonpayment for the supplied goods.
• In case of the letter of credit the seller relies on the solvency of the bank and is confident that after meeting all terms set out under the LC, he will get the payment. Hence, not having the risk of nonpayment for the goods, the seller can supply goods on the condition that the payment will be delayed (e.g. in 90 days after the bill of lading has been issued).
• In case there are no sufficient funds to pay the amount of the letter of credit, the bank may simultaneously finance your trade transactions.
• The buyer can be sure that the seller will not receive a relevant payment in case violating the preset term of lading and not supplying the goods within the prescribed period and terms.

LC advantages for the exporter (seller)

• The seller (exporter) is confident that he will receive the payment for the supplied goods, as in case of LC the payment obligation against the seller shifts from the buyer (importer) to the bank.
• Due to the letter of credit for export transactions the seller can offer a deferred payment to its partners, which will foster the growth of sales volume, and entering new markets. Moreover, payment for the goods can be received earlier in exchange for the documents set out under the LC for export transactions.
• Due to a secure mode of payment the seller is provided an opportunity to operate on the international market on much more competitive terms
• The seller receives the payment for supplied goods before the goods are supplied to the buyer.
• The buyer cannot unanimously declare the trade transaction void or change any condition without a seller’s prior contest.

Note

-commission fees of correspondent banks and postage shall be charged additionally

-incomplete quarter shall be deemed complete

-AMD 15000 shall be charged for consideration of the loan application for the purpose of issuing LC

Documents required for the analysis of legal status and financial position

1. Loan application;
2. Decision of the authorized body on loan disbursement and pledge of property;
3. Copies of founding documents – the Charter, with its further amendments and supplements, the State Registration Certificate with inserts, including the insert with information on the company director, the tax code (TIN);
4. Statement issued by State Registry on the amendments to the Charter, director and shareholders, including a statement issued by Central Depository (registry keeper) for open joint stock companies and a statement issued by shareholder registry keeper for closed joint stock companies;
5. Copies of the passport and social security card of the director and shareholders with a stake over 25%;
6. Written statement on owners, participants, shareholders and related persons: first and last names (title), business and legal addresses, all types of business activities. For the purposes of this Procedure, persons stipulated in Article 8 of the RA Law on Banks and Banking shall be considered related persons;
7. Copies of documents enabling operation in the field, such as licenses, certificates, etc.,
8. Statement issued by territorial tax inspectorate on outstanding liabilities towards budget (upon request);
9. Statement on receivables and payables (with detailed breakdown upon request);
10. List of fixed assets with balance value, balance of commodity stocks, such as raw material, other materials and finished products (upon request);
11. Financial statements for the previous reporting period (VAT, social payments, income tax);
12. Statements on bank account turnover within the past 12 months upon availability of accounts in other banks;
13. Effective contracts and agreements on sale, supply, lease, etc., as well as import and export invoices;
14. The most recent inspection act by territorial tax inspectorate or auditor opinion (upon request).

PLEDGE OF REAL ESTATE

1. Ownership certificate (original);
2. Grounding document on right of ownership (upon request);
3. In case of pledging property of a third party, copies of founding documents — the Charter with its further amendments and supplements, the State Registration Certificate with its inserts, including the insert on information on the company director, tax code and decision of the authorized body on pledge of property;
4. Statement issued by territorial subdivision of the State Committee of Real Estate Cadastre under the RA Government regarding restrictions on the property to be pledged (such statement shall be provided upon positive lending decision);
5. Appraisal report made by a person holding a respective license.

PLEDGE OF OTHER PROPERTY

1. List of property, with specification of the unit of measure, quantity, balance sheet value and acquisition documents;
2. For pledge of vehicles, vehicle registration document and certificate of title (original copy);
3. In case of pledging property of a third party, copies of founding documents — the Charter with its further amendments and supplements, the State Registration Certificate with its inserts, including the insert on information on the company director, tax code and decision of the authorized body on pledge of property;
4. Appraisal report made by a person holding a respective license (upon request).

OTHER ADDITIONAL DOCUMENTS DEEMED NECESSARY BY THE BANK

1. The Bank may require to have the collateral insured against the risks of loss and damage and submit documents in this regard;
2. Other additional documents upon request.

LIST OF DOCUMENTS REQUIRED FROM REPEATED BORROWERS WITHIN THE MASTER LOAN CONTRACT FRAMES

1. Loan application;
2. Decision of the authorized body on loan disbursement and pledge of property,
3. Statement on the amendments to the Charter, director and shareholders,
4. Statement on receivables and payables (upon request);
5. Financial statements for the previous reporting period (VAT, social payments, income tax)

Other additional documents upon request

The customer is required to submit original copies of the documents above or duly verified copies thereof.

Please follow the Armenian version