This page is about UK Export Finance’s Letter of credit guarantee scheme.
What is the letter of credit guarantee scheme?
Under the scheme we provide partial guarantees to UK banks under a master guarantee agreement in support of UK exports. Where a UK bank adds its confirmation to a letter of credit issued by an overseas bank for a UK export, we can typically guarantee between 50 per cent and 90 per cent of the value of the letter of credit.
What are the benefits of the scheme?
The benefits are:
- the UK bank is able to confirm a letter of credit even if it doesn’t have risk appetite on the foreign issuing banks for the full amount;
- the UK bank receives a guarantee from us to cover the percentage of the amount due to it if the foreign issuing banks fails to reimburse payments;
- the exporter is protected against a default of the foreign buyer and the foreign bank.
The UK confirming bank is protected against the failure of the issuing bank to reimburse it under the letter of credit either because of the insolvency of the issuing bank or its inability to remit foreign currency abroad because of restrictions in its home country.
The following criteria must be met:
- the UK confiming bank must be carrying on business in the UK and be regulated by the Financial Services Authority (FSA);
- the exporter must be carrying on business in the UK;
- the exports must be produced in and shipped from the UK, or imported into the UK before being re-exported;
- the foreign issuing bank must be based in a non-marketable risk country (not European Union or other ‘rich’ Organisation for Economic Cooperation and Development markets);
- the period for presentation of documents under the letter of credit must not be longer than one year;
- any deferred payment period under the letter of credit must be less than one year.
There is no minimum or maximum value of a letter of credit, although we have limits for countries and foreign issuing banks depending on our risk appetite. We can guarantee up to a maximum of 90 per cent of the full value of a letter of credit.
There is no fee for the application. The premium payable for our cover is determined on a case by case basis.
How to apply
Contact UK Export Finance Articles
The information available in this article is not intended to be a comprehensive description of our overseas investment insurance and many details which are relevant to particular circumstances may have been omitted. Investors must read the policy to see whether it meets their needs.
When considering applications, underwriters will look at each case on its merits.