| An exporter may offer an importer the option of financing by means of a documentary credit with bank-to-bank financing. In this case National Irish Bank lends funds to the importer’s bank. A (short) loan or interbank agreement is then added to the documentary credit text.
National Irish Bank’s role
At the importer's initiative, the importer's bank requests financing from National Irish Bank, and if this is acceptable, a commitment will be forwarded to the importer’s bank.
National Irish Bank accepts the documentary credit issued by an acceptable bank. National Irish Bank may require a guarantee from a private insurance company.
The exporter is not a party to the financing arrangements as payment has been made under the documentary credit. If there are additional payments under the documentary credit, National Irish Bank increases the loan to the importer’s bank.
Expenses
Documentary credits with bank-to-bank financing usually entail the following expenses:
- Margin, management and commitment fees
- Documentary credit charges
- Guarantee premium to a private insurance company, if applicable
The financing costs are normally borne by the borrower (the importer's bank). The documentary credit charges are usually paid by the exporter. | | |