01/08/2020

Ton Duc Thang University

Finance and Banking Faculty
Banking Department

INTERNATIONAL PAYMENT

CHAPTER 5:
TRADE FINANCE
Course Code: B01031

Prepared by: Banking Department

Chapter 5: Trade Finance 1

Chapter 5: Trade Finance

Chapter Objectives
Provide general knowledge of the types of trade
finance, especially the types of trade finance
based on the methods of international payment.
exchange marketreign

Chapter 5: Trade Finance 2

1
 01/08/2020

Chapter 5: Trade Finance

Contents

5.1. Overview of bank lending

5.2. Trade finance

Chapter 5: Trade Finance 3

5.1. OVERVIEW OF BANK LENDING

v Type of loans
§ Real Estate Loans
§ Financial Institution Loans
§ Agriculture Loans
§ Commercial and Industrial Loans
§ Loans to Individuals
§ Miscellaneous Loans
§ Lease Financing Receivables

Chapter 5: Trade Finance 4

2
 01/08/2020

5.1. OVERVIEW OF BANK LENDING

v Lending policy
• Is a fundamental part of the credit process
whereby the lending guidelines that bank
employees follow to conduct lending business
are formalized.
• Banks can make sure its loans meet
regulatory standards and are profitable.
• Gives guidelines in making decisions.

Chapter 5: Trade Finance 5

5.1. OVERVIEW OF BANK LENDING

v Lending policy
Why do the bank have loan policies?
§ Establishes authority, rules and framework to
operate and administer the loan portfolio
effectively
§ Controls lending risk
§ Ensures the institution’s stability and soundness
§ If reviewed regularly by the Board will ensure that
underwriting practices and loan documentation
are in accord with the Board’s tolerance for risk
Chapter 5: Trade Finance 6

3
 01/08/2020

5.1. OVERVIEW OF BANK LENDING

v Lending policy
Principles of lending policy
• Safety: Ensure that advances
are safe and money lent out will
come back
• Liquidity: Ensure that money
lent out is not locked up for long
time by designing the loan
maturity period appropriately.
• Profitability: Earn adequate
profit on its investment
• Risk diversification: lend to a
diversified customer base
Chapter 5: Trade Finance 7

5.1. OVERVIEW OF BANK LENDING

v Lending policy

The contents of lending policies

§ Type of loans
§ The repay method, maturity
§ Term loan
§ The “hair cut” on collateral
§ Credit line
§ Price
§ …
Chapter 5: Trade Finance 8

4
 01/08/2020

5.1. OVERVIEW OF BANK LENDING

v Steps in the lending process

1. Finding prospective loan customers

2. Evaluating customers’ character
3. Making site visits and evaluating customers
4. Evaluate Customers’ financial condition
5. Assessing possible Loan Collateral
6. Disbursement & Signing loan agreement
7. Monitor compliance with Loan agreement

Chapter 5: Trade Finance 9

5.1. OVERVIEW OF BANK LENDING

v Documents of loan required by banks

§ Firm legal docs
§ Loan purpose – repayment schedule planning
§ Finance docs: Quarterly financial statements +
financial planning for the business
§ Callateral docs
§ Related docs

Chapter 5: Trade Finance 10

5
 01/08/2020

5.1. OVERVIEW OF BANK LENDING

v Types of loan collateral

§ Accounts receivable.
§ Factoring.
§ Inventory.
§ Real property.
§ Personal property.

Chapter 5: Trade Finance 11

5.2. TRADE FINANCE

v Why need trade finance?

§ Trade finance follows flow of goods and services

and supports international commerce.

Chapter 5: Trade Finance 12

6
 01/08/2020

5.2. TRADE FINANCE

v Types of trade finance for international payment

§ Bank guarantees

§ Factoring
§ Trade finance based on the methods of
international payment, including: T/T, D/P,
D/A, L/C.

Chapter 5: Trade Finance 13

5.2. TRADE FINANCE

v Types of trade finance for international payment

IMPORT FINANCE EXPORT FINANCE

Finance before shipment Finance before shipment

Finance after shipment Finance after shipment

Chapter 5: Trade Finance 14

7
 01/08/2020

5.2. TRADE FINANCE

v Documents required by banks in trade finance
for international payment

§ Documents of loan required by banks

§ Sales contract
§ Financial documents (bill of exchange)
§ Commercial documents
§ Original L/C (in case of method of L/C)

Chapter 5: Trade Finance 15