Back To Back Documentary Letter of Credit

 
After receiving the irrevocable L/C , Sometimes exporters of services and goods, request for opening one or more back to back L/Cs . In such negotiation two separate L/C are used and using of it is necessary when the main beneficiary is not able to provide goods and for many other reasons , namely , first beneficiary is not willing to disclose the name of his buyer to the second beneficiary, beneficiary does not accept to transfer the L/C due to the high risk, the main L/C currency differs with the currency of buying the goods by the first beneficiary from the producer ( second beneficiary), first beneficiary intends to purchase from second beneficiary in a price lower than the first L/C amount and to sell for first L/C price to the first L/C buyer. In such cases it is necessary to use back to back L/Cs. So, in order to issue back to back L/C, first beneficiary requests for issuing the second L/C.

Conditions and important notes which are considered and observed in the time of second L/C opening are as follows :

1-    Second L/C opening is the subject which is only related to beneficiary and second L/C issuing bank and it is not necessary that the issuing bank of first L/C or first applicant be aware or agree with the case.
2-    Maximum FX amount limit and second L/C currency will be upto 90 percent of first L/C amount .
3-    First L/C and back to back L/C conditions such as goods and required documents and …must suit each other.
4-    Expiry date of back to back L/C must be at least 15 days prior to first L/C expiry date and at most one week after the latest  shipment date.
5) After issuing the second L/C , the bank may only accept those amendments of the first L/C of the issuing bank’s Correspondent which are relevant to conditions of both L/Cs and the request for full cancellation of the first L/C is subject to the full cancellation of the second L/C and agreement of the Second beneficiary within the validity of the L/C .
6) Opening  back to back L/C is done taking into consideration the client's credit worthiness ( beneficiary of the first L/C ) , obtaining enough security and carrying out the required processes in the relevant Credit Commission in accordance with the specified ceilings and Uniform Customs and Practice For Documentary Letters of Credit against ‘mosharekat-e-madani’ contract in FX currency .
7) In case back to back L/C is used for import of the goods from outside of the country or Free Zones , implementation of all processes of order registration , obtaining relevant licenses and observation of the circulars relevant to the import of the goods are obligatory .

Processes of Back to Back LC:

1- Receipt of the Export L/C for which BSI is advising and negotiating bank .
2- Review of the issuing bank's credit worthiness.
3- Advising  the L/C to the first beneficiary .
4- Receipt of the first beneficiary's request for issuing the back to back L/C based on the Export L/C.
5- Obtaining the authorization from Export Section of FX Operations Department for issuance of the back to back LC.
6- Implementation of L/C issuing processes such as obtaining Credit Commission's approval relevant to the specified ceilings complying with Uniform Customs and Practice for Documentary Letters of credit and filling in the form No 508 , undertaking form and other documents related to the letter of credit.
7- Receipt of the specified advance payment and other charges from the applicant .
8- Issuing the back to back L/C.
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