The presentation of RWA or BCL is indispensable
to continue the negotiation.
All documents sent must be stamped, stamped, signed by the CEO and in PDF format.
Documents such as LOI / ICPO will only be reviewed and accepted if they meet the seller’s requirements, such as:
– Form of payment,
– Form of guarantee,
– Target Price (according to offer available),
– Bank (Top Prime 50),
– “And other information.”
RWA – Risk Weighted Asset
Risk Weighted Assets (RWA) is an asset bank or off-balance-sheet exposures, weighted according to risk. This type of asset calculation is used in the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution. Basel I, the agreement published by the Basel Committee on Banking Supervision, explains why using a weighted risk approach is the methodology that banks must adopt to calculate capital.
- It provides an easier approach for comparing banks in different geographies;
- Off-balance sheet exposures can be easily included in capital adequacy calculations;
- Banks are not prevented from carrying low-risk liquid assets in their books;
Normally, different asset classes have different risk weights associated with them. The calculation of risk weights depends on whether the bank has adopted the standard or IRB approach under Basel II.Some assets, such as debentures, are assigned a higher risk than others, such as money or government securities. Since different types of assets have different risk profiles, the weighting assets according to their level of risk are mainly adjusted for assets that are less risky, allowing banks to discount the lower risk assets.
A document was written in 1988 by the Basel Committee on Banking Supervision, which recommends certain rules and regulations for banks. It was called Basel I. After a revision of the framework, Basel II was instituted. More recently, the committee has published another revised framework known as Basel III. The main recommendation of this document is that banks must maintain sufficient capital to equal at least 8% of their risk-weighted assets. The calculation of the amount of risk-weighted assets depends on which revision of the Basel Accord is followed by the financial institution. Most countries have implemented some version of this regulation.
BCL – Comfort Letter Bank
With a Letter of Funds, a Comfort Letter Bank (BCL) is issued as collateral for a buyer on behalf of the selling party; ensuring that they are able and willing to fulfill their obligations. This is usually common when the seller is unwilling to provide a financial guarantee against a particular outcome, such as the performance of a security or bank instrument.
SBLC – Standby Letter of Credit
StandBy Letter of Credit is a written commitment from a bank that issues it to pay a certain amount of money on behalf of the bank’s customer in favor of a beneficiary in the event the customer / buyer is not able to meet its financial obligation to the beneficiary / salesman
Using a Standby LC in business transactions is an indication of good faith and proof of the credibility and financial capabilities of a buyer.
LC standby is widely used in commodities trading when it is necessary to buy the goods from a local supplier or foreign exporter. SBLC can also be used as a guarantee to obtain credit lines and is ideal for the company, which plans to expand its business but does not want to use its assets.
Standby LC must always be issued as an irrevocable financial instrument and can not be canceled or revoked provided that it has been issued, transmitted and authenticated via SWIFT MT-760 message through an issuing bank. You can assign a waiting LC to another payee in accordance with written instructions from the first payee. The bank, which performs this transfer, must notify the bank issuing the amount to be transferred and the effective date of the transfer
The MT-760 is a type of SWIFT message, which acts as a bank guarantee. It carries a higher level of higher risk to the sender, and a reduced degree of risk to the receiver.
Essentially, a MT-760 is a SWIFT message, which ensures that one bank will pay on behalf of a customer from another bank. When a MT-760 is issued, the issuing bank places a pool of customer funds, which it ensures that the funds were established for payment to the beneficiary MT-760.
The cost of a MT-760 varies from bank to bank. However, due to the amount of risk involved for a bank payment guarantee, MT-760 is usually very expensive, with its issue costing between 0.3% and 1.5% of the total value of the MT-760.
Since a MT-760 has been published, it is not negotiable. For this reason, many merchants prefer a Letter of Credit, which is negotiable and can be modified in response to changes in unforeseen circumstances, such as a delay in scheduled transfer or other events.
There are times when an MT799 SWIFT is required as electronic communication from bank to bank to verify the funds in the account. The SWIFT MT799 can also be used to do what is called “pre-advise” or “early warning” from one bank to another. The follow-up to the measures could be a SWIFT MT760 message.
The SWIFT MT799 is commonly needed for: international import / export trade, foreign trade financing, bank debenture purchase / sale operations, and before a SWIFT MT760 is shipped; for the issuance of bank instruments such as a letter of credit (SBLC), or a bank guarantee (BG); or for funds locked into a cash collateral account
Swift MT-799 Issue (Pre-Notice)
The Issuing Bank issues a Pre-Notice “Free Message” SWIFT to issue an MT-760 guarantee based on an “X” asset and specifies a “Y” time period.
Swift emission response MT-799 (Pre-Notice)
The Receiver Bank issues a “Free Message” SWIFT to the customer’s bank confirming that they are ready to proceed to the reception and acceptance of the guarantee.
Swift MT-760 Issue (Warranty)
The Issuing Bank issues the MT-760 (Guarantee) to the trader bank. Finally, the trader will be responsible for monetizing the MT-760 and the amount of credit obtained at the entry of the program.
Emitting Bank Receiving Bank
BG – Bank Guarantee
A bank guarantee is a credit claim on the financial debt of a guarantor bank, on behalf of the claimant, to mitigate the risk on behalf of the beneficiary party. It can be used to help finance trade, international trade and domestic trade, and various other types of contracts in which the background of a third party (the issuing bank) could be used.
When a bank issues a Letter of Guarantee to a Beneficiary Bank it analyzes the amount of the applicant’s credit, not the transaction in general. Thus, the ability to acquire a financial instrument as a Bank guarantee is largely based on the relationship with its client.
The bank guarantee is very similar to that of a Letter of Credit in that it guarantees payment on behalf of your client to the beneficiary.
Both financial instruments allow contracts between two parties to move more easily and enable relationships abroad or with parties that are unfamiliar. The credibility of the debtor party is determined by the value and classification of the debt instrument it issues. In other words, it is safer for a beneficiary to receive a bank guarantee from a better rated bank.
Most top financial institutions have no problem issuing bank guarantees to their clients with high quality credit, lots of assets, and an extensive banking history with them. However, in today’s market many healthy and even savvy businesses do not have the credit capability and means to meet the requirements of a more gifted bank.