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Non - Funded Credit Facility
Any type of credit facility which involves commitment of bank on behalf of customer for payment to third party in case of need under some agreed conditions refers to non-funded credit facility. The followings are the non-funded credit facilities/limits practiced in the Mercantile Bank Limited:
2.1 Letter of Credit (L/C):
This is an obligation to the exporter’s bank the importer for import of any permissible item from both local & foreign sources. Inland L/C shall be allowed for manufacturing unit at sight basis only. The AD branches are allowed to operate the L/C business.
Features/Norms:
L/C governed by UCPDC-600.
An L/C transaction is guided by Foreign Exchange Guidelines of Central Bank, Foreign Exchange Regulation (FER) and Import Policy.
Bank is obliged to pay the beneficiary on complied presentation of documents or upon production of stipulated documents.
L/Cs are of different types as under:
a. Sight L/C:
When payment against the L/C is made on sight of the shipping documents/bill.
Pricing mode: Commission usually on quarterly basis.
Primary Security: L/C Margin, L/C related shipping documents
b. Usance or Deferred Payment (DP) L/C:
When Bank gives acceptance for payment at a pre-agreed later time upon sight of the shipping documents/bill.
Pricing mode: Commission usually on quarterly basis.
Primary Security: L/C Margin, L/C related shipping documents and acceptance.
c. UPAS L/C (Usance Payable at Sight):
It is actually the combination between Sight L/C and Usance L/C. Simply saying, UPAS is an Usance L/C that is payable sight basis to the seller (beneficiary), while the payment by the applicant (buyer) to the issuing bank will made at the end of usance term.
Pricing mode: Commission usually on quarterly basis. Interest shall be realized for the deferred period as per regulation of Bangladesh bank
Primary Security: L/C Margin, L/C related shipping documents and acceptance.
d. Stand By letter of Credit:
A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC performs brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then sends notification to the bank of the party requesting the letter of credit (typically a seller or creditor)
e. Back to Back (BTB) L/C:
The BTB L/C is opened under the umbrella of a Master L/C or sales contract in favor of beneficiary. Usually, BTB L/Cs are opened to mobilize export inputs. FDF L/C may also be allowed to the eligible customer to import/ procure raw materials of export.
Features/Norms:
i. Back-to Back L/C is opened against Export L/C or Sales contract.
ii. Back-to-Back L/C value is determined on FOB value of Export L/C or sales contract complying the prescribed percentage of Import Policy Order.
iii. Pre-shipment finance (such as PC) is allowed only on receipt of raw materials at the factory premises of the customer. Pre-shipment finance and Back-to-Back L/C liability altogether will not exceed 90% FOB value of the export L/C. PC liability shall be adjusted upon negotiation/ repatriation of the corresponding export bill.
iv. No accepted bill drawn under Back-to-Back L/C shall be kept overdue beyond its due date of payment as per acceptance communicated by the Bank.
v. Pricing mode: Commission usually on quarterly basis.
vi. Primary security: Lien on Export L/C.
While allowing Back to Back L/Cs and pre-shipment finance on account of export oriented industries operating under Bonded Warehouse system, the following norms to be followed:
i. Branches will ensure the compliance issues of the 100% export oriented RMG customers.
ii. Export L/C must be examined carefully to ascertain its genuineness and important points i.e. shipment validity, credit validity, payment/availability clause, reimbursement clause etc. to be noted-down to ensure that nothing is adverse to execute the export order and to receive the payment.
iii. Present outstanding of Back-to-Back L/Cs and Bills will be taken together to determine the exposure of the customer against the sanctioned limit approved for import/procurement of raw materials.
iv. To open back-to-back L/C on behalf of a new customer, prior approval from Head Office must be obtained.
v. Back to Back L/C may also be opened against sales contract of regular buyers having satisfactory credit report with the approval of Head Office on case to case basis. In that case, satisfactory performance of the customer with us shall have to be taken into consideration. However, branch may obtain prior approval for a regular buyer for a period up to the validity of revolving limit.
vi. Credit Report of the buyer to be obtained before opening of BTB L/C at least once in a year.
vii. OD (Export) may be allowed by the Branch to pay out overdue accepted bill drawn under Back to Back L/C under compelling situation But post facto approval from H/O will be obtained.
viii. If forced loan is created in favour of a customer, approved BTB L/C and PC limit will be suspended and case to case approval from Head Office to be obtained for opening of any further BTB L/C or allowing PC or any other new facility favouring that customer till full adjustment of the forced loan liability. After adjustment of the Forced Loan liability sanctioned BTB L/C and PC limit will be revived on due notification to Head Office.
ix. Board/ E.C. shall be apprised quarterly on the position of Forced Loan.
2.2 ABP:
ABP stands for ‘Accepted Bills for Payment’. This is acceptance made by the Bank for payment after a certain period against shipping documents (bill) for import through Usance (DP) L/C. It is an interim arrangement that allows time for the importer to make payment.
Features/Norms:
This is a consequential facility and does not require pre-facto or post-facto approval.
All specific ABP and each ABP created under a revolving limit are demand loan by nature.
ABP is created against import of Usance (DP) L/C.
It will have the tenure as per the L/C term such as 30, 90, 120, 180, or 360 days but subject to Bangladesh Bank guidelines/directives.
The amount of ABP is dependent on L/C. More than one ABP may be created against a single L/C, where part shipment is allowed. However, aggregate amount of ABP created must not exceed the value of L/C  Tolerance.
Importer receives shipping documents after creation of ABP.
At the end of the ABP tenure, payment to the beneficiary would be made by the Bank. Simultaneously, importer would pay equal amount to the Bank.
Usually no post-import finance is allowed.
Pricing mode: Commission usually on quarterly basis.
Primary security: Bill of Exchange signed on the back by the importer and L/C Application and Agreement Form.
2.3 Bank Guarantee (BG):
A bank guarantee is an unconditional undertaking of the bank on account of its customer in favour of the beneficiary to pay a specified amount of money if the customer (on account of which guarantee is issued) fails to fulfill the contractual obligations.
Features/Norms:
The guarantee is unconditional and irrevocable.
Bank is obliged to pay the beneficiary upon lodgment of claim by the beneficiary.
Guarantee are of different types:
a. Bid Bond (BB):
This guarantee is issued on behalf of a bidder/contractor (customer) to participate in a tender favouring tender inviting authority. If the customer becomes the successful bidder, the work/supply awarding authority asks for submission of Performance Guarantee and return the original Bid Bond. If the customer becomes the unsuccessful bidder, the work/supply awarding authority returns the bid bond immediately after tender.
b. Performance Guarantee (PG):
This guarantee is issued on account of the contractor (after being successful bidder) favouring the work/supply order awarding authority for getting formal work/supply order. Usually its validity covers the work order validity plus warranty period.
c. Advance Payment Guarantee (APG):
This guarantee is issued on behalf of contractor (Customer) favouring the work/supply order awarding authority against advance made by them. Bank’s liability under APG is liquidated gradually as per adjustment of the advance with the Work Awarding Authority.
d. Retention Money Guarantee/Retention Bond/ Warrantee Guarantee:
This guarantee is issued on behalf of contractor (Customer) favouring the work/supply order awarding authority after completion of work/supply order for withdrawing the money retained by them from the bills. Usually its validity ends with the warranty/defect liability period.
e. Payment Guarantee/ Suppliers Credit Guarantee:
This guarantee is provided in favor of the suppliers/service providers and on behalf of the Customers to avail certain amount of supplies/services on credit.
f. Guarantee against Counter Guarantee of other Bank:
This Guarantee is given by Banks normally on behalf of their customers to another bank. It happens when, by law, a foreign bank even of good or best standing, is not authorized to issue guarantee in favor of resident in a specific country but only allowed to instruct a local bank to issue a bank guarantee on its behalf.
g. Customs Guarantee:
This guarantee is issued on account of the customer favouring the Customs Authority of Bangladesh to clear imported goods postponing payment of customs duty. Usually exporters avail this kind of the guarantee.
h. Other Bank Guarantees:
Besides these, time to time Bank provides different other guarantees in the name of ‘Bank Guarantee’ to meet customer requirements.
Pricing mode: Commission usually on quarterly basis.
Primary security: Counter Guarantee of the customer.
Corporate Banking
Short Term Finance
Long Tern Finance
Real Estate Finance
Import Finance/Trade Finance
Work Order Financing/
Construction Business
- Earnest Money Financing Scheme -
  SOD (EMF)
- Bid Bond
- Performance Guarantee (PG)
- Advance Payment Guarantee (APG)
- Shipping Gurantee
- Customs Gurantee
- SOD (WO)
Export Finance
- Pree-Shipment Credit/Finance
   - Export Cash Credit
     (Hypothecatio /Pleadge)
   - Export Cash Credit Against
     Trust Receipt
   - Advance Against Anticipatory
     Letter of Credit
   - Back to Back Letter of Credit
   - Packing Credit
   - SOD (Export)
- Post-Shipment Credit/Finance
   - Negotiotion of Export
     Documents (FDBP)
   - Purchase of Documents
     against DP or DA Bills
Structured Finance
- Project Finance
- Syndication