A letter of credit (LC) is a form of payment used for the import of visible goods.
It is a written undertaking given by a bank (issuing bank) at the request of its customer (applicant), in which the bank undertakes to pay the exporter (seller/beneficiary) up to a specified amount within a prescribed period of time upon presentation of stipulated documents in accordance with the terms of the documentary credit.
The main participants in an LC transaction are:
There are two main types of LCs established in GTBank, which include:
Confirmed Letter of Credit (CL):
A confirmed letter of credit is a letter of credit with a second guarantee obtained by a borrower in addition to the first letter of credit. A confirmed letter of credit is typically used when the bank issuing the first letter of credit may have questionable creditworthiness and the seller is seeking a second guarantee to ensure payment. If the first letter of credit is not backed by a second guarantee, it may be considered unconfirmed.
The LC may be issued against:
- Banks Import financing facility
Unconfirmed Letter of Credit (ULC):
A letter of credit that has not been guaranteed or confirmed by a bank other than the bank that opened it. The advising bank merely informs the beneficiary of the terms and conditions of the letter of credit.
The LOC may be issued for:
- Import financing facility of the bank
Other letters of credit that GTBank issues are