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Documentary operations: advantages and development prospects – PJSC "Ukrsotsbank", UniCredit Bank™, expert’s opinion


Valeriy Smolko, Head of Kharkiv Macroregion Corporate Business Department of PJSC "Ukrsotsbank", UniCredit Bank™, about advantages of documentary operations and development prospects.

Which are the advantages of documentary operations over other credit products?

A wide range of banking products helps the bank clients to fulfill the most ambitious projects. Nowadays in current economic environment it is more and more demanded not only to get long-term financing, but also a possibility of organizing deals with foreign contractors’ participation and with optimal expenses. In this case documentary operations and trade financing will be an option. This lets the enterprises not only decrease the cost of resources but also act as a reliable partner in front of contractors. As issue of bank guarantees or letters of credit prove the executed financial statement analysis and bank acceptability of client’s risks.

Together with that documentary operations provide a guarantee of receiving commodities or payment in the contracted terms, granting a payment delay for the shipped commodities, payment reliability – the bank checks the submitted documents before the payment for their matching the agreement terms and in case of violating any of the terms, the payments are not executed.

Concerning the scope of documentary services in export-import operations and payments among residents, they are used in the following cases: for operations with lack of confidence in full payment; for operations, when advance payment is unpractical due to lack of confidence in supplier’s reputation; for orders of commodities and services when 100% post-payment guarantee is needed.

Which banks do compete in your region in this product segment?

Application of such instruments advances certain demands towards the rating and financial statement of the bank and the high level of bank staff erxperience as well. As we think such major players as PJSC "Ukrsotsbank", UniCredit Bank™, PJSC "Privatbank", PJSC "Ukrsibbank", PJSC "Credit Agricole bank", PJSC "Sberbank of Russia" are the most active players at this market.

A significant advantage of PJSC "Ukrsotsbank", UniCredit Bank™, in this issue is its participation in UniCredit Group.

Which is the demand of clients in your region for documentary and guarantee operations? Which products are the most interesting for the clients?

Many enterprises have already appraised the advantages of the mentioned operations. The banks, including PJSC "Ukrsotsbank", UniCredit Bank™, in their turn expand the range of services, related to guarantees and letters of credit, and offer not only ordinary operations of tender guarantee and secured letters of credit issue, but also such products as pre-export and post-import financing, which could be an efficient instrument of substituting the need of working capital replenishment.

During the implementation of investment projects by Ukrainian companies the issue of letters of credit with payment and financing delay at the account of foreign bank resources have become especially pending since lately. For example if Ukrainian company signs an agreement for equipment shipping from abroad and opens a documentary letter of credit in the bank, secured by one of UniCredit banks, when foreign company have produced and shipped the equipment, it gets payment from foreign bank, and the purchaser executes payments after the outlined delay period is over. Finally the payment is executed by Ukrainian bank, which in its turn gets money from Ukrainian importer as far the obligations are being repaid during 3-5 years.

In view of near-border situation of Kharkiv and Sumy Regions, which are included to North-Eastern commercial macroregion, some clients have assets and production capacities in Ukraine and the part of production is realized through their trade houses in Russian Federation. In this case an issue of bank guarantee in favor of Russian subdivision of UniCredit (CJSC "UniCredit Bank", Moscow) becomes efficient, as it provides financing directly on the territory of Russia.

Which additional advantages can enjoy the client from using documentary operations of PJSC "Ukrsotsbank", UniCredit Bank™, providing examples of recent practices?

The bank offers its clients a complex servicing of contract obligations using letters of credit and bank guarantees, providing consultations in choosing optimal calculation schemes with regards to Ukraine’s currency legislation, providing support in setting payment terms of external economic contract. This helps to make payment relations more flexible and reliable for both sides.

For example, the acceptability of our direct guarantees for the producers of distilled beverages, foodstuff, gives our clients-distributors a possibility to get an additional payment delay and reduce expenses for servicing due to absence of necessity to issue bank counter-guarantees and no need in third banks participation.

PJSC "Ukrsotsbank", UniCredit Bank™, actively participates in financing large investment projects, related to energy efficiency and environment support. For example in 2012 the bank launched a close cooperation with State enterprise "Ukrainian science technical center of metallurgical industry "Energostal" (Kharkiv) – one of the leaders in Ukraine and CIS states in the field of projecting constructed, reconstructed and technically reequipped acting enterprises and facilities of mining and metal complex, machinery and other sectors, creating new production facilities, industrial ecology, energy saving.

According to the results of a tender, organized and held by JSC "Severstal" (Russian Federation), in 2012, SE "UkrSTC "Energostal" was determined as a winner for the realization of the largest ecology project at Cherepovets metal plant, which would help to improve the ecological environment.

The reconstruction provides the execution of complex of works on development of basis engineering and project-constructing documentation, producing, shipment, start-up of equipment, leading to project indices of exhaust gas cleaning at funnel and dustiness at working places of technical staff of CJS "Severstal". Ecological project will significantly decrease the emissions of inorganic dust with silicone dioxide and respectively, the pressure on environment.

Aimed at executing the contract and purchasing all the necessary equipment by our client, the bank set a limit for issue of documentary letters of credit with delayed payment in the amount of Euro 4.5 million. According to Deputy General Director of SE "UkrSTC "Energostal" Pirogov A., this helped the enterprise to build a closed, understandable and transparent scheme of cooperation when fulfilling the project.

Please tell about prospects of such business in Ukraine.

The development of any business demands additional financing and respectively expansion of bank instruments for usage. Together with that if the cost of credit in UAH amounts to more than 20% per annum, and currency loans are granted selectively on term of currency revenues availability, currently the average cost of documentary operations amounts to 3%–5% per annum in any currency. So, usage of documentary instruments lets the company reduce the cost of attracted resources, which means higher level of repayment under the invested capital by business owners.

We hope that this fact will stimulate companies to use documentary instruments in their activity giving the confidence in active increase of such business share in overall bank assets.

Date: 22.10.2013

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