Letters of Credit

Letters of Credit are a very important payment and hedging instrument in foreign business.

Letters of Credit are a globally accepted payment instrument with financing options to minimize risks in foreign business. In case all conditions are met, the bank is obliged to disburse the agreed amount to the beneficiary of the Letter of Credit.

Foreign business is associated with numerous risks, especially for exporters. Exporters run the risk of non-payment by the buyer. Importers, on the other hand, run the risk of not receiving the goods from the supplier for which they have already paid. This is where Letters of Credit can play an important role.


Main features:

  • Abstract and irrevocable payment commitment
  • Prepayment is made by the bank upon presentation of documents complying with the Letter of Credit
  • Financing options
  • Governed by international guidelines ERA 600

Your benefits:

  • Exporter: Bank pays irrespective of buyer's willingness to pay
  • Importer: Pays only once the agreed documents have been presented in conformity with the Letter of Credit
  • Retailer: Can use Letters of Credit as basis to finance its purchase

Letters of Credit – different types

Confirmed Letters of Credit

Letters of Credit are usually unconfirmed but can also be confirmed by commercial banks. If they are confirmed, Erste Group undertakes to pay in case the opening bank defaults. In this way the exporter doesn't bear commercial or political risks of the opening bank, because these risks are borne by Erste Group.
If you have questions
regarding confirmation fees, please contact us at lcquotation1606@erstegroup.com

Discounting Letters of Credit 

Receivables under deferred payment Letters of Credit may be advanced by Erste Group. The beneficiary must sell the receivable to Erste Group after presenting the documents complying with the Letters of Credit. Discounting Letters of Credit offer you immediately liquidity and risk minimisation.
Should you have any questions,
please contact us at lcquotation1606@erstegroup.com.

Transferable Letters of Credit

Under specific circumstances the beneficiary of a Letter of Credit (e.g. retailer) is able to transfer the Letter of Credit (in whole or partially) to the producer or prior supplier.

Back-to-back Letters of Credit

If the exporter needs security vis à vis his own supplier, a Back-to-Back Letter of Credit can be offered. In this case the exporter is the ordering party of the Back-to-Back Letter of Credit. The transaction involves legally two separate Letters of Credit, even though both are linked to each other.   

Stand-by Letters of Credit

Is very similar to an abstract guarantee; in case contractual obligations are not fulfilled by the ordering party, the beneficiary is indemnified by the bank. Because it is similar to an abstract guarantee, this special form of a Letter of Credit is usually not utilized.  

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Please contact

Robert Konrad

Head of Transaction Banking Sales


Ivica Bogdanovic

Head of Trade Finance