What is a Prime Bank?
Prime bank is a term used to describe a large, well-known bank but is also a phrase frequently used as part of a financial scam. Prime banks, because they are so big, move large amounts of money at a time and make sizable investments. They also trade instruments such as world paper, International Monetary Fund bonds, and Federal Reserve notes.
You as exporters are happy if your buyer/importer opens a Letter of Credit against the sale of export of your goods. As you know, after advance payment, the best terms are payment under Letter of Credit. So any exporter is happy if his buyer opens a Letter of credit against his supply of export goods. Under a Letter of Credit, the amount of sale of goods is guaranteed by the buyer’s bank.
Now, let us discuss – Are all Letters of Credit are safe? Are Letters of credit issued by any type of banks reliable? No. If your buyer agrees to open a Letter of credit against your supply of goods, you need to insist your buyer to open Letter of Credit with a Prime Banker.
Who is a ‘prime banker’?
As per the details of assets and liabilities based on the annual financial report of each bank all over the world, the authorities related to banking prepares prime bankers list. The prime banks are the banks that hold a strong financial background with sound assets and have been serving people with the best service. The prime banker’s database is available with all major reputed banks all over the world. You can check this data with your bank. Or your bank may help you to whom to be approached to get the said data.
So, a Letter of Credit issued by a Prime Bank is safe for an exporter always.
My second tip to exporters while opening an LC is ‘check the authenticity of Letter of Credit (LC)’.
What is meant by the authenticity of the Letter of Credit?
How to check the authenticity of the letter of credit (LC)?
I had a bitter experience during my career as Export Manager in an Export firm, about 15 years ago. My buyer has agreed to open Letter of Credit against my supply of export materials. He opened a letter of credit as per our export sale contract. However, once after receiving a copy by fax, I have sent my representative to check the authenticity of the Letter of Credit with my banker. Unfortunately, said Letter of Credit was opened with a co-operative society which they called ‘Bank’. I do not want to mention the country name here, but please be alert on such fraudulent activities.
There are many banks all over the world. Nowadays, after the introduction of globalization of trade, a number of banks and financial institutions have been introduced all over the world with the least restrictions within the country. Some of them have been working without any regulations by the government also. These banks work under Society’s Registration Act but name as “Bank”. As I have mentioned previously, you can approach your bank with the copy of the letter of credit to verify the authenticity and check whether the said LC has been opened by a prime bank.
Why LC with a prime banker is safe?
The financial strength and reputation of prime banks among people are very high compared to other banks. So, the prime banks work professionally as per their standard banking norms. No individual or firm can influence to violate the banking rules and regulations especially the norms of international trade. This helps the clients globally to depend on prime banks for smooth handling of export-import business.