We saw a headline recently in the Wall Street Journal that said: Bank Financing Played Big Role in Trade Collapse. It referred to a study by two prominent economists of the economic difficulties in 2008/9, noting that a shrinkage in the supply of letters of credit had a large effect on world trade and the global economy. Further, such a shrinkage affected developing countries even more.
There was a popular song longer ago than we’d care to say by a singer named Meat Loaf entitled
I’d Do Anything for Love (But I Won’t Do That). We couldn’t help thinking of that song when we were thinking about clients possibly being told by their bankers “I’d do anything for your business (but I won’t do that).”
The thought comes up because we hear from clients in many spots who tell us that finding banks to handle their letters of credit, or to issue LC’s against existing assets. No joke, folks. We have friends in Ireland who advise that they have difficulty even finding banks there who can receive an LC. We’ve heard the same in a handful of other southern European countries.
And then there’s idiosyncratic behavior between banks in certain countries. We learned recently that banks in India have little fondness for LC’s issued from Bangladesh, their next door neighbor. Banks in other parts of the world don’t have that problem, but if you’re in India, well, it can be tricky to sell much-needed foodstuffs next door. You have to be able to think outside the box, or in this instance, outside the country.
Your Banker Can’t Help Himself; but You Can Help Yourself with the Right Bank
Ultimately, he’s subject to the dictates of the institution for which he works. But banks operate in the marketplace too, and some are much more comfortable with letters of credit than others, more comfortable with certain countries than others, more comfortable with certain commodities than others. Who would know which banks will do what with whom, you wonder? Are there banks that will even do that?
In concert with our partners, we have a good sense of the trade finance marketplace amongst banks. We know which banks can handle a usance (late settlement) documentary LC from west Africa and issue an at sight payment instrument to a supplier based on that LC. We have a handle on LC’s from a wide swath of Asia from Pakistan to China. We might only have to pass on Antarctica, and a couple of countries frowned upon by the rest of the world.