Definitions

Standby Letter of Credit (SBLC)

A Standby Letter of Credit (MT760) is a bank’s written commitment to pay a certain amount of money on behalf of the bank’s client in favour of a beneficiary in case the client/buyer is not able to fulfil its financial obligation to the beneficiary/seller. Using an SBLC in business transactions is an indication of good faith and proof of financial credibility and repayment capabilities of a buyer. SBLCs are widely used in commodities trading when it is necessary to buy the goods from a local supplier or foreign exporter. SBLCs can also be used as security to obtain credit lines and are ideal for a company that plans to expand its business but does not want to utilise its assets. An SBLC should always be issued as an irrevocable financial instrument. Once it has been issued and transmitted via an authenticated MT760 SWIFT message, any amendment or cancellation is subject to the rules and terms of the instrument. It is possible to assign an SBLC to another beneficiary in accordance with written instructions from the first beneficiary. The bank that performs such a transfer must notify the issuing bank of the amount to be transferred and the effective date of the transfer. Standby letters of credit that expressly incorporate UCP 600 follow the ICC’s Uniform Customs and Practice for Documentary Credits (UCP 600).