The Bank may issue the following types of letters of credit:

By the nature of the commercial transaction:

• Import letter of credit - the Bank issues the letter of credit at the instruction of the buyer (importer). An import letter of credit is one of the most widely used instruments for conducting international commercial transactions and is widely used in the banking system,

• Export letter of credit - the Bank receives a letter of credit issued by another bank in favor of the seller (exporter). In the case of an export letter of credit, the Bank may provide short-term export loans to finance the packaging of goods or other production processes.

By the method of opening:

• Confirmed letter of credit - at the request of the beneficiary, the letter of credit may be confirmed by another first-class bank acceptable to the beneficiary. The confirmation of a letter of credit constitutes an independent and additional obligation of the confirming bank to honor the letter of credit,

• Unconfirmed letter of credit - the Bank issues the letter of credit by sending it directly to the advising bank and requesting the latter to advise the letter of credit to the beneficiary without assuming any additional obligations.

By purpose of use:

• Irrevocable letter of credit - cannot be amended or cancelled by the Issuing Bank or Confirming Bank without the prior consent of the parties,

• Revolving letter of credit - used for periodically recurring deliveries, which are usually carried out according to a schedule specified in the contract. It provides for the automatic reinstatement of the initial amount (quota) of the letter of credit after each utilization, up to the specified maximum amount,

• Transferable letter of credit - provides for the possibility of full or partial utilization of the letter of credit by one or more persons. It allows the beneficiary to transfer their rights under the letter of credit, or part thereof, to other beneficiaries. This type of letter of credit can be used when the beneficiary is not the main supplier of the goods but acts as an intermediary between the buyer and the main supplier,

• Standby letter of credit - is a special form of letter of credit and is essentially closer to a bank guarantee. It is advisable to use it as additional security for payments to be made in favor of the exporter,

• Letter of credit with refinancing - a financial instrument under which, after verifying the documents presented under the letter of credit, the Confirming Bank immediately pays the supplier by providing a loan to the Issuing Bank.

Import Letter of Credit

• The import letter of credit is issued on behalf of resident legal entities and business entities of the Republic of Armenia in favor of other resident and non-resident legal entities, organizations, business entities, state institutions, and financial institutions that have continuous operating experience during the last 12 months in the construction sector, the last 6 months in the manufacturing sector, and the last 3 months in the trade and services sector.

• The import letter of credit is issued in AMD and foreign currency.

• The maximum validity period of an import letter of credit is 12 months, while no minimum validity period is established. Depending on the specifics of the commercial transaction and the duration of contract performance, the validity period of the letter of credit may be set for up to 36 months.

• No minimum amount is established for an import letter of credit, while the maximum amount is determined based on the amount of the customer’s own financial resources or the results of the financial and economic analysis of their activities.

• At the request-instruction of a non-resident customer, an import letter of credit is opened only if it is fully secured by cash coverage.

Issuance of an Import Documentary Letter of Credit

• Collateral securing an import letter of credit may include real estate, a vehicle (car), agricultural machinery, equipment, monetary funds, other tangible assets, guarantees, and guarantees issued by other first-class banks.
• If the import letter of credit is fully secured by cash, the minimum collateral coverage ratio of the letter of credit (the ratio of the appraised value of the collateral to the letter of credit amount) is set at 100%. The currency of the cash coverage securing the import letter of credit must correspond to the currency of the letter of credit.
• Fees for services provided by intermediary bank(s) participating in the opening and servicing of the import letter of credit, which, according to the terms of the import letter of credit, are borne by the Customer, are paid by the Bank and reimbursed by the Customer according to payment requests submitted by the intermediary bank(s).
• The import letter of credit is issued both by freezing the customer’s own funds at the Bank and through financing of the respective letter of credit transaction by the Bank.
• Financing of the import commercial transaction is carried out in the currency of the import letter of credit.
• Repayment of the paid letter of credit amount and payment of interest are made in equal monthly/quarterly/semi-annual installments or according to a free schedule, in accordance with the repayment schedule stipulated by the letter of credit agreement, which is provided to the Customer on the date of actual payment of the letter of credit amount.
• Interest on the paid letter of credit is calculated daily on the declining balance of the paid letter of credit from the time the letter of credit is actually paid.
• The Customer has the right to repay the paid letter of credit and accrued interest early, in full or in part. In this case, the Customer is obliged to pay a penalty of 2% of the amount repaid if the principal amount of the paid letter of credit is repaid during the first year, and 1% if the principal amount for the remaining period is repaid. If the repayment is made in full on the date of payment of the letter of credit, the above penalty is not calculated.
• The Customer may refuse financing of the import commercial transaction and apply to the Bank to pay the amount of the Import Letter of Credit using their own financial resources, provided that the Customer submits an application to the Bank at least 5 business days before the planned date of payment of the letter of credit amount and simultaneously ensures that the Import Letter of Credit amount is available in the respective bank account.

• Procedure for calculating the import letter of credit issuance fee:
• Letter of credit issuance fee = ILC amount × Letter of credit issuance fee rate × Number of quarters within the letter of credit term (an incomplete quarter is considered a full quarter)
• Representative example of calculating the import letter of credit issuance fee:
• Letter of credit amount: EUR 100,000
• Letter of credit term: 200 days (3 incomplete quarters)
• Letter of credit issuance fee: 0.2% per quarter
• The letter of credit issuance fee will be:
• 100,000 × 0.2% × 3 = EUR 600 (equivalent in AMD)

• The maximum validity period of a standby letter of credit is 24 months, while no minimum validity period is established.

• A standby letter of credit, as a special type of import letter of credit, does not provide for financing of a commercial transaction.

• The monetary funds securing the standby letter of credit may be in different currencies. If the standby letter of credit amount is fully secured by monetary funds in the same currency, the minimum collateral coverage ratio of the standby letter of credit (the ratio of the appraised value of the collateral to the letter of credit amount) is set at 100%, while if it is secured by monetary funds in different currencies, the minimum ratio is 120%.

Procedure for calculating the standby letter of credit issuance fee:

The standby letter of credit fee is charged at the time of issuance and is calculated using the following formula:

• Annual standby letter of credit fee = Standby letter of credit amount × Annual interest rate × Standby letter of credit term

• Example of calculating the annual standby letter of credit fee:

• Standby letter of credit amount: EUR 100,000

• Standby letter of credit term: 24 months

• Standby letter of credit fee: 3% per year

The fee calculated for the entire contractual term will be:

100,000 × 3/100 × 2 = EUR 6,000

• The amount of the letter of credit paid based on the Beneficiary’s written demand under the standby letter of credit must be repaid by the Customer within 14 (fourteen) calendar days from the date of payment of each installment, within the limits of the standby letter of credit amount.

• Within 14 calendar days from the date of payment of each installment of the letter of credit amount, the Bank charges interest on the outstanding balance of the paid letter of credit amount at twice the bank interest calculation rate set by the Central Bank of the Republic of Armenia at that time.

• The opening of an export letter of credit may be advised to the Bank by letter or through the international SWIFT network for financial communications.

For more details:

Detailed information on the amount of possible additional payments and all the points presented is available in the Trade Financing Instruments tariffs.

Previous terms of the Trade Financing Instruments

List of excluded and subject-to-approval activities

• Factors for a positive decision on the provision of a letter of credit include assessment of the customer’s creditworthiness, the Customer’s clear understanding of the Bank’s obligations to be assumed toward the Beneficiary under the letter of credit, as well as the Customer’s subsequent obligations toward the Bank arising if the letter of credit is honored by the Bank, the Customer’s financial stability and solvency, credit history, reputation and standing, and collateral.

• Factors for rejecting a letter of credit include insufficient financial indicators resulting from the analysis, the customer’s poor credit history, insufficient/lack of required collateral, the professional opinion of the Business Consultant, and the professional opinion of the Credit Committee.

• The letter of credit is processed at the Bank’s Head Office and branches, except for the Komitas, Yeritasardakan, Teryan, Shinarnarner, Homplex Mall, Gyumri, Ashtarak, and Aragats branches. The complete list of the Bank’s branches is available here.

• A decision regarding the letter of credit application is made within 1-20 banking days after the customer submits the application and the required package of documents.

• The decision made by the Bank following the review of the letter of credit application is communicated to the Customer within 1 banking day.

• The letter of credit is provided within 1-5 banking days after the Customer submits the complete package of documents required for the letter of credit and the collateral process has been completed.

• If the letter of credit is provided against collateral in the form of real estate, a vehicle, agricultural and other machinery, equipment, and the property is appraised at AMD 30 million or more, the property must also be appraised by a qualified independent appraiser cooperating with the Bank.

• The Bank has the right, in the event of fluctuations in the interest rates on funds raised and placed by the Bank in the financial market and/or changes in the financing rate and/or the existence of such prerequisites, to unilaterally change the fees stipulated by the Agreement by notifying the Customer at least 30 calendar days in advance. The changes will apply from the date specified in the notice.

• In the case of letters of credit provided in foreign currency, changes in the foreign exchange rate may affect repayments of the paid letter of credit.

• Interest on the paid letter of credit is calculated daily on the declining balance of the paid letter of credit from the time the letter of credit is actually paid.

• The amount of the paid letter of credit is debited from the Customer’s foreign currency accounts in the currency in which the letter of credit was opened. Penalties, interest amounts, and fees of the Issuing Bank are debited from the Customer’s AMD accounts, while in the presence of confirming, advising, and other intermediary banks, the relevant foreign currency accounts are used. If the required amount is not available in the respective accounts, it is debited from the Customer’s other bank accounts. In this case, the purchase and sale of foreign currency is carried out at the exchange rate set by the Issuing Bank for that day, while penalties, interest amounts, and fees are charged at the average market exchange rate set by the Central Bank of the Republic of Armenia for the previous day.

• In the event of termination of the services, fees already paid are not subject to recalculation or refund.

During the term of the Agreement, the loan account statement and other information required to be provided under the legislation of the Republic of Armenia are provided free of charge. A statement not required to be provided under the legislation of the Republic of Armenia and a duplicate statement are provided as follows:

• for a period of up to 6 months (inclusive) 

• for a period of more than 6 months and up to 12 months (inclusive) - AMD 2,000 (including VAT),

• for a period exceeding 1 year - AMD 3,000 (including VAT),

Information on the loan may be provided in the form of a statement as required:

• within the business day following submission of the application - AMD 5,000; when applying through the acba digital system - AMD 3,000 (including VAT),

• on the same business day, within 1 hour - AMD 7,000; when applying through the acba digital system - AMD 5,000 (including VAT),

• within one to four business days - through the delivery service - AMD 6,000; when applying through the acba digital system - AMD 4,000 (including VAT).

For a letter of credit secured by property, the Customer may incur the following payments:

• Real estate appraisal service fee - AMD 5,000 and more, depending on the area and type of the property,

• Notary service fee - AMD 3,000-15,000,

• Fee for the registration certificate of the right to pledge real estate - AMD 2,000-25,000,

• Fee for a unified statement regarding restrictions on real estate - AMD 10,000,

• Fees related to pledging other property - AMD 2,000-10,000.

• Depending on various circumstances, the Bank may require additional documents and information. For the purpose of proper customer due diligence as defined by the RA Law “On Combating Money Laundering and Terrorist Financing,” the Bank may, based on the “Know Your Customer” principle, require the Customer to provide additional documents or other information, as well as ask additional questions during verbal communication. If proper identification of the Customer is impossible or account servicing is impossible, access to the service provided by the Bank may be restricted. In addition, in accordance with the agreement signed with the United States under the Foreign Account Tax Compliance Act (FATCA), the Bank may collect additional information to determine whether you are a U.S. taxpayer.

Civil Code of the Republic of Armenia, Article 941.

1. The nominated bank closes the letter of credit:

1. upon expiration of the letter of credit;

2. upon the Beneficiary’s application to refuse to use the letter of credit before its expiration, if the terms of the letter of credit provide for such a possibility;

3. upon the Payer’s request to revoke the letter of credit in full or in part, if such revocation is possible under the terms of the letter of credit.

The nominated bank must notify the Issuing Bank of the closure of the letter of credit.

YOU HAVE THE RIGHT TO COMMUNICATE WITH THE FINANCIAL ORGANIZATION IN YOUR PREFERRED WAY, BY POSTAL OR ELECTRONIC MEANS. RECEIVING INFORMATION ELECTRONICALLY IS THE MOST CONVENIENT. IT IS AVAILABLE 24/7, FREE FROM THE RISKS OF LOSING PAPER INFORMATION AND ENSURES CONFIDENTIALITY.

THE AMOUNT OF PENALTIES AND CASES OF APPLICATION IN THE EVENT THAT THE CONSUMER FAILS TO FULFILL THEIR OBLIGATIONS ON TIME:

IF THE CUSTOMER FAILS TO FULFILL THEIR OBLIGATIONS ON TIME, THE BANK MAY CLAIM THE INTEREST PROVIDED FOR BY ARTICLE 411 OF THE CIVIL CODE OF THE REPUBLIC OF ARMENIA. INTEREST IS CALCULATED FROM THE DATE OF DELAY UNTIL THE DATE OF TERMINATION OF THE OBLIGATION, AT THE BANK INTEREST CALCULATION RATES SET BY THE CENTRAL BANK OF THE REPUBLIC OF ARMENIA FOR THE RESPECTIVE PERIODS.

PAYMENT PRIORITY:

IN THE EVENT OF AN OVERDUE OBLIGATION UNDER THE AGREEMENT, THE PAYMENT IS FIRST DIRECTED TOWARD REPAYMENT OF OVERDUE OBLIGATIONS IN THE FOLLOWING ORDER: PENALTY CALCULATED ON THE LOAN AMOUNT AND INTEREST AMOUNTS, OVERDUE MONTHLY FEE (IF ANY), OVERDUE INTEREST AMOUNT, OVERDUE LOAN AMOUNT, AND IF THE AMOUNT PAID EXCEEDS THE OVERDUE OBLIGATIONS, THE EXCESS AMOUNT IS DIRECTED TOWARD REPAYMENT OF THE LOAN AMOUNT.

FORECLOSURE OF COLLATERAL:

PLEDGED PROPERTY MAY BE FORECLOSED IF THE CUSTOMER FAILS TO FULFILL THE OBLIGATIONS UNDERTAKEN UNDER THE AGREEMENT ON TIME. IF THE VALUE OF THE COLLATERAL IS INSUFFICIENT, THE CUSTOMER’S OBLIGATIONS WILL BE REPAID FROM THE CUSTOMER’S OTHER PROPERTY.

INFORMATION PROVIDED TO THE CREDIT REGISTRY:

ATTENTION: IF YOU FAIL TO FULFILL OR IMPROPERLY FULFILL YOUR OBLIGATION, THE BANK WILL SEND THE DATA TO A CREDIT BUREAU, WHERE YOUR CREDIT HISTORY WILL BE FORMED. YOU HAVE THE RIGHT TO OBTAIN YOUR CREDIT HISTORY FROM THE CREDIT BUREAU FREE OF CHARGE ONCE A YEAR.

ATTENTION: A POOR CREDIT HISTORY MAY PREVENT YOU FROM OBTAINING A LOAN, GUARANTEE, OR ANY OTHER PRODUCT FINANCED BY THE BANK IN THE FUTURE.

FOR GUARANTORS

• If the Customer fails to fulfill their obligations, you will have to make the payments on their behalf, your credit history will deteriorate, and you may lose your property.

• You will be provided with a copy of the letter of credit and guarantee agreements.

• Communication will be carried out through the method selected by you.

• You will be notified 7 days in advance of any changes to the terms of the agreement.

• A reminder regarding the existing obligation will be sent 1 day in advance.

• If the Customer delays fulfillment of their obligation toward the Bank, you will be informed of this no later than the following day.

THE GUARANTOR HAS THE RIGHT TO:

• Request information from the Bank at any time regarding the outstanding amount of the Customer’s obligations toward the Bank.

• Recover from the Customer the amounts paid by the Guarantor to the Bank to fulfill the Customer’s obligations, as well as any other damages incurred on behalf of the Customer.

For more details:

• Penalties applicable in case the Borrower fails to fulfill their obligations on time.

• Information on credit history and credit score.

• Qualified independent appraisal companies cooperating with the Bank.

• Finance for Everyone

1. How does a documentary letter of credit differ from a bank guarantee?

• Unlike a bank guarantee, a documentary letter of credit is a payment instrument. This means that by issuing a letter of credit, the Bank directly assumes the payment obligation. In the case of a guarantee, however, the Bank undertakes to pay the amount demanded by the Beneficiary only if the debtor fails to fulfill their payment obligations.

2. In the case of a documentary letter of credit, is payment for the imported goods made after the goods reach the buyer?

• Under a letter of credit, payment is made against the required documents in accordance with the payment terms specified in the letter of credit (immediate payment, deferred payment), and is independent of whether the goods have actually reached the place of delivery.

3. What document is required to issue a letter of credit?

• A documentary letter of credit is issued according to the Customer’s instructions (application). Therefore, the letter of credit is independent of the sale and purchase agreement; however, a prerequisite for issuing a letter of credit is that the sale and purchase agreement stipulates payment for the transaction by means of a documentary letter of credit.

4. What types of goods can be purchased using a letter of credit with refinancing?

A letter of credit with refinancing is issued for the acquisition of fixed assets; however, its use for working capital may also be considered.