|SLECIC indemnifies a bank
A main objective of the Sri Lanka Export Credit Insurance Corporation (SLECIC) is to issue pre- shipment credit guarantees and/post shipment credit guarantees to financial institutions favouring exporters, says press release. These guarantees cover non-payment by the exporter due to protracted default or insolvency. Export payments insurance policies are issued to exporters covering export proceeds when there is a protracted default or the bankruptcy of his buyer in the foreign country.
These three schemes will facilitate exporters to obtain liberal finance without collateral securities. It will benefit the exporter to face the world market with competition, whilst his liquidity position is intact.
On August 8, SLECIC indemnified a bank under the pre-shipment credit guarantee favouring a seafood exporter.
This exporter is a subsidiary of a reputed group of companies coming under the purview of the Board of Investment of Sri Lanka. It is engaged in producing post-larvae, culturing Black Tiger shrimps, processing of fish/Black Tiger shrimps/dried shark fins, dried sea cucumber, live ornamental fish, fresh fruits, vegetables and different types of fruit pulps for the export market. The companys main product is Black Tiger shrimps. The shrimps supply comes mainly from its own farm supplemented by produce from its associated farms. In the years 1998 and 1999, the company had export turnovers of Rs. 201.6 million and Rs. 29.6 million respectively. By this time, the exporter had been exporting to Japan, Canada, Korea and Europe. In 1999, he had a US$ 150,000 valued order in hand to Japan for which the exporter through the Bank of Ceylon required Rs. 15 million working capital. On April 9, 1999, the Corporation issued the pre-shipment credit guarantee which facilitated the exporter to obtain working capital under a SLECIC Guarantee. After opening the letter of credit for a shipment to a Japanese buyer, the exporter faced difficulties as the price/of prawns in the international market had come down due to unexpected environmental factors. The availability of the commodity, Black Tiger shrimps, was low in production. As a result, he was unable to execute the order. Further, the officials of the Fisheries Ministry of the North Central Province also informed that the prawn industry was affected by white-spots and yellow-spots diseases and the production had dropped by 60%. The bank lodged a claim on SLECIC when the company could not repay the advances granted against the Letters of Credit under the SLECIC Guarantee.
The pre-shipment credit guarantee is a contract between the commercial banks and the corporation. If commercial banks have complied with the terms and conditions, the Corporation will honour the claim. In this case, as the Bank had complied with the terms and conditions of the pre-shipment credit guarantee document, SLECIC indemnified the bank up to 66 2/3 percent of the amount in default, Rs. 7.37 million.
In the 22-year history of SLECIC, this is the second highest claim, value-wise, the Corporation has indemnified a commercial bank. This will no doubt help the cash flow of the bank. Payment of claims is the end result of unavoidable risks. It should be mentioned that from the time a bank approaches SLECIC for a facility, SLECIC underwrites the advances granted to the exporter under a SLECIC guarantee.
When an exporter is in the list of SLECIC clients, it helps the company to show its identity as a creditworthy company. Above all, the protection SLECIC provides to the bank during a global recession is immeasurable.
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