Letter Of Credit Financing Banks Face Risks And Preventive Measures Discussed

International trade finance is a kind of loan relying on trade settlement,provided by banks to importers and exporters.To banks, intermediate service and asset service are connected through the trade financing, and bank can obtain incomes from two sides—earnings and interests. With true trade as the background, the kind of business has such advantages as shorter term,smaller risk ,quicker result and greater profits,compared with general loans ,so it matches the operation principle of banks for property earnings, safety and liquidity.So it's a more ideal way for modern banks to utilize their capital. At the same time,it effectively solves the problem of capital shortage for foreign trade companies, strengthens their ability for better participating in international competition,and enables them to develop international trade in a much wider scope and larger scale. In 2004, our trade volume reached $1154.74 billion, compared with last year it has increased by 35.7%,and is 2.3 times that of the whole trade scale of 2001. The import and export scales of the year have already broken $500 billion respectively.With enhancing of opening—up steps and development of our foreign trade,the types and volume of trade financing between banks and enterprises would increase rapidly. So, how to guarantee the bank funds'safety in this financing business certainly becomes an initial problem that banks have to face in the process of business expansion and creation. The traditional international settlement methods have three types—remittance, collection and letter of credit.Letter of credit(L/C) is the most important settlement method,and is adopted in 80 percent of global trade. So credit financing is naturely a most important method in the international trade financing. In spite of less risk compared with other methods, many kinds of risks still exist in such a special mechanism.Furthermore,current financial environment also requires that banks should take property safety as an initial position for business operation. So the research to credit financing will help banks expand the business and guard against the financing risk more effectively, and make it prop up foreign trade powerfully,and adopt to the demand of the current economic development. This paper's main centent is analyzing the basic principles of L/C, the rights and liabilities of banks, the characteristics of the credit financing methods,and comparing of them.On this foundation, this paper puts forth the risks that banks would face.Following that,it puts forth some suggestions and measures for banks to guard against the above-mentioned risks.This paper is divided into four chapters. Chapter one mainly discusses related knowledge of the letter of credit.The chapter combines UCP500 to discuss the meaning of L/C,and its basic principles,content, and analyzing main parties'rights and liabilities. Chapter two mainly analyzes the characteristics of different credit financing methods, compares them with Negotiation,Packing Loan,Shipping Guarantee,Export Bill Purchase,Import Bill Advance,Trust Receipt.This chapter analyzes all of above mainly from the perspective of law. Chapter three sets forth the risks banks have to face in the financing business,and analyzes the inherent reason for risk creation.The chapter analyzes these questions from two angles. One angle is from the common risks banks face in different method of credit financing,and the other is from special risks according to corresponding methods. Chapter four sets forth some suggestions and measures for banks in order to help them guard against the risks in the credit financing. Currently,the research to the question from banks'prospect isn't seen much.Therefore,studying credit financing on the foothold of bank comprehensively,combining the law,finance,and management and so on...