What is a ‘Standby Letter of Credit’ (SBLC)?
Standby Letter of Credit /SBLC (MT-760) is a written commitment of a bank that issues it to pay a certain amount of money on behalf of the bank’s client in favor of a beneficiary in case the client/buyer is not able to fulfill its financial obligation to the beneficiary/seller.
Using a Standby LC in business transactions is an indication of good faith and proof of financial credibility and repayment capabilities of a buyer.
Standby LC is widely used in commodities trading, when it is necessary to buy the goods from a local supplier or foreign exporter. SBLC can be also used as a security to obtain credit lines and is ideal for company, which plans to expand its business but does not want to utilize its assets.
Standby LC should be always issued as an Irrevocable financial instrument and cannot be cancelled or revoked since it has been issued & transmitted via authenticated MT-760 SWIFT message by an issuing bank. It is possible to assign a Standby LC to another beneficiary in accordance with written instruction from the first beneficiary. The bank, which performs such transfer has to notify the issuing bank the amount to be transferred and the effective date of the transfer.
Standby Letter of Credit is provided according to the latest uniform rules ICC Publication No. 600.
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