What is an Opening Bank?

An opening bank, also known as an issuing bank, is a bank that issues a letter of credit. This term is used specifically in the context of international trade, to differentiate it from issuing banks that open consumer lines of credit such as credit cards. The opening bank forwards information about the line of credit to an advising bank in another nation and the advising bank honors the line of credit and assists the customer with financial activities.

Importers and exporters alike can work with opening banks. They approach the bank to ask for credit that can be used for transactions taking place overseas. The opening bank reviews the customer to determine if the customer is a good candidate for a line of credit and also conducts an assessment to decide how much credit to offer. The amount of credit extended can be based on finances, available collateral, the nation where the credit will be used, and anything else the opening bank thinks may be relevant.

Once the opening bank in the customer's home nation approves the line of credit, it is forwarded to an overseas bank. This alerts the advising bank to the existence and amount of a line of credit and may provide other information about the customer. The overseas bank confirms the details and uses information about the letter of credit in interactions with the customer. Advising banks may provide a variety of financial assistance, in addition to handling lines of credit that have been passed on to them by opening banks.

Imports and exports can become very complicated and they can get hung up on finances very easily. People are reluctant to ship overseas without guarantees of payment and people engaged in trade rely on letters of credit to facilitate trades and other business activities. Without guaranteed repayment, it can be difficult to find business partners such as sources for supplies. Whether importers bringing goods into a nation or exporters shipping them out, access to capital is critical.

A bank that is willing to act as an opening bank will provide information about the types of credit and other accounts it offers on request. It can be advisable to compare and contrast several services to find the most suitable one. In addition to considering the credit that will be made available, other concerns include repayment terms, interest charges, and charges related to maintaining a line of credit.