Bankers Acceptance - How Do They Arise?

So, just how do Bankers acceptances come to be? Well, that is a very good question, and here is one example that is true in very many cases.

First off, you might have an importer who plans on purchasing goods or products from an exporter. If the exporter will not grant credit to the importer for some reason, than the importer will have no choice but to go to the bank. If they manage to work out an acceptance agreement, than the bank will accept drafts on behalf of the importer.

So, in a manner of speaking, the bank is actually granting credit to the importer. They will agree to pay the bank the “face value” of each and every draft before they mature. The importer is then allowed to draw out a time draft, and lists itself as the payee.  The bank will not only accept the draft, but they will also discount it as well. They then pay the importer the discounted value, the proceeds from which go on to pay the exporter. This bankers acceptance then has a couple of options… it will either stay in the bank’s portfolio, or it will be sold at a discounted value on the money market.

There are other variations of a bankers acceptance, including a version where credit is granted to the importer by the exporter. In this case,  a letter of credit is generally needed from the importers bank. This will allow the transaction to take place as normal, with a normal line of credit to help the importer.

A bankers acceptance is a very significant part of international trade, and many banks deal in these types of transactions. Banks can either choose to hold onto the bankers acceptances, or they can sell them in the money market. 




 

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