Understanding the Standard Bank Confirmation
Item / Particular / Point to note1 / Deposit, fixed or at call
Fixed deposits – Sums of money deposited for fixed terms at fixed interest rate of interest. / Pledge and Interest income
1. Please note whether fixed deposit pledged is stated under item 16.
2. Interest income exempted if the deposited pledge is in name of company.
2 &3 / Savings and current account
Passbook or statement identification for the savings and current account is required. There are local and foreign currency savings and current a/c. / Foreign currency
Multi-currency savings account – all interests income are tax exempt if the bank account is open in Hong Kong.
4 / Loan Account debit balances (excluding loans in connection with inward cargo)
Fixed sums advanced to the customer to be repaid by fixed periodical repayment at interest rates specified margin over the prime rate / Mortgage Loan and Hire purchase creditor
1. Loan repayment schedule for the whole period with property secured and interest rate quoted.
2. Please note whether the property pledged is stated under item 16.
5 / Accounts closed during the year to confirmation date / Obtain the last bank statement for the closing account to ascertain the account was closed
6 / Advances to manufacturer and/or packing credit accounts and/or export loans granted
Packing loan –granted to an exporter as part of an arrangement involving a LC, and is to enable the exporter to purchase raw materials to manufacture merchandise. / Check point – accounting entry
1. The book entry is debit bank account and credit the packing loan for the advance usually 30 or 40% of the LC amount.
2. The loan will later be deducted against proceeds of bills negotiated under the L/C.
3. Always find / Usual practice in garment and electronic manufacturing industry.
7 / Acceptances Outstanding
a. Bills Receivable by banker
- Bills of exchange accepted by the customer (importer) in favor of the banker.
b. Goods released against trust respect of (a)
- Bankers release document before the maturity of a bill of exchange against Trust Receipt but the customer is required to undertake to hold the goods on behalf of the bank and to pay the proceeds of sale to the bank.
c. Bills held by banker for collection
- Bills of exchange accepted by the customer (importer) in favor of the supplier (exporter) who has given instructions to the banker to collect the proceeds on his behalf. / Check point – accounting entry
1. The book entry is debit Purchase and credit to Bills payable upon the bill of exchange is accepted by customer as the goods imported to client. This kind of bills settlement is normally under D/P i.e. Document against Payment.
2. In the case when goods released against trust receipt, the book entry is debit Purchase and credit to Trust Receipt account.
Purchase and Payment cycle
3. The exporter from foreign company e.g. USA exports goods to Hong Kong client who is importer of the goods. However, the client is not obliged to pay unless the clients themselves accept the bill of exchange (i.e. D/A - Document against Acceptance).
8. / Partial payment held by banker
This represents a partial settlement of the bills of exchange in item 7(a) or (b) / Please refer to item 7 point to note
9. / Irrevocable letters of credit
A letter of credit (L/C) is an instrument issued by banker on behalf of customer, (importer) authorizing the exporter to draw bills of exchange on the customer, the banker or its corresponding banks for the account of the exporter, under certain conditions stipulated in the credit. / Irrevocable
The term irrevocable is significant as the importer could not alter the letter of credit once the L/C has been issued to exporter.
It is a contingent liability of the client as they are obliged to fulfill the terms of settlement when the conditions stipulated in the L/C is met.
Understanding the Standard Bank Confirmation
Item / Particular / Point to note10 / Bills Receivable by customer
a. Bills purchased by banker (and outstanding at confirmation date)
- Bills of exchange drawn on importer by the client (customer & exporter) and negotiated to banker i.e. instead of collecting it himself, the client (customer) sells it to the banker who may have recourse against the client (customer).
b. Bills held by banker for collection
- Bills of exchange drawn on importer by the client (customer & exporter) and sent to banker for collection on behalf. The banker acts as an agent only. / Terms of settlement under Letter of Credit
Usually the letter of credit has a D/P term mentioned the mode of payment made after a specified period i.e. 30 days. Then, the client (i.e. customer) negotiates with the banker and sells it to the bankers so that the client could receive money in advance before the expired date.
However, If the client could not fulfill the terms of letter of credit but the importer would settle the bill when the goods exported to the foreign importer, the banker would act as agent for the client to collect the bills from importer under the instruction of the client (i.e. exporter).
11 / Marginal Deposit held by banker
a. On account of item 7 (Acceptances outstanding) and item 9 (Irrevocable letter of credit)
b. On account of item 10 (Bills Receivable by customer)
c. / Normally, the banker would request the client uses the property pledged as security or deposit advance etc as a gurantee in granting the bank facilities including letter of credit and inwards bill acceptance
12 / Loans granted in connected with inward cargo
Import loans are very common when the importer is required to pay at sight of shipping documents. It is a kind of loan arrangment. / Normally, the import loan granted is part of the bank facilities. This loan, payable is secured by the assets pledged to banker.
Understanding the Standard Bank Confirmation
Item / Particular / Point to note13 / Guarantees
a. Given by a banker on behalf of client
i. Shipping gurantees – Sometimes when a shipment arrives via a short sea route, goods may be released to the importer under a shipping gurantee given by the banker.
ii. Others – In lieu of giving a utility deposit by himself, the client may request the banker to issue a guarantee in favor of the utility company.
b. Received by a banker on behalf of client
- The director of the client company may issue a gurantee to the bank for the client’s company / Performance Bond
a. Sometimes, the customer of the client company would request the client to place a Performance bond to the customer’s bank.
The client then would request the banker to issue gurantee for certain sum of money to the customer.
b. The director may deposit or issue gurantee to the banker for the company in granting bank facilities etc.
14 / Foreign exchange contracts outstanding
A forward foreign exchange contract is sometimes used by exporter/importer to hedge against risks of exchange rate fluctuations. / HKAS32 – Financial Instrument
HKAS 21 – The effect of foreign exchange rate
15 / Other direct or contingent liablities to banker / Seldom happened in normal manufacturing or trading business.
16 / Securities and other document of titles held by banker
a. Against facilities granted – Title deeds of property and motor car licence book etc used as security given to the banker for bank faciliies granted to the company..
b. For safe custody – share certificate and time deposit held by the banker on behalf of the customer for safe custody purpose. / Important note
1. We should have the banking facilities letter to verfiy the securities pledged and facilities granted.
2. Disclosure in notes to financial statement is required.