Question

Principles of Finance

Assume, as the loan officer of a commercial bank, that one of your customers has asked for a commercial letter of credit to enable his firm to import a supply of well-known French wines. This customer has a long record of commercial success yet has large outstanding debts to other creditors. In what way might you accommodate the customer and at the same time protect your bank?  

Answer 1

As loan Officer of commercial Bank, I will try to accommodate the customer by providing services and also concern about the protection of Bank’s fund.

As per given fact in question, Customer has a long record of Commercial success yet has large outstanding debt with other creditor.

It implied that that customer are getting a good return and in profitable concern which are using all the direct or indirect fund in the maximization of the return by using the debt fund istead of paying the debt.

Bank will issue a Credit letter with in the sanction limit of Borrower because sanction limit was fixed by the bank on the basis of detail review of internal and external factor and detail financial analysis of the entity.

In this case, I will release letter of credit to customer upto the sanction limit already approved by bank.