Capital Bank of Miami has launched a new trade financing product targeted at undercapitalized but established smaller companies that often do business in South America.
The bank estimates that 4,000 to 5,000 traders based in Miami could increase the size of their business using the new Back-to-Back plus letter of credit.
David Konfino, the bank's executive vice president and chief international officer, described the product as an enhancement of the $1.32 billion-asset bank's existing business. "We've been active in trade finance in South Florida for many years."
He estimated that the letters of credit could generate approximately $300 million in business in an area that already has a healthy $17 billion export industry.
"This is aimed at either small companies that are exporting products and require capital to purchase materials to assemble what they're exporting or middlemen that are active in Florida," Mr. Konfino said.
To show how this letter of credit might work, Mr. Konfino offered the example of a distributor and repackager of cellular telephones who finds out there is demand for his product in Chile but cannot raise the capital for additional parts.
With a letter of credit originating with a Chilean buyer, the bank turns around and issues a Back-to-Back letter of credit to the suppliers of the components.
Once the parts arrive, a Miami company working with the bank, Global Trade Facilitators Inc., handles such details as the movement of merchandise, required consolidation or labeling; and documentation.
Mr. Konfino said that this process should help generate fees for the bank Without much risk.
"Companies convert a letter of credit into working capital for purchasing the product. If this process flows smoothly, it is self-liquidating," he said.
The new type of letter of credit also helps the middleman.
Typical letters of credit disclose the identities of both buyers and sellers. The new letter of credit ensures that goods that flow through and are repackaged by a middleman keep the identity of buyer and seller separate.
"We've been studying the arrangement for almost a year and have been working on the legal arrangements and due diligence with the trade facilitator," said Mr. Konfino.
The bank has been testing the enhanced letter of credit for 45 days, and is on the verge of rolling it out to a broader market.