Assessment on the Determining Factors of Letters of Credit Effectiveness: Perception Survey on Trade Services and International Banking Staffs of Commercial Bank of Ethiopia (CBE)

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Addis Ababa University


Letter of credit has become widely used in international trade as the payment instrument. Letter of credit is the life-blood of international commerce. This study aimed to assess the determining factors of letters of credit effectiveness in the process of import and export practices of CBE. Employing content analysis, this study found that 35% of trade documents contained discrepancies and did not comply with terms and conditions of letter of credit, 53% of documents contained discrepancies and did not comply with the ambiguity of context of the Uniform Customs and Practice 600 and only 12 % of discrepancy of trade finance documents originated from clerical errors. The correlation relation test showed that f ormation place r (90) =.680, p<.01, place of payment r (90) =.667, p<.01, language and currency r (90) =.728 p<.01and documentary condition r (90) =.684, p<.01 had statistically significant relationship with LC effectiveness. To this end, with the support of multivariate analysis, result showed that formation place (0.00010), place of payment (0.00005), language and currency (0.00002), and documentary condition (0.00003) statistically affects LC effectiveness. Banks that facilitate international trade as a major financial institution in goods and service including payment processing for merchandise shipped and services rendered, layouts funds for buyer and seller, and give professional advices to traders specially accurately rendering foreign banking services to facilitate the country's international trade Key Words: Commercial Bank, International Trade, Letter of Credit



Commercial bank, International trade, Letter of credi