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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Date
2017-05
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Addis Ababa University
Abstract
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
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Keywords
Commercial bank, International trade, Letter of credi