The business sector 'Participation' covers all transactions directly connected to the processing of participations.

An issuing bank has opened a letter of credit and requested the advising bank to add confirmation to the letter of credit.

The advising bank is not willing or in a position to cover the confirmation risk on its own and looks for banks which are prepared to participate in the risk for part of the confirmation amount.

By offering other banks to participate into the risk, the advising bank is enabled to limit their proportion of the asset that is tied up in the risk to one customer. The advising bank acts as a correspondent bank, who sets up and administers the participation deal.

The terms and conditions of the participation deal are negotiated between the correspondent bank and the participating bank in a bilateral agreement. Usually, there are no standard forms for such an agreement. Among the terms of the agreements it is usually stated whether it is an open or silent participation. An open participation means that the issuing bank (and maybe the beneficiary) is informed that the share of risk has been distributed to one or more participants. A silent participation means that the parties involved in the letter of credit (e.g. applicant, issuing bank, beneficiary etc.) are not informed the risk has been sold off.

In return for the participation, the correspondent bank pays a risk commission to the participating bank. According to the terms of the participation agreement, the risk commission is paid in advance, p.r.t. or at the expiry of the deal.

Depending on the terms of the participation agreement, the participation is valid up to expiry of the letter of credit or until a certain point in time after the expiry date.

The participation amount is reduced by notice from the advising bank after the LC is drawn or expired. In the application, this is handled through an amendment of the contract or a payment.

The participant must pay under a participation upon receipt of a claim from the correspondent bank for up to the participated amount. In case of a claim, the correspondent bank will deal with the issuing bank whatever is necessary. Usually, even in such a case, the participant will not involve with the L/C parties directly.

The MyModelbank contains several contracts at various stages of processing which provide examples of the contingent variations. The relevant transactions have then been processed in full to illustrate the methods of working with the application. The list of contracts and processed transactions can be found in the chapter 'Contracts and Transactions'. These examples have been written with the standard version of the application. Due to the fact that customer-specific adjustments may have been carried out, real results can vary from those provided by the MyModelbank.

The different ways of working with the individual transactions are described in the user documentation of the application.