Forfaiting Glossary

Glossary Items beginning with : R

RAROC

Risk-Adjusted Return on Capital, which is used as a measure, whereby the risk adjustment of capital is based on capital adequacy guidelines as outlined by the Basel Committee, currently Basel III.

Recourse

The right to recover funds (plus interest where appropriate) from counterparties if the financier is not reimbursed as a result of risks not covered by it.

Red Clause

A Letter of Credit where the advising bank makes preshipment advance payments to the beneficiary.

Regulatory Capital

The amount of capital a bank or other financial institution has to hold as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of risk-weighted assets.

Remitting Bank

This is the bank to which the exporter/supplier has entrusted the operation of collection.

Residual Value/Share

The uninsured percentage of the credit risk which must be borne by the insured party (the exporter or the lender).

Retention Bond

A guarantee to a buyer that, if problems occur in a contract subsequent to its completion, it may call for compensation under such bond even if it has fully paid for the goods or services.

Revolving Credit

A credit where the value of available drawings is reinstated automatically once drawn and within a stated period of time.

Risk Participation

A back-to-back arrangement provided on either a funded or unfunded basis. The Grantor (existing lender) enters into an agreement with the Participant which does not put it into a direct legal relationship with the Borrower so that from the Borrower’s perspective, its lender remains the Grantor. The contractual rights are then created through the Risk Participation Agreement between the Grantor and the Participant only. An unfunded Risk Participation Agreement is one whereby the Participant receives a fee but does not fund the participation amount unless such facility is in default. The most widely used form of Risk Participation is published by BAFT and is available in English and New York law versions.

ROA

Return on Assets indicates the number of cents earned on each dollar of assets. It is a broadly accepted measure for lenders to determine the relative profitability of a commitment to lend money. Thus higher values of Return on Assets show that business is more profitable.