Back May 8, 2015

The aval contract

A longtime senior client advisor for a major German bank receives a request for the issuance of an aval contract for 975.000 KWD (Kuwaiti dinar) on behalf of a client. He reads the sum as 975,000 KWD (the equivalent of €2.5 million) and advises the Kuwaiti National Bank to issue a direct aval for the same amount to his client’s supplier. Before that, he had checked his customer’s credit line. Everything looked fine.

Two weeks later, he receives a phone call from his client, who is complaining vociferously about the unacceptable level of his credit line because of an aval entry he knows nothing about. The client advisor promises to investigate straight away.

The Kuwaiti aval pops back into his head. He checks his files. The contract shows the sum of 975.000 KWD – the conventional format for KWD in the banking sector. So the aval issued should have been for 975 KWD, or €2,500.

How could this have happened? The client advisor believes that the transaction, maybe combined with wishful thinking, made him too eager and rash.

After the initial shock fades, he contacts his superior with all the details. They decide to inform the client as well as the supplier and to settle a new contract for the correct amount. The supplier agrees and no further problems occur. The bank circulates a short reminder to its staff about the peculiarities of the KWD quotation format.