Tuesday, May 5, 2009

Vostro, Nostro and Loro accounts

Vostro Account: (Italian, from Latin, Voster; English, 'yours') 
Account held by a foreign bank in a domestic bank is called Vostro account. A Vostro is our account of your money, held by us. A Vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset.
For example Bank A(Barclays Bank of  UK) opening an account in Bank B(ICICI Bank of India), this is Vostro account for Bank B(ICICI Bank of India).

Nostro Account: (Italian, from Latin, Noster ; English, 'ours')
Account held by a particular domestic bank in a foreign bank is called Nostro account. A Nostro is our account of our money, held by you. A bank counts a Nostro account with a credit balance as a cash asset in its balance sheet.
Here in the above example given in Vostro account the same account is a Nostro account for Bank A(Barclays Bank of UK), or if Bank B(ICICI Bank of India) opens an account in Bank A(Barclays Bank of UK) then that account is a Nostro account for Bank B(ICICI Bank of India). Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.

Loro Account: (Italian, from Latin, Loro; English, 'theirs'). 
An account held by a domestic bank in itself on behalf of a foreign bank.The latter in turn would view this account as a Nostro account. A Loro is our account of their money, held by you. Loro account is a record of an account held by a second bank on behalf of a third party; i.e, my record of their account with you. In practice this is rarely used, the main exception being complex syndicated financing.
If any other bank for the purpose of a transaction refer to an account maintained by yet another bank in some other countries it is known as loro account.
An expression used, for example, by one bank when telling another bank to transfer money to the account of a third bank. In correspondent banking, an account held by one bank on behalf of another bank (the “customer bank”); the customer bank regards this account as its “Nostro account”. The Loro account is an account wherein a bank remits funds in foreign currency to another bank for credit to an account of a third bank.

9 comments:

  1. pls qt an example for loro account

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    Replies
    1. SBI opening an account with Citi Bank, Honk Kong

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  6. In simple terms both banks keep record of amount kept with and by this arrangement . Usually used for forex exchanges settlements.

    If Bank A opens an account with bank B=> A maintains Nostro and B the counter Vostro.Remember Banks a/c are a Real a/c hence the applied rules .In addition to Nostro and Vostro each bank has a seperate a/c for each other for noting the amount being transferred with each other in respective bank for dual a/c entry purpose. It is a simple way to keep tab of interbank accounts for correspondence banking.

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  7. Consider a request from ICICI India to CITI New York, asking to send funds to CHASE Manhattan. CITI NY will hold a account of CHASE Manhattan. ICICI will keep tab of this account too. So, ICICI's books of accounts for the CHASE account, which is actually held by NY, is the loro. This is our (ICICI's) account of their (CHASE's) money, held by you (CITI NY).

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