The letter of credit involves three parties: the bank, the client, and the beneficiary; two compensations: the job and the amount of money; one cover, which sometimes be full or partial; and a commission paid by the client to the bank to ensure his commitment to pay, (Part No. 13; Page No. 304) and interest for the amount paid by the bank on the client's behalf if the client fail to pay.
The bank guarantees the client in front of the beneficiary in return for commission, which is impermissible, because guaranty is not a property to be recompensed. Thus, it cannot be exchanged for money; it is only enacted to help others out of seeking the reward from Allah.
The bank takes interest from its client in case it pays the money to the third party on behalf of the client when the latter fails to pay on time. Such interest is called 'compensation' for delay and this is unlawful.
The bank makes use of the current account cover in its possession, which is not permissible, as it can either be a completion of the commission on the guarantee or an interest on what the bank paid or may pay on behalf of the client.
This shows that this contract involves Riba (usury), as it is concluded on the basis of paying money and receiving an additional amount in return for the guarantee. This combines Riba Al-Nasi'ah (usury of delay, conditional excess for delay of payment) and Riba Al-Fadl (usury of excess, selling an item for another of the same type, on the spot, but in excess). Consequently, it is not permissible to issue this letter of credit.
May Allah grant us success. May peace and blessings be upon our Prophet Muhammad, his family, and Companions.