Transferring bank asking for collateral

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First Name: Fajar
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Transferring bank asking for collateral

by Fajar » Mon Dec 18, 2017 7:18 am

Dear Experts

I would like to know the best practice that usually used by most banks if they act as a transferring bank.

I have heard statement that second beneficiary can sue transferring bank if the second beneficiary already present complying presentation but does not received payment from issuing bank due to failure of transferring bank such as :
- failed to present the document to issuing bank before latest date of presentation
- Reissuance of new draft and new invoice cause discrepancy

with these risks faced by transferring bank, is it necessary for transferring bank who does not act as a confirming bank to ask for a collateral from customer, and create credit facility?

Thank you

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Re: Transferring bank asking for collateral

by picant » Mon Dec 18, 2017 11:22 am

Hi Pal,

the risks that you quote may be considered as operational risks and not credit risks so, IMHO, asking for a collateral is an abuse.
However is worldwide accepted a notation on the transfer that the transferring bank will pay only on receipt of funds from issuing bank, but this notation does not include clerical or operational mistakes.
Other comments appreciated.

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Re: Transferring bank asking for collateral

by kadir » Mon Dec 18, 2017 2:30 pm


I think mentioned risks should be the risks of first beneficary not the transferring bank. In a transferred credit expiry place should be the counters of the transferring bank.
Second Beneficiary(ies) are in protection of UCP Art.38. If the first benef. fails to present its own invoice or presentation creates discrepancies and first benef. fails to correct them on first demand, the transferring bank has right to present the docs as received from the second beneficiary to the issuing bank. 38(i)
Should the transferring bank fails to do so, than it maybe obliged to pay to second beneficiary because of its failure. I agree that is an operational risk for the transferring bank and in this case, asking for a collateral is against the spirit of transferable credits.

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