Best Trade Solution

Dear expert
If a credit a credit is available with a nominated bank by a draft dranw on the issuing. The beneficiary requested the nominated to prepay the draft. The nominated bank agrees. On due date, the issuing bank is not in position to reimburse the nominated bank due to insolvency. The nominated bank claims funds from the beneficiary because honour was made with recourse.

My query: The payment made by the nominnated bank to the beneficiary is with recourse or without recourse ?
Your comments

H Jallouli

Hi Pal,

IMHO, with recourse; bank risk is on beneficiary, without recourse bank risk will be on the issuing bank.
Then with or without recourse have a different price/cost.
However the advising/nominated bank may propose any sort of operation to their customers, in writing.
Other comments appreciated
Ciao

Hi picant

IMHO, the prepayment should be made to the beneficiary on a with recouse basis but for a reason other than you have mentioned.
A with or without recourse depend on whether the draft has been dranw on the nominated bank or the issuing bank. If the draft has been drawn on the nominated bank, the prepayment made by the nominated is on a without recourse basis.
If the draft has been drawn on the issuing bank, the prepayment made by the nominated is on a with recourse basis.

Any comment would be appreciated

H Jallouli

Negotiation implies purchase of documents and/or drafts drawn on a bank other than the nominated bank. If the draft is drawn on the nominated bank, the LC is deemed to be available by Acceptance.

Under an LC available by Negotiation, if the LC is confirmed, negotiation is always effected without recourse. If the LC is not confirmed, as pan indicates, the negotiating bank will usually elect to negotiate with recourse but may if it so chooses, also agree to effect without recourse (perhaps for an additional fee). However, whatever option the negotiating bank elects to follow under an unconfirmed LC, it would be well advised to make it clear to the beneficiary at time of discount.

My personal view for what it's worth is that negotiation under an unconfirmed LC can be effected under recourse, but only for reasons of issuing bank's insolvency, injunctions, etc, and not for any mistake of fact by the negotiating bank in respect of unobserved discrepancies by such bank at time of examination. To allow recourse under the latter circumstance appears to me to be a morally wrong and unprofessional conduct by the negotiating bank