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Hi,

we often issues letter of credit with some specific instruction to the nominated bank. for example the negotiating bank must provide a credit report of the beneficiary and send the same to the issuing bank with the document. if the nominated bank does not do so, can the issuing bank raise a discrepancy? please note that this is not mentioned in the additional condition rather just as a instruction to the negotiating bank.

regd

shahriar

dear shahriar,

i wont consider it as a discrepancy. a complying document was presented to nominated bank. so issuing bank must honor.

regards

mitra

Dear Shahriar,


as stated by Mitra complying documents must be honoured by the issuing bank. However, some documentary credits explicitely connect their payment obligation to the presentation of such credit report. My guess is that most nominated banks would pointblank refuse to provide such credit report not only ignoring such requirement but asking for an appropriate amendment of the documentary credit. This does not only strengthen their position but also emphasise vis-à-vis the issuing bank that a credit report to be provided by a bank has no place in documentary credit transactions where payment is triggered by presentation of documents by the beneficiary.

I have seen such clauses in the past and always wondered as to why the issuing bank needs this credit report. It would also be interesting to learn whether the issuing bank actually receives credit reports from nominated banks.


Regards


Currer

dear Currer,

nice answer. just for your information. a credit report in this way are generally required by the issuing bank to meet some local law obligation. since credit report often involves some costs, the applicant just want to avoid it in this way. and i have seen nominated bank providing bank such certificate. however those were bit different cases. in those cases, the credit report requirement are incorporated as additional condition. therefore the beneficiary become bound to meet that requirement.

regards

mitra

i have a question at this point. if the credit says that the beneficiary must present a credit report from the negotiating bank, then does it restrict direct presentation to the issuing bank?

regards

iLC

good question ilc. i think if we go for literal meaning; unless a nominated bank negotiate, it wont be a negotiating bank and thus wont issue a certificate. without it document wont be compliant. but this does not mean document can not be presented to issuing bank. the beneficiary can still seek for a waiver. by the way, if a credit says that direct presentation is not allowed, and the beneficiary does present the document to the issuing bank directly, what will be the scenario? i dont think the issuing bank refuse to pay since its not a discrepancy.

regards

mitra

Dear ILC,

Your quote:

“If the credit says that the beneficiary must present a credit report from the negotiating bank, then does it restrict direct presentation to the issuing bank?

My thinking:

NEGOTIAING BANK: the subject matter of interest

A nominated bank where credit available by negotiation is called negotiating bank.

At the time of issuance of letter of credit, normally issuing bank authorize another bank to act as a nominated bank, consequently, Nominated bank or negotiating bank can be defined as the two following shape:

1. Nominated or negotiating bank [to act]
2. Nominated or negotiating bank [acting on its nomination]

In your case issuing bank mentioned the beneficiary has to collect a credit report from negotiating bank without stipulating it in a exact shape and issuing bank cannot ascertained that an authority to act as a nominated bank will ensue that this particular nominated bank will definitely act according to its authority [according to sub article 12(a)].
.
merely taking a credit report from the propective nominated bank will satify the above requirement.

In addition to that as a document examiner one should bear in mind ISBP Paragraph: 5
“ Many of the problems that arise at the examination stage could be avoided or resolved by careful attention to detail in the underlying transaction, the credit application and issuance of the credit as discussed.

So, stipulating a condition to collect a credit report from a negotiating bank doesn’t restrict direct presentation to the issuing bank.
regards
nesar

dear nesar,

interesting explanation indeed. but i hope you wont mind if i disagree. see the definition of negotiating bank is not there in UCP600. so we have to look for some other sources. the term negotiating bank has appeared at a number of places in various ICC publications. to start with ICC opinion TA569

..and upon the issuing bank ascertaining that it complies with the terms and conditions of the credit, the issuing bank will reimburse in accordance with the instructions of the negotiating bank.

UCP600 commentary -

..Under this definition, a nominated negotiating bank claiming reimbursement from an issuing bank..

there is also ICC opinion TA537. in all the instances, the nominated bank is called negotiating bank after it has negotiated.

i looked for some web definitions. few of them,

In documentary credit, usually the beneficiary's bank which agrees to pay the beneficiary by purchasing a negotiable instrument (importer's or buyer's draft ). Also called accrediting party.

A bank which negotiates a draft drawn under a letter of credit, provided the credit permits negotiation of drafts.

to me negotiation only occurs when the bank acts on its nomination. so without acting on its nomination, how can a bank be a negotiating bank?

however whether a certificate from negotiating bank restrict direct presentation is another issue.

mitra

Dear mitra,
THANK YOU FOR YOUR ICC REFERENCE. I HAVE NO DISAGREEMENT WITH IT.
Your major disagreement is
quote:
to me negotiation only occurs when the bank acts on its nomination. so without acting on its nomination, how can a bank be a negotiating bank?
.
My point of view is that when credit available with a bank by negotiation, at the time of issuance of credit, the bank is called negotiating bank or nominated bank[to act] and
when nominated bank is negotiateD a complying presentation of the beneficiary then its called nominated bank acting on its nomination or negotiating bank acting on its nomination.
no where in the UCP, you will find the difference between nominated bank and negotiating bank.
.
MOREOVER IF YOU READ SUB ARTICLE 12(A) IN CONJUNCTION WITH DEFINITION OF NOMINATIED BANK IN ARTICLE 2 KEENLY, YOU WILL FIND THE CONCEPT OF NOMINATED BANK [TO ACT] AND NOMINATED BANK ACTING ON ITS NOMINATION.
.
NOTE:
I DO AGREE, IN A VERY NARROW SENSE[EMPHASSIS ADDED] NEGOTIATION MEANS THE AUTHORIZE BANK WHO NEGOTIATE A COMPLYING PRESENTATION.
AWAITING FOR COMMENTS.
REGARDS
NESAR

nesarul wrote:Dear mitra,
THANK YOU FOR YOUR ICC REFERENCE. I HAVE NO DISAGREEMENT WITH IT.
Your major disagreement is
quote:
to me negotiation only occurs when the bank acts on its nomination. so without acting on its nomination, how can a bank be a negotiating bank?
.
My point of view is that when credit available with a bank by negotiation, at the time of issuance of credit, the bank is called negotiating bank or nominated bank[to act] and
when nominated bank is negotiateD a complying presentation of the beneficiary then its called nominated bank acting on its nomination or negotiating bank acting on its nomination.
no where in the UCP, you will find the difference between nominated bank and negotiating bank.
.
MOREOVER IF YOU READ SUB ARTICLE 12(A) IN CONJUNCTION WITH DEFINITION OF NOMINATIED BANK IN ARTICLE 2 KEENLY, YOU WILL FIND THE CONCEPT OF NOMINATED BANK [TO ACT] AND NOMINATED BANK ACTING ON ITS NOMINATION.
.
NOTE:
I DO AGREE, IN A VERY NARROW SENSE[EMPHASSIS ADDED] NEGOTIATION MEANS THE AUTHORIZE BANK WHO NEGOTIATE A COMPLYING PRESENTATION.
AWAITING FOR COMMENTS.
REGARDS
NESAR

I dont understand the issue of asking for credit report with the documents.

isnt the issuer of LC is suppose to have the credit report before they are issuing the LC?

Dear Mitra,
another interesting topics for you.
let assume your definition is correct. that is negotiating bank is only termed when nominated bank acting on its nomination only.
.
Let the beneficiary presented the document to the nominated bank and the nominated bank forwarded the document to the issuing bank along with credit report.
question:
How come you as a issuing bank determine that nominated bank acting on its nomination. [normally noimated bank didn't mention in its forwarding schedule negotiation issue.]
regard
nesar

:lol:

nice argument dear nesar. truly. i think the issuing bank will honor if other things remain in order. however that does not make in differences i guess. the beneficiary is presenting the document to the nominated bank.

have a nice day

iLC