ASIAN OR UNTRUE NEGOTIATION

Nguyen Huu Duc's response to Frammi's comment
Thu, 12/27/2007 – 09:10 — nhduc.dng

Hi Frammi,

You’ve talked about Asian or untrue negotiation. Taking this opportunity, I wish to contribute my opinion as a banker from an Asian country.

In theory, the beneficiary of a payment credit can not obtain the payment in advance by negotiating the documents with his bank as the issuing bank does not authorize any bank to negotiate.
However, in some Asian countries like mine, negotiation is normally effected on a with recourse basis. It looks like a short-term loan secured by the documents. Upon receipt of the payment/reimbursement from the issuing bank, the beneficiary’s bank will collect the advance/loan amount given to the beneficiary together with interest which is calculated from the date the beneficiary received the advance/loan amount to the date the bank receives the payment/reimbursement from the issuing bank. In this respect, some banks treat a payment credit the same as a negotiation credit, i.e. whether the credit is available by negotiation with any bank or by payment with the issuing bank, the beneficiary may be financed against the documents.

Back to the question whether Refina should ask for amendment, I think Refina should first refer to his/her bank’s opinion to know whether it is willing to finance (advance funds) against the documents to be presented under a payment credit. In the event his/her bank refuses to advance funds against the payment credit and he/she still wishes to have this facility, he/she may ask the applicant to have the credit amended accordingly.

Best regards,
Nguyen Huu Duc

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Frammi's response
Fri, 12/28/2007 – 03:39 — Frammi New

Many Thanks for your comment Huu Duc.

We Germans do the same, but not with sight payments, only with deferred payment L/Cs or acceptance L/Cs already taken up by the issuing or nominated bank.
I would like our credit department to ease their mind in the way you Asians think, but they keep being reluctant ;-((

-Each long journey starts with a small step-
Best regards
Frammi

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ORIGINAL DISCUSSION

Refina's Query
Mon, 12/24/2007 – 12:41 — Refina

We have LC with draft at sight agreed with the client.
We usually received LC with clause 41 Available with Any bank by negotiation. This time we received the LC with statement Available with Credit Issuing Office at sight by payment. What is the meaning of it and what is the difference with the first statement. Do you think we should ask for amendment?

Thanks for your advice.

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Responses

Mon, 12/24/2007 – 14:40 — Mohammed al-kelani

Payment methods

Available with any bank by negotiation means that any bank can purchase the presented documents provided that they comply with L/C terms and conditions without being able to obtain reimbursement untill those documents reach the counters of the issuing bank or according to the terms of the credit.
While Available with the issuing bank by sight payment means that the beneficiary's bank is only an advising bank , and can not act as a nominated bank in this credit, accordingly that bank is not authorized by the credit to make payment or reimburse, so payment will immediately be made after the issuing bank receives complying documents, then the issuing bank will make a reimbursement authorization to the presenting bank according to his schedule after which the beneficiary will receive his funds.

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Thu, 12/27/2007 – 04:33 — Frammi

Dear Mohammed take art. 35 into consideration.

Your comment is very explanatory and I agree – just that I would call the negotiation described by you as an Asian or Untrue Negotiation. Under a true negotiation as intended by the UCP 600 the postal risk is for issuing bank's account. As this is somewhat unfair (they can hardly take care for replacement docs), I prefer the negotiation described by you.

-Each long journey starts with a small step-
Best regards
Frammi …