CAN A USANCE LC BE ISSUED AVAILABLE WITH ANY BANK?

INTRO

At first glance, it may sound reasonable to make a usance LC “available with any bank.” After all, the more flexibility for the beneficiary, the better—right? But in practice, things are rarely that simple. Under UCP 600, a nominated bank has no obligation to act unless it agrees to do so. That small detail makes all the difference, as Mr. Old Man explains below.

 QUESTION

Dear Mr. Old Man,

I have a question about Letters of Credit and hope you can help clarify it.

Our bank usually issues usance LCs with the following standard wording in fields 31D and 41D:

• 31D: Date and Place of Expiry: … Issuing Bank
• 41D: Available with ISSUING BANK by acceptance or by deferred payment

I’m wondering why we cannot issue a usance LC with the following wording instead:

• 31D: Date and Place of Expiry: … Beneficiary’s Bank
• 41D: Available with ANY BANK by acceptance or by deferred payment

I would really appreciate your explanation.

Thank you and best regards,

An

_________

ANSWER

Dear An,

In practice, whether in Vietnam or abroad, banks issuing usance LCs—whether payable by acceptance or by deferred payment—generally use the same wording as your bank does:

• 31D: Date and Place of Expiry: … Issuing Bank
• 41D: Available with ISSUING BANK by acceptance (if the LC requires a draft) or by deferred payment (if no draft is involved)

Accordingly, the beneficiary must present documents to the issuing bank within the presentation period for the issuing bank to accept the draft and pay at maturity (in the case of an acceptance LC), or to incur a deferred payment undertaking (if the LC does not call for a draft).

A usance LC may also be made available with a nominated bank, but this is usually a named nominated bank, for example:

• 31D: Date and Place of Expiry: … ABC Bank’s counter
• 41D: Available with ABC BANK by acceptance or by deferred payment

In reality, many issuing banks still prefer that documents be presented directly to themselves rather than to a nominated bank—whether it is a named nominated bank or any bank—for several reasons:

1. The issuing bank may not wish to authorize another bank to accept drafts or documents on its behalf;
2. Nominated banks often refuse to act on the nomination, meaning they decline to accept drafts or incur a deferred payment undertaking—unless they have agreed in advance or are the confirming bank.

This is in line with UCP 600 Article 12(a), which states:

“Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when that bank agrees to do so and communicates its agreement to the beneficiary.”

From practical experience, I  can confirm that almost all “any bank” nominations under a usance LC will refuse to act—that is, they will not accept drafts or incur a deferred payment undertaking. Seasoned beneficiaries know this and may not accept such an LC.

Therefore, it is not advisable to issue a usance LC available with any bank.

Lastly, it is also common in practice to see usance LCs where documents are to be presented to the issuing bank for acceptance or deferred payment, yet the place of expiry is stated to be in the beneficiary’s country.

This somewhat unusual structure often reflects the beneficiary’s request—to minimize the risk of late presentation if the expiry were instead stated at the issuing bank.

Hope this clears things up for you, An.

Best regards,

Mr. Old Man