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CAN DRAFTS BE DRAWN ON THE CONFIRMING BANK ?

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QUESTION

Dear Mr. Old Man,

I would appreciate your answer to my following questions:

  • Is the drawee in drafts always the issuing bank?
  • Can drafts be drawn on the confirming bank?

Thank you.

TL

________

ANSWER

Hi,

1) Quite often, but not always.  It is agreed that the drawee on drafts would be the issuing bank. However, a draft  may be drawn on a nominated bank if so required by the LC.

2) Yes, drafts can be drawn on the confirming bank in the event where the LC is available with the confirming bank by acceptance or in the event the confirmed LC is available with another nominated bank by negotiation.

Please note where the LC is available with the confirming bank by negotiation, the LC should not require drafts to be drawn on the confirming bank. If drafts are drawn the confirming bank, the confirming bank must honour and not negotiate. Please refer to the definition of negotiation in Article 2 UCP 600, which says “Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank)…”

Notwithstanding the above analysis, in practice some confirming banks would still insist drafts be drawn on it.

Kind regards,

Mr. Old Man

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