CAN THE ISSUING BANK REFUSE TO ISSUE AMENDMENTS?

Shaik Mohammad's query
Can issuing bank rejects to issue an Amendment

Hi DLC Experts need your help.

Bene wanted to extend the LC expirty to one year. Bene asked applicant to issue an amendment for this. Applicant approaches issuing bank to issue an amendment, but issuing bank rejects to issue an amendment.
Can issuing bank behave like this????
Can issuing bank rejects to issue an amendment??

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COMMENT FROM Mr. Old Man
Can the issuing bank refuse to issue amendment(s)?

Dear Shaik Mohammad,

LC Sam is quite correct. I just want to make it clearer.

UCP 600 sub-article 10 (a) stipulates: “Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”

Whether or not the issuing bank can refuse to issue an amendment to the LC depends on the agreement between the issuing bank and the applicant. Such agreement can be made before the LC is issued or obtained right at the time the applicant requests for the amendment.

If the agreement (if any) which had been signed before the LC was issued stipulates that the applicant may request the issuing bank to issue amendment(s) and the issuing bank is obligated to do so, the issuing bank is obligated to issue the amendment at the applicant’s request.

In the event there is no agreement in advance on the amendment, the issuing bank has the right to refuse to issue amendment(s) if it feels that it can be exposed to risks due to such amendments. I do not mean that the issuing bank always or normally refuses to issue amendments. In reality, most of the issuing banks agree to issue amendments at the applicant’s requests. However, the issuing bank may or may not agree to do so in some specific situations as follows:

(1) The import is self-financed and the applicant has pledged his deposit a/c for 100% of the LC value to secure the full payment.
(2) The import is self-financed but the applicant has pledged his deposit a/c for less than 100% of the LC value (the rest amount is to be deposited by the time the payment is effected)
(3) The import is partially or fully financed by the issuing bank.

In the first situation, the probability that the issuing bank agrees to issue the amendment at the applicant’s request is 100%.

In the second situation, the probability that the issuing bank agrees to issue the amendment is lower and it depends on the following: (i) the applicant’s credit position; (ii) whether or not the applicant’s willing to deposit more funds at the request of the issuing bank to secure the full payment.

In the third situation, the issuing bank can reject the applicant’s request at its own discretion. However, as said, the issuing bank is normally willing to issue the amendment if such a amendment does not expose it to risks in connection with the applicant's credit position and busines.

Best regards,
Nguyen Huu Duc

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LC Sam's response
Issuing bank refusing to issue an amendment

Hi Shaik,

The answer to your question lies not in the regulations that govern DLCs, but in the the agreement to issue the letter of credit between the applicant and the issuing bank.

Normally these agreements allow the bank to refuse to amend the letter of credit based on their sole decision.

The main reason for this is that the bank may feel that the applicant's credit position may have changed and the bank does not want to take on the additional liability.

Of course the issuing bank would be obligated to issue the amendment if the agreement stated so or if the DLC states that the letter of credit will be amended.

Best regards,
LC Sam …