Home Uncategorized CONDITIONAL CONFIRMATION

CONDITIONAL CONFIRMATION

7 min read
8
0
3,458

CONDITIONAL CONFIRMATION
.by Old Man on Friday, October 28, 2011 at 1:00pm.Dear All,

For your information about the practice of adding confirmation to L/Cs at KEB, please find attached below Mr. Old Man’s discussion with Thomas from KEB.

Hope it’s informative and useful.

——–

Dear Huu Duc,

At present, when we confirm an LC, we have a side agreement with the beneficiary to enable us to exercise recourse if payment is not forthcoming from the issuing bank due to discrepancy. If the issuing bank refuses to pay after we have paid the beneficiary as a confirming bank, we would not have a way to receive payment from the issuing bank. Thus the side agreement allowing us recourse to the beneficiary.

Our LC confirmation is only in regard to the credit risk of the issuing bank but does not cover the documentary credit risk (i.e. discrepancy). This is contrary to regular confirmation procedure where the payment by confirming bank is final.

Recently we negotiated an LC confirmed by a bank in London and issued by its branch in Africa. The negotiating bank was instructed to claim reimbursement on the confirming bank and to send the documents to the issuing bank.

In this case, the confirming bank is not presented with the documents and thus it does not face any documentary risk (discrepancy). In this case, the confirming bank is giving assurance to the beneficiary by confirming the LC issued by its African branch but does not actually examine documents and make payment to the beneficiary.

This is also different from the regular confirmation practice where the confirming bank examines documents and makes payment.

What is your thoughts on the above two kinds of confirmation practice?

Thomas

————

Dear Thomas,

To my understanding, where the L/C authorizes the nominated negotiating bank to claim reimbursement from the confirming bank and forward the documents to the issuing bank, the negotiating bank SHOULD claim reimbursement if the documents presented are complying. If the documents are not complying the negotiating bank should ask for the issuing bank’s waiver of the discrepancy and authorization to claim reimbursement from the confirming bank.

Regarding the side agreement allowing the confirming bank to cover the credit risk of the issuing bank only (and not documentary risk), I think it is quite possible so long as the beneficiary so agrees. However, a wise beneficiary would not agree to such a side agreement. It is advisable that this side agreement apply only to silent confirmation where the confirming bank adds confirmation to the L/C without the issuing bank’s authorization.

Best regards,

Nguyen Huu Duc

—————-

If your bank confirms an LC, how do you handle the documentary risk, ie where the issuing bank refuses payment based on a discrepancy where you had paid beneficiary under compliant documents?

Thomas

—————

Dear Thomas,

We only agree to add confirmation (including silent confirmation) to L/C if the following conditions are sastified:

– LC issued by a reputable bank that has credit line with our bank or agrees to pledge deposit as security.

– L/C available with our bank with TTR allowed or allowing us to debit the issuing bank’s account with our bank.

– L/C terms and conditions including documents required easy to comply.

– …

L/C is an instrument of payment and not an instrument of refusal. More than 99% of discrepant presentations are paid eventually. So far there’s no risk with us. However, to tell the truth, we are also very prudent in L/C confirmation business.

Best regards,

Nguyen Huu Duc

—————-

For our part, due to the documentary risk, we do very little confirmation.

And even when we do, we require from the beneficiary side agreement to enable us to exercise recourse in case issuing bank does not pay.

Our London branch was looking to see whether they can do some lc confirmation business.

Unfortuanately due to documentary risk I do not think that they can do much lc confirmation business.

With warmest regards,

Thomas

.

Load More Related Articles
Load More By Mr Old Man
Load More In Uncategorized

8 Comments

  1. anonymous

    November 2, 2011 at 4:11 pm

    Anonymous writes:CHÀO ANH.E MUỐN A TƯ VẤN CHO E TRƯỜNG HỢP NÀY AH.NH E NHẬN ĐC MỘT BCT NHỜ THU CỦA NHNN.THƯ NGÂN HÀNG GỬI CHO NH E NHƯNG B/L LẠI LÀ TO ORDER OFnh ngoại thương, chi nhánh chương dương.e đã làm điện sang nh bên kia để thông báo và xin chỉ thị.theo a trong trường hợp này nên xử lý thế nào a

    Reply

  2. mroldmanvcb

    November 2, 2011 at 9:11 pm

    Trong nghiệp vụ nhờ thu B/L lập theo lệnh của collecting bank cũng tương đối phổ biến. Nếu nhà nhập khẩu thanh toán ngay (đối với D/P) hoặc chấp nhận hối phiếu trả chậm (đối với D/A), collecting bank có thể ký hậu B/L và giao chứng từ cho nhà nhập khẩu.Trường hợp của bạn không phải xin chỉ thị của ngân hàng chuyển chứng từ về việc B/L lập theo lẹnh của VCB.

    Reply

  3. anonymous

    November 3, 2011 at 10:11 am

    Anonymous writes:B/L lập theo lệnh của VCB nhưng chứng từ lại gửi cho bên NH e+ thư ngân hàng chỉ thị thanh toán bên NH e. thế bây h e nên xử lý chứng từ thế nào ah. có nên gửi qua VCB không

    Reply

  4. irfmania

    November 5, 2011 at 10:11 am

    Hi, could not find where to post a new message so am writing it here. In the additional conditions of the LC, there are certain non documentary conditions like "goods must be of a specific country of origin", "age of the vessel should not be more than xxxx years" etc. I need to know that:a) if the credit calls for country of origin as China under additional conditions then does bank has to check the certificate of origin which is not called for in the credit or should it be discarded under the provision of article 14(g)?.b) what would be the scenario if the commercial invoice states country of origin as China while the certificate of origin shows the country as Taiwan. Does it constitute a valid discrepancy. Is article 14(d) applicable here?Will appreciate your swift response on the above.Many Thanks & Best Regards

    Reply

  5. mroldmanvcb

    November 7, 2011 at 8:11 pm

    Sorry for my late reply. I just came back from a business trip.a) No. A document presented but not required by the credit will be disregarded and may be returned to the presenter. A document evidencing such conditions should have been required or such conditions should have been required to be indicated in a certain document.b) I think sub-article 14(d) is applicable to this scenario. Taiwan is not officially recognized as part of China notwithstanding that People's Republic China always makes a claim on Taiwan as part of China.

    Reply

  6. mroldmanvcb

    November 7, 2011 at 8:11 pm

    Originally posted by anonymous:

    Anonymous writes:B/L lập theo lệnh của VCB nhưng chứng từ lại gửi cho bên NH e+ thư ngân hàng chỉ thị thanh toán bên NH e. thế bây h e nên xử lý chứng từ thế nào ah. có nên gửi qua VCB không

    Vấn đề là ngân hàng bạn hay VCB phát hành L/C. Nếu VCB phát hành L/C thì chứng từ nên xuất trình đến VCB. Trường hợp ngân hàng bạn phát hành L/C nhưng B/L xuất trình lập theo lệnh của VCB thay vì theo lệnh của ngân hàng bạn và ngân hàng bạn chấp nhận sai sót đó, ngân hàng bạn có thể yêu cầu VCB ký hậu với điều kiện ngân hàng bạn phải có cam kết bồi hoàn cho VCB nếu co tranh chấp liên quan đến BL đó và phải trả phí.

    Reply

  7. anonymous

    November 9, 2011 at 2:11 pm

    Anonymous writes: B/L lập theo lệnh của VCB nhưng chứng từ lại gửi cho bên NH e+ thư ngân hàng chỉ thị thanh toán bên NH e. thế bây h e nên xử lý chứng từ thế nào ah. có nên gửi qua VCB không Đây không phải là phương thức LC mà là phương thức nhờ thu ah.

    Reply

  8. mroldmanvcb

    November 11, 2011 at 9:11 pm

    BL ký hậu theo lệnh của VCB thì phải được ký hậu bởi VCB. Do vậy, ngân hàng bạn có thể xin ý kiến của remitting bank về việc thay đổi chỉ thị nhờ thu, theo đó VCB có thể được chỉ định hoặc là presenting bank hoặc là collecting bank.Trường hợp, ngân hàng bạn không muốn chuyển chứng từ cho VCB, ngân hàng bạn có thể phát hành letter of indemnity cho VCB để VCB ký hậu BL.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also

WHAT IS THE IMPACT OF EXCLUSION OF UCP 600 SUB-ARTICLE 12b?

QUESTION Dear Mr. Old Man, I hope my email finds you doing well I would ask you if the iss…