UNDERSTANDING THE ROLE AND OBLIGATIONS OF A NOMINATED BANK UNDER A NEGOTIATION CREDIT

QUESTION

Dear Sir,

If I receive a Letter of Credit (LC) advised to me with the clause “Available by negotiation at any bank; At Sight,” is my next step to ask my bank whether it will act as the negotiating bank, and request a written confirmation if it agrees?

I understand that a nominated bank has no obligation to negotiate or honor the LC unless it has expressly agreed to do so. By “honor,” I believe it means the bank must pay against a complying draft or documents, but only if it has committed in writing—is that correct?

Also, if the issuing bank nominates a specific bank to pay the draft, how do I know that bank will actually pay? Should I obtain a written undertaking from the nominated bank first? And if I don’t receive such confirmation, is the nominated bank still obliged to forward my documents to the issuing bank?

Assuming it is, can I present my documents to the nominated bank on the final day of the LC? Or must I allow extra time for the documents to be sent to the issuing bank before the LC expires?

I also read somewhere that a nominated bank—unless it has agreed to negotiate—may check the documents, inform the issuing bank, and then hold the documents until payment is received. In that case, what guarantees do I have that the issuing bank will actually pay?

Lastly, if the nominated bank (not having agreed to negotiate) forwards the documents and receives payment from the issuing bank, but later a discrepancy is found, does the nominated bank have recourse against me as the beneficiary?

Your guidance is much appreciated.

Kind regards,

Cooper

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ANSWER

Dear Cooper,

Thank you for your question. Here’s a brief clarification:

Even if a Letter of Credit (LC) is available “by negotiation at any bank,” no bank is obligated to negotiate unless it agrees to do so. This includes the advising bank or any nominated bank. You may request your bank to confirm in writing if it agrees to negotiate, but it is not required to do so unless it adds its confirmation.

If the nominated bank does not agree to negotiate, it can still act as a presenting bank, forwarding the documents to the issuing bank for payment. This is not negotiation—it’s simply presentation on behalf of the beneficiary.

You may present your documents to the nominated bank on or before the LC expiry date and within the time allowed after shipment. Once timely presented, the responsibility to deliver documents to the issuing bank lies with the presenting bank—not with the beneficiary.

Finally, if documents are discrepant and the issuing bank refuses to pay, whether the nominated bank has recourse to you depends on whether it had confirmed the LC or agreed to negotiate with or without recourse.

Best regards,

Mr. Old Man