Home Mr Old Man Articles WHETHER A CONFIRMING BANK IS A NOMINATED BANK AND…

WHETHER A CONFIRMING BANK IS A NOMINATED BANK AND…

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QUESTION

Based on your comment ”confirming bank is certainly a nominated bank”
(http://my.opera.com/mroldmanvcb/blog/2010/03/06/is-the-confirming-bank-a-nominated-bank#comments )
I would be grateful if you could elaborate further on the issue, especially when we link it to the place of expiry of the credit and to the existence of two confirming banks (commonly called first and second confirming banks.

Supposedly, a credit is issued in Baghdad by an Iraqi bank, sent to a Lebanese bank called ABC Bank in Beirut, asking the Lebanese bank to transmit it with its confirmation to, let us say, a Thai bank called XYZ Bank in Bangkok. Further, the credit requests XYZ Bank to add its confirmation. Place of expiry for presentation of documents is XYZ Bank’s counter in Bangkok.

Both are confirming banks but which bank you consider here as nominated bank, ABC Bank or XYZ Bank. How can both be nominated bank with one place of expiry? Where this credit ends? Supposedly, XYZ Bank is to obtain payment from ABC Bank but, according to UCP 600, ABC Bank will pay only against complying presentation.

What happens if the documents are sent by XYZ bank and do not reach ABC Bank for payment? How can ABC Bank, as confirming bank, pay without a complying presentation at its counter? Further, The L/C expires at a given date at XYZ Bank’s counter. Supposedly, the beneficiary presents the documents to XYZ Bank on the last day. XYZ Bank sends documents to ABC Bank. How many days will ABC Bank have to pay and for how long would the delay courier between XYZ Bank and ABC Bank (which come after credit expiry) will remain acceptable? After how long will you define those documents are ”lost in transit’’?

Any ideas on these issues?

Thanks
——–

ANSWER

Hi,

The definition of the term “nominated bank’ in Article 2 UCP 600 makes me think that if a credit is available with a nominated bank other than the confirming bank, the confirming bank will not be regarded as a nominated bank. Yet, the phrases “other nominated bank” and “another nominated bank” in Article 8 UCP 600 makes me think that a confirming bank is also a nominated bank notwithstanding whether the credit is available with the confirming bank or with another nominated bank. This is the reason why I tend to support the view that a confirming bank is always and certainly a nominated bank or a nominated confirming bank.

Your case is a bit different because there are two confirming banks (ABC Bank and XYZ Bank) involved. However, this does not change my view that both confirming banks are nominated banks of which (I guess) ABC Bank could be a nominated paying bank and XYZ Bank could be a nominated negotiating bank.

As the place of expiry for presentation is XYZ Bank’s counter, provided the complying documents are presented to XYZ Bank within the specified period for presentation and with the credit validity, XYZ Bank must negotiate the documents without recourse and forward the documents to ABC Bank for payment/reimbursement. As the place of expiry for presentation is XYZ Bank’s counter and not ABC Bank’s counter, ABC Bank cannot raise the discrepancy if the complying documents reach its counter after the expiry date.

How about the documents lost in transit?

Article 35 says “If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank”. So, in accordance with this article, ABC Bank must pay even when the complying documents forwarded to ABC Bank are lost in transit. Yet, XYZ Bank, if required, must provide ABC Bank with proofs evidencing that the documents lost in transit are complying and that XYZ Bank has forwarded the complying documents to ABC Bank. In this case, ABC Bank may require XYZ Bank to provide it with a set of photocopied documents lost in transit and its courier receipt.

According to sub-article 14 (b) each bank involved has a maximum of five banking days following the day of presentation to determine if the presentation is complying. However, it is not encouraged that banks try to make full use of this five banking day rule. It should honour when it determines the documents are complying and give notice of dishonour when it determines the documents are discrepant.

Nowadays shipment by courier service is extremely fast. For example, it takes only 3 days for a set of documents sent via DHL from Da Nang, Vietnam to be delivered to a recipient in New York, USA. Delivery status can be checked via Courier Company to know whether and when the documents have been received by the recipient. The presenting/negotiating bank would contact the issuing bank or the confirming bank where applicable to inquire the status of the documents if no payment is received after 8 or 10 days from the date of dispatch of the documents. If the issuing bank or the confirming bank answer that it has not yet received the documents, then the presenting bank can check with the courier company to determine whether the documents are delivered to the recipient or lost in transit.

Kind regards,
Mr. Old Man

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16 Comments

  1. biofuelsupplier

    December 24, 2013 at 7:12 pm

    Dear Mr OLD MAN, I am an Expoter"Seller" from Ukraine who is new / NOVICE to the LC payment System. I have been dealing with / accepting T/T Payment for my goods, but now a days potential clients wants to Pay me Only by "100% L/C Irrevocable" so i am now trying to consider accepting this system of Payment now . Please i need your help in clarification on the word " To draw DRAFT " ( Is a DRAFT amongst the Required documents i need to present to my Ukraine BANK in order to get PAID from the L/C once i have made shipment of the Goods ??? ) what does this mean " to DRAW DRAFT " ?? I have studied some L/C sample and i have noted that some of the most common Required documents for collecting Payment on L/C are : (1) 3 Originals and 3 ADDITIONAL Copies of B/L Document. (2) Original of SGS inspection Certificate (3) 3 Originals of Seller's COMMERCIAL INVOICE. (4) Original of INSURANCE Certificate ( if CIF Shipment) Now, the Question is : (A) Do i need to DRAW a DRAFT " payment DRAFT" and Present to My Ukraine BANK together with the ABOVE Mentioned Documents for 100% Sight L/C ??? (B) Would i NOT get PAID if i only submit the Above Mentioned Documents Mentioned in the L/C to my Ukraine BANK without "Payment Draft" ??? (C) Is it MY Ukraine BANK that would have to PAY me the Money ??? Or, My Ukraine BANK's Duty is only just to Transfer the completed DOCUMENTS to the Buyer's Bank overseas and then Wait for the Buyer's Bank Overseas to send the Money "Payment" to My Ukraine BANK " My Bank Account" ??? Hello Friends/ Professionals, (D) if I can ask the Issuing Bank to make my UKRAINIAN Bank to be My Advising Bank , My Confirming Bank , and also my Negotiating Bank ??? (E) Can my Ukrainian Bank(Bank in Ukraine ) Negotiate Documents and Make Payment to me , and then call for T/T reimbursement from the Issuing Bank ??? (F) In order to guide myself from getting not paid due to Possible Discrepancies that might arise on the Requested documents (Since English is not main Language in Ukraine, so most times there could be Mis-spellings / Typo-Error of English words on required Documents ) , in this case, is it Possible that i request the Buyer to ask his Bank" Issuing Bank" to Mention condition in the L/C that, for Every Discrepancies found by NEGOCIATING BANK / ISSUING BANK in the Submitted documents a certain agreed Amount of $$$ Dollars should be Charged by the ISSUING BANK from my Proceeds " Funds" and then balance Payment Transferred to me (My Bank), rather than the L/C ISSUING BANK REJECTING my Documents (and asking me to re-send correct documents again ) due to Discrepancies ????? Please i need your Professional Answers. Regards,Oleg

    Reply

  2. anonymous

    December 24, 2013 at 7:12 pm

    Oleg Ukraine writes:Dear Mr OLD MAN, I am an Expoter"Seller" from Ukraine who is new / NOVICE to the LC payment System. I have been dealing with / accepting T/T Payment for my goods, but now a days potential clients wants to Pay me Only by "100% L/C Irrevocable" so i am now trying to consider accepting this system of Payment now . Please i need your help in clarification on the word " To draw DRAFT " ( Is a DRAFT amongst the Required documents i need to present to my Ukraine BANK in order to get PAID from the L/C once i have made shipment of the Goods ??? ) what does this mean " to DRAW DRAFT " ?? I have studied some L/C sample and i have noted that some of the most common Required documents for collecting Payment on L/C are : (1) 3 Originals and 3 ADDITIONAL Copies of B/L Document. (2) Original of SGS inspection Certificate (3) 3 Originals of Seller's COMMERCIAL INVOICE. (4) Original of INSURANCE Certificate ( if CIF Shipment) Now, the Question is : (A) Do i need to DRAW a DRAFT " payment DRAFT" and Present to My Ukraine BANK together with the ABOVE Mentioned Documents for 100% Sight L/C ??? (B) Would i NOT get PAID if i only submit the Above Mentioned Documents Mentioned in the L/C to my Ukraine BANK without "Payment Draft" ??? (C) Is it MY Ukraine BANK that would have to PAY me the Money ??? Or, My Ukraine BANK's Duty is only just to Transfer the completed DOCUMENTS to the Buyer's Bank overseas and then Wait for the Buyer's Bank Overseas to send the Money "Payment" to My Ukraine BANK " My Bank Account" ??? Hello Friends/ Professionals, (D) if I can ask the Issuing Bank to make my UKRAINIAN Bank to be My Advising Bank , My Confirming Bank , and also my Negotiating Bank ??? (E) Can my Ukrainian Bank(Bank in Ukraine ) Negotiate Documents and Make Payment to me , and then call for T/T reimbursement from the Issuing Bank ??? (F) In order to guide myself from getting not paid due to Possible Discrepancies that might arise on the Requested documents (Since English is not main Language in Ukraine, so most times there could be Mis-spellings / Typo-Error of English words on required Documents ) , in this case, is it Possible that i request the Buyer to ask his Bank" Issuing Bank" to Mention condition in the L/C that, for Every Discrepancies found by NEGOCIATING BANK / ISSUING BANK in the Submitted documents a certain agreed Amount of $$$ Dollars should be Charged by the ISSUING BANK from my Proceeds " Funds" and then balance Payment Transferred to me (My Bank), rather than the L/C ISSUING BANK REJECTING my Documents (and asking me to re-send correct documents again ) due to Discrepancies ????? Please i need your Professional Answers. Regards,Oleg

    Reply

  3. mroldmanvcb

    December 24, 2013 at 11:12 pm

    Dear Oleg,1) DraftDraft is not a document required under Field 46A of SWIFT MT 700. – Draft is required in LC available by negotiation (negotiation LC) and LC available by acceptance (acceptance LC). LC available by (sight) payment or by deferred payment requires no draft.So, if the LC is available by negotiation with a nominated bank, say, your Ukraine Bank, you (the beneficiary) are required to present sight drafts together with the documents required under Field 46A to the nominated bank for negotiation (i.e., get advance payment). However, please note that unless the nominated bank the confirming bank, it may not agree to act on its nomination, i.e., not agree to negotiate the drafts and documents. So, if you want to receive payment when you present drafts and complying documents to your Ukraine Bank, you should request the applicant (buyer) to open a confirmed LC (which is confirmed by your Ukraine Bank). – TO DRAW DRAFT means TO ISSUE DRAFT.- As said, LC available by (sight) payment requires no draft. If the LC is available by payment with your Ukraine Bank which is also a confirming bank, you can get payment at sight once you present the complying documents (no draft) to your Ukraine Bank.- If the LC is available by negotiation with any bank or with your Ukraine Bank and your Ukraine Bank is not a confirming bank, it may not agree to negotiate the drafts and document but just forward the documents to the issuing bank for payment.- Similarly if the LC is available by payment with any bank with issuing bank, your Ukraine Bank just act as a presenting bank that on your behalf presents the documents to the issuing bank for payment.In short, if you want to ensure that your Ukraine Bank would negotiate the drafts and documents or make sight payment to you, you should insist on a confirmed LC that is confirmed by your Ukraine Bank. This depends on whether the issuing bank agree to issue a confirmed LC and whether your Ukraine Bank is willing to add its confirmation to the LC. Normally, when a bank agrees to confirm the LC, it would insist LC allow TT reimbursement claim from the issuing bank.2) How to avoid discrepancy?As you know, the condition that trigger the issuing bank’s payment is that the documents must comply with the LC terms and conditions. If not, the issuing bank may refuse the documents notwithstanding that in practice 99% of discrepant documents are eventually take up and paid.So, to avoid discrepancies that may lead to the issuing bank’s refusal, when receiving the LC, the beneficiary should check carefully if there are any terms and conditions he cannot comply and ask for amendment before any shipment is made. Your bank can help you check LC terms and conditions as well as prepare complying documents.LCs would states that if each set of presented documents contains discrepancies, the discrepancy fee of say USD70 will be deducted from the proceeds. So, there’s no need for you to remind the issuing bank of that stipulation. As said, over 99% of discrepant documents are paid eventually. However, there’s still 1% left that the issuing bank will reject and return the discrepant documents, especially when the price goes down and the applicant does not want to receive the goods. So, KYC (Know Your Customer) is very important.Go ahead and good luck!Kind regards,Mr. Old Man

    Reply

  4. daudzai

    January 16, 2016 at 6:29 pm

    Mr. Old Man In so far as making payment is concerned. If your Ukranian bank is made an Advising bank it will only advise on the issuance of lc and amendments thereto. Secondly, it will in my opinion only forward your documents to the issuing bank and request them to make the payment. Second, if you ask the buyer to to indicate to the issuing bank to make your Ukranian bank a confirming bank and the confirming bank agrees to that and adds its confirmation. Then you may present your documents to your Ukranian Bank and in case case it finds that all the relevant documents are complete and in order without any discrepancy then the Ukranian bank might pay you and approach the issuing bank for reimbursing itself. I hope its clarified. Other friends might shed some further light on the matter and elaborate further. Thanks

    Reply

  5. Terence Tan

    June 30, 2016 at 6:36 pm

    Hi Mr Old Man,

    I wish to find out if LC is issue to Party A (Japan), can the LC be added by Party B (Singapore Bank). Is there a way to accommodate to this arrangement?
    eg. Party B on behalf of Party A

    Thank you in Advance.!!

    Reply

    • mroldman

      July 1, 2016 at 8:06 am

      Hi,

      I am afraid I do not understand your question correctly.
      What is the role of Party A in this transaction? Beneficiary or advising bank?
      What is the the role of Party A in this transaction?
      Please clarify.

      Kind regards,
      Mr. Old Man

      Reply

  6. Anna

    October 6, 2016 at 7:12 pm

    Em chào anh,

    Anh giúp em trường hợp này ạ. Ngân hàng e nhận được bộ chưnga từ xuất trình theo LC nhập khẩu từ ngân hàng Korea ẽchange, thời hạn xuất trình chứng từ là trong vòng 21 ngày từ ngày b/l (ngày b/l là 1/8/2016). L/C available with any bank by negotiation, LC “without”. Tất cả ngày trên chứng từ trừ B/L đều đề ngày 10/8/2016.
    Không có điện nào của ngân hàng Korea exchange nói là đã chiết khấu bộ chưngs từ, và trên covering của ngân n hàng này cũng không nói gì về việc đax chiết khấu bộ chứng từ.
    Trên covering letter ghi ngày 4/10/2016, không ghi ngày xuất trình chứng từ.
    Vậy liệu NHPH có thể bắt lỗi “late presentation” đối với bộ chứng từ này không? (Bộ chứng từ xuất trình trong thời hạn hiệu lực LC)
    Băn khoăn của em là có thể áp dụng thời hạn tối đa 5 ngày để xử lý chứng từ đối với mỗi ngân hàng trong trường hợp này không? theo em thì ngân hàng Korea exchange không được coi là ngân hàng nominated bank, nên ko thể áp dụng thời hạn 5 ngày.
    Mong anh tháo gỡ giúp em
    Em cảm ơn anh.

    Reply

    • mroldman

      October 7, 2016 at 9:21 am

      Hi,

      Bạn không thể căn cứ vào ngày của covering letter để xác định chứng từ được xuất trình phù hợp hay không.

      Nếu bạn bắt lỗi đó và ngân hàng xuất trình xác nhận lại ngày xuất trình trong hạn thì ngân hàng bạn vẫn phải thanh toán.

      Korea Exchange không phải là ngân hàng xác nhận có thể từ chối hành động theo sự chỉ định, tức là, từ chối chiết khấu chứng từ. Quy tắc 5 ngày này chỉ có ý nghĩa khi Korea Exchange là ngân hàng xác nhận. Tôi hiểu ý của bạn rằng Korea Exchange Bank có thể lợi dụng lỗ hổng 5 ngày để cứu khách hàng khỏi lỗi “late presentation”. Vấn đề này là vấn đề đạo đức ngân hàng ngoài UCP.

      Kind regards,
      Mr. Old Man

      Reply

      • Anna

        October 8, 2016 at 1:07 pm

        Vậy nếu korea exchange bank là ngân hàng xác nhận thì mình có thể bắt được lỗi “late presentation” đúng không ạ?

        Reply

      • Anna

        October 17, 2016 at 3:41 pm

        Em xin lỗi vì vẫn làm phải làm phiền anh. Nếu LC là confirm, và KOEX là ngân hàng xác nhận thì sẽ bắt lỗi “late presentation” được đúng ko ạ? (Mọi dữ liệu như case e đã hỏi anh chỉ khác là LC thành LC confirm)
        Em cảm ơn anh

        Reply

        • mroldman

          October 17, 2016 at 3:43 pm

          Cho dù đó là confirming bank và ngân hàng này xác nhận chứng từ xuất trình trong thời hạn quy định hoăc chỉ ra ngày xuất trình thực tế không vượt quá thời hạn xuất trình thì bạn cũng không thể bắt lỗi. Bạn không thể dựa vào ngày của covering letter để bắt lỗi

          Reply

      • Anna

        October 18, 2016 at 12:53 pm

        Vậy thì qui định về 5 ngày làm việc đối với ngân hàng nominated sẽ được áp dụng trong trường hợp nào, và nó ràng buộc ngân hàng nominated như thế nào ạ? Vì Em thực sự không hiểu, trong trường hợp Lc xác nhận, ngân hàng xác nhận đã xác nhận chứng từ xuất trình trong thời hạn qui định, thì tại sao ngân hàng xác nhận lại để chứng từ quá lâu tại ngân hàng mìn rồi mới gửi cho ngân hàng phát hành (có trường hợp 20 ngày sau ngày cuối của thời hạn xuất trình tính đến ngày trên cover, và vẫn trog thời hạn hiệu lực của LC).

        Reply

        • mroldman

          October 18, 2016 at 8:35 pm

          Cái này phụ thuộc vào sự trung thực của NHXN. UCP không quy đỉnh là vào ngày thứ bao nhiêu sau 5 ngày làm việc, NHĐCĐ phải gửi chứng từ đến NHPH. Thực tế không có NHXN nào giữ lâu chứng từ tại ngân hàng mình bởi nếu họ chiết khấu thì họ cũng mong nhận được tiền hoàn trả sớm. Bạn có thể bắt lỗi nhưng nếu NHXN xác nhận chứng từ xuất trình trong thời hạn quy định thì bạn cũng phải hoàn trả. Bạn cũng có quyền hỏi NHXN về sự chậm trễ này. Nếu không được giải thích rõ ràng xem như NHXN đang cấu kết với khách hàng để lừa đão ngân hàng. Vấn đề lừa đảo là câu chuyện khác ngoài UCP nên được giải quyết theo luật địa phương!

          Reply

  7. Happy

    July 18, 2017 at 6:28 am

    When you pay someone to listen they often have to fane interest in the subject. When someone reads your blog they are reading because they have an interest in your subject. I believe as a writer you succeed in educating and enniitaetrng your readers.

    Reply

  8. Kassie

    July 18, 2017 at 6:29 am

    Thanks for some other excellent article. The place else may just anyone get that kind of information in such a perfect method of writing? I have a priatnesteon next week, and I’m on the search for such info.

    Reply

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