is nominated bank liable for payment if documents are presented,or is it never liable unless it becomes confirming bank?which condition is true??? y and how banks are nominated?
Role of advising bank : Advising bank means the bank that advises the credit at the request of the issuing bank.
A credit and any amendment may be advised to a beneficiary through an advising bank. an advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.
By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received. Advising bank may utilize the services of another bank ("second advising bank") to advise the credit and any amendment to the bene. by adivising the credit or amendment, the second adivsing bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amd
If a bank is requested to advise a credit or AMD but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from whihc the instructions appear to have been received.
Nominated bank : means the bank with wich the credit is available or any bank in the case of a credit available with any bank
Unless a nominated bank is the confirming bank, an authorization to honour or negotate does not impose any obligation on that nominiated bank to honor or negotiate, except when expressly agreed to by that nominated bank and so communicated to the bene.
By nominating a bank to accept a adraft or incur a deferred payment undertaking an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred b that nominated bank.
Receipt or examination and forwarding of dox bya anominated bank that is not a confirming bak does not make that nominated bank liable to honor or negotiate, nor does it consititue honor or negotiation.
Article 6 states credit available with a nominated bank is also available with the issuing bank.My understanding is that though issuing bank has mentioned the negotiating bank ,issuing bank can also negotiate the documents.
Issuing bank never 'negotiates', it alwas pays (honours).
Under its own credit, an issuing bank always remains liable to honour or to pay from the time it issues the credit (Article 7.b). This commitment is irrespective of whether there is a nominated bank, or whether that nominated bank acts under the credit.
To clarify further, if the nominated bank refuses to act under a credit, the complying documents can always be presented to the issuing bank for payment, provided they are presented within the expiry date of the credit.
Can anyone explain bold wording below? "except when expressly.......to the beneficiary"
Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate,except when expressly agreed to by the that nominated bank and so commuicated to the beneficiary.
The nominated bank will usually expressly agree in 1 of 2 situations, either upon the advising of the letter of credit (if they are the advising bank as well) or upon examination of the documents.
The nominated bank will in a letter to the beneficiary state that they agree to be the nominated bank and will honor or negotiate credit conforming documents with or without recourse.
Without this communication the nominated bank has no responsibilty to honor or negotiate even if the documents comply with the credit. In this case, they would defer to the issuing bank to honor.
Art. 12 C: Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.
From above Art., could it be interpreted as below::
(1)Nominated bank can forward docs to issuing bank for payment/acceptance without examining the docs.
(2)Even if nominated bank finds a comply presentation, but he prefers not to honor/negotiate docs, he can forward docs to issuing bank for payment/acceptance.
( 3) In above both cases, documents can be forwarded to issuing bank without prior approval from the presenter.(presenting bank)
(4)After sending out docs to issuing bank as in above cases, nominated bank is not responsible to further inform presenter of such an execution.
Query:
Assuming my concepts of above are correct, then, would it be violating the following UCP 600:
Art. 14 a “ A nominated bank ….must examine a presentation to determine …..whether or not the docs appear on their face to constitute a complying presentation”.
Art 14 b “ a nominated bank …..have a maximum 5 banking days ….to determine if a presentation is complying…..”
Art 16 f “ if a nominated bank fails to act in accordance with ..this article, it shall be precluded from claiming the docs do not constitute a complying presentation”
You must remember to what capacity the nominated bank agreed. If the nominated bank has only been authorized but has not agreed to honor or negotiate documents, then they have no obligation to honor or negotiate. Since they do not have this obligation, Art 16f would not matter, as even if the documents do comply, they will not honor or negotiate.
So regardless of the status of the documents (compliant or discrepant) and regardless of the action of the nominated bank, if they have not agreed to their role, they have no obligation.
I need to understand one more thing. Is the negotiation means partying away with funds the moment credit compliance document are presented to nominate bankor to the any bank where the credit is available with any bank.
If nominated bank do not make the payment on due date for the credit complying doucment and un confirmed LC what is the action beneficiary has to take against the nomiated bank
Incase if the nominated bank do not get the payment from the issuing bank on due date what action should nominated bank take against the issuing bank
The above instances is evidence in case of domestic LC where the beneficiary do not get the funds inspite of submitting the credit compliance document. Please do note that it is not a confirmed LC
Please guide how can the beneficiary / nominate bank to action in the above situation
Negotiation means the “purchase” of the beneficiary’s compliant documents by the nominated negotiating bank. This means that the negotiating bank buys the documents and having paid the beneficiary, it steps into its shoes (almost as an assignee) to receive the proceeds from the issuing bank, in due course.
If the negotiating bank is not a confirming bank, it has full right of recourse to the beneficiary, and may claim refund from the beneficiary, should it subsequently not receive reimbursement from the issuing bank. However, if the issuing bank witholds payment due to discrepancies in documents not observed by the negotiating bank, the negotiating bank has no recourse to refund from the beneficiary.
However, a nominated bank may choose not to exercise its right to “negotiate”; that is to say, it may merely examine the documents, and if in order, it may simply wait for reimbursement from the issuing bank before it pays. It may also retain the documents at its counters, pending reimbursement. In practice, many “negotiating” banks take this course of action, but it is not an act of “negotiation”. The beneficiary has no recourse on the “negotiating” bank in this case, and cannot enforce its nomination. See Art 12 a) and c) of UCP600.
If the nominated bank does not receive reimbursement from the issuing bank (other than for reasons of discrepancies not observed by the negotiating bank), it has financial right of recourse on the issuing bank, under Art 7 (C) of UCP600, which prescribes the issuing bank’s obligation). As it is likely, that such non-payment would be the result of a deeper problem on the part of the issuing bank, such as court injunctions, insolvency, fraud etc, and therefore outside the scope of UCP/DOCDEX to resolve, the negotiating bank (if not a confirming bank) is unlikely to pursue a potentially costly recourse against the issuing bank. Instead, it is likely to take the simpler option, and require refund from the beneficiary.
Of course, all the above issuing bank risks (with the exception of manifest fraud by the beneficiary) can be mitigated through the confirmation of the LC, but I appreciate that this was not the question.
ok i agree that by negotiating it means purchasing the draft,but what good it will do to the nominating/negotiating bank?
secondly is in't huge risk for nominating bank that it purchases the document and later on issueing bank rejects to pay back due to discrepancies in documents presented earlier by beneficiary?
third what i should have asked before.what actually is nominating bank?i read comments up above about it but they just flew over my head.are they authorize by issueing bank?what good they do to issueing bank andto the beneficiary?are they branches of issueing bank or are they completely different bank?
fourth,what i understood about advising bank is that,suppose exporter is in usa and importer is in india.exporter and importer banks are totally strangers to each other,so there would be a bank which exists in both countries and which has good reputation in both countries.it thus advises the exporter to be confident about the trade and have trust in issueing bank.plz let me know if i am wrong or right.
1. Financially, not a great deal, although the negotiating bank may be able to generate some revenue on the margin of the "discount" rate.
2. Yes, there is that risk, and in practice, I doubt that many banks actually exercise their right to "negotiatate". But, the provision is there, and the negotiating bank would be protected by the UCP.
3. A nominated bank is simply a specific bank authorised by the issuing bank to "negotiate" the documents/presentation. It would usually be specified in field 41 ("Available with") on a MT700. If field 41 states "Any Bank" instead of a specific bank, then any bank within the stated region is authorised as a nominated bank. It does not need to be branches of the issuing bank.
4. Your understanding is correct. It also ensures that the beneficiary may be confident that the LC instrument is authentic. The advising bank is usually a correspondent of the issuing bank, that is to say, there is a relationship between the two banks, certainly in terms of authentication, but also perhaps in terms of account relationship.
as far as i know advising banks are not liable to pay but unless they are also confirming banks.am i right?and what benefits advising banks get by involving themself in trade.do they charge fee from issueing bank?
thirdly,suppose if beneficiary (seller)lives in nigeria and importer lives in england,its not must that seller will come to england just to show documents and take money.he must find a bank in nigeria for his own convenience.i think this is where need for negotiating/nominated banks arises.am i right?
2. They will charge an advising fee, and depending on the LC terms, will usually charge this to the beneficiary. An advising bank may also be a nominated bank, and in this case, may also derive further fees in negotiating the documents.
3. Yes, he may wish to use the services of a bank in Nigeria to authenticate the incoming LC, to examine the documents and receive payment. So, an advising bank will serve an useful purpose . However, if the advising bank is not a confirming bank, the benefciary could also choose to present the documents directly to the issuing bank.
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nominated bank
is nominated bank liable for payment if documents are presented,or is it never liable unless it becomes confirming bank?which condition is true??? y and how banks are nominated?
Roles
Role of advising bank : Advising bank means the bank that advises the credit at the request of the issuing bank.
A credit and any amendment may be advised to a beneficiary through an advising bank. an advising bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.
By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received. Advising bank may utilize the services of another bank ("second advising bank") to advise the credit and any amendment to the bene. by adivising the credit or amendment, the second adivsing bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amd
If a bank is requested to advise a credit or AMD but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from whihc the instructions appear to have been received.
Nominated bank : means the bank with wich the credit is available or any bank in the case of a credit available with any bank
Unless a nominated bank is the confirming bank, an authorization to honour or negotate does not impose any obligation on that nominiated bank to honor or negotiate, except when expressly agreed to by that nominated bank and so communicated to the bene.
By nominating a bank to accept a adraft or incur a deferred payment undertaking an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred b that nominated bank.
Receipt or examination and forwarding of dox bya anominated bank that is not a confirming bak does not make that nominated bank liable to honor or negotiate, nor does it consititue honor or negotiation.
plz reply
Nominated bank : means the bank with which the credit is available or any bank in the case of a credit available with any bank.
what do you mean by credit available and what is "bene"?
what is difference between "honor" and "negotiate"?
advising bank and nominated bank
Dear smmujeeb
great! u have explained so well .
I have one more question.
Article 6 states credit available with a nominated bank is also available with the issuing bank.My understanding is that though issuing bank has mentioned the negotiating bank ,issuing bank can also negotiate the documents.
Is it correct?
Available with Issuing Bank
Just a few quick points in rsponse to your query:
To clarify further, if the nominated bank refuses to act under a credit, the complying documents can always be presented to the issuing bank for payment, provided they are presented within the expiry date of the credit.
Nope
Issuing bank will never be negotiating bank, and hence cannot negotiate the documents.
Credit will always be available with issuing bank, nominated bank, confirming bank (if any).
Article 6 states credit will be available with issuing bank and Nominated.
thanks
Dear smmujeeb
Thanks a lot
thanks
Dear smmujeeb
Thanks a lot
How and in what way?
Dear all,
Can anyone explain bold wording below? "except when expressly.......to the beneficiary"
Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate,except when expressly agreed to by the that nominated bank and so commuicated to the beneficiary.
Expressly agreed
Hi Guoking,
The nominated bank will usually expressly agree in 1 of 2 situations, either upon the advising of the letter of credit (if they are the advising bank as well) or upon examination of the documents.
The nominated bank will in a letter to the beneficiary state that they agree to be the nominated bank and will honor or negotiate credit conforming documents with or without recourse.
Without this communication the nominated bank has no responsibilty to honor or negotiate even if the documents comply with the credit. In this case, they would defer to the issuing bank to honor.
I hope this helps you out.
Best regards,
LC Sam
Dear L/C Sam ..can u explain one more
Art. 12 C: Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.
From above Art., could it be interpreted as below::
(1)Nominated bank can forward docs to issuing bank for payment/acceptance without examining the docs.
(2)Even if nominated bank finds a comply presentation, but he prefers not to honor/negotiate docs, he can forward docs to issuing bank for payment/acceptance.
( 3) In above both cases, documents can be forwarded to issuing bank without prior approval from the presenter.(presenting bank)
(4)After sending out docs to issuing bank as in above cases, nominated bank is not responsible to further inform presenter of such an execution.
Query:
Assuming my concepts of above are correct, then, would it be violating the following UCP 600:
Art. 14 a “ A nominated bank ….must examine a presentation to determine …..whether or not the docs appear on their face to constitute a complying presentation”.
Art 14 b “ a nominated bank …..have a maximum 5 banking days ….to determine if a presentation is complying…..”
Art 16 f “ if a nominated bank fails to act in accordance with ..this article, it shall be precluded from claiming the docs do not constitute a complying presentation”
Please have your valuable comments.
Regards.
It would not be a violation
Hello guoking,
You must remember to what capacity the nominated bank agreed. If the nominated bank has only been authorized but has not agreed to honor or negotiate documents, then they have no obligation to honor or negotiate. Since they do not have this obligation, Art 16f would not matter, as even if the documents do comply, they will not honor or negotiate.
So regardless of the status of the documents (compliant or discrepant) and regardless of the action of the nominated bank, if they have not agreed to their role, they have no obligation.
I hope this helps you out.
LC Sam
nominatin bank do not make the payment on due date
hi folks,
I need to understand one more thing. Is the negotiation means partying away with funds the moment credit compliance document are presented to nominate bankor to the any bank where the credit is available with any bank.
If nominated bank do not make the payment on due date for the credit complying doucment and un confirmed LC what is the action beneficiary has to take against the nomiated bank
Incase if the nominated bank do not get the payment from the issuing bank on due date what action should nominated bank take against the issuing bank
The above instances is evidence in case of domestic LC where the beneficiary do not get the funds inspite of submitting the credit compliance document. Please do note that it is not a confirmed LC
Please guide how can the beneficiary / nominate bank to action in the above situation
Nominated bank
Negotiation means the “purchase” of the beneficiary’s compliant documents by the nominated negotiating bank. This means that the negotiating bank buys the documents and having paid the beneficiary, it steps into its shoes (almost as an assignee) to receive the proceeds from the issuing bank, in due course.
If the negotiating bank is not a confirming bank, it has full right of recourse to the beneficiary, and may claim refund from the beneficiary, should it subsequently not receive reimbursement from the issuing bank. However, if the issuing bank witholds payment due to discrepancies in documents not observed by the negotiating bank, the negotiating bank has no recourse to refund from the beneficiary.
However, a nominated bank may choose not to exercise its right to “negotiate”; that is to say, it may merely examine the documents, and if in order, it may simply wait for reimbursement from the issuing bank before it pays. It may also retain the documents at its counters, pending reimbursement. In practice, many “negotiating” banks take this course of action, but it is not an act of “negotiation”. The beneficiary has no recourse on the “negotiating” bank in this case, and cannot enforce its nomination. See Art 12 a) and c) of UCP600.
If the nominated bank does not receive reimbursement from the issuing bank (other than for reasons of discrepancies not observed by the negotiating bank), it has financial right of recourse on the issuing bank, under Art 7 (C) of UCP600, which prescribes the issuing bank’s obligation). As it is likely, that such non-payment would be the result of a deeper problem on the part of the issuing bank, such as court injunctions, insolvency, fraud etc, and therefore outside the scope of UCP/DOCDEX to resolve, the negotiating bank (if not a confirming bank) is unlikely to pursue a potentially costly recourse against the issuing bank. Instead, it is likely to take the simpler option, and require refund from the beneficiary.
Of course, all the above issuing bank risks (with the exception of manifest fraud by the beneficiary) can be mitigated through the confirmation of the LC, but I appreciate that this was not the question.
hello
ok i agree that by negotiating it means purchasing the draft,but what good it will do to the nominating/negotiating bank?
secondly is in't huge risk for nominating bank that it purchases the document and later on issueing bank rejects to pay back due to discrepancies in documents presented earlier by beneficiary?
third what i should have asked before.what actually is nominating bank?i read comments up above about it but they just flew over my head.are they authorize by issueing bank?what good they do to issueing bank andto the beneficiary?are they branches of issueing bank or are they completely different bank?
fourth,what i understood about advising bank is that,suppose exporter is in usa and importer is in india.exporter and importer banks are totally strangers to each other,so there would be a bank which exists in both countries and which has good reputation in both countries.it thus advises the exporter to be confident about the trade and have trust in issueing bank.plz let me know if i am wrong or right.
Nominated Bank
1. Financially, not a great deal, although the negotiating bank may be able to generate some revenue on the margin of the "discount" rate.
2. Yes, there is that risk, and in practice, I doubt that many banks actually exercise their right to "negotiatate". But, the provision is there, and the negotiating bank would be protected by the UCP.
3. A nominated bank is simply a specific bank authorised by the issuing bank to "negotiate" the documents/presentation. It would usually be specified in field 41 ("Available with") on a MT700. If field 41 states "Any Bank" instead of a specific bank, then any bank within the stated region is authorised as a nominated bank. It does not need to be branches of the issuing bank.
4. Your understanding is correct. It also ensures that the beneficiary may be confident that the LC instrument is authentic. The advising bank is usually a correspondent of the issuing bank, that is to say, there is a relationship between the two banks, certainly in terms of authentication, but also perhaps in terms of account relationship.
reply
as far as i know advising banks are not liable to pay but unless they are also confirming banks.am i right?and what benefits advising banks get by involving themself in trade.do they charge fee from issueing bank?
thirdly,suppose if beneficiary (seller)lives in nigeria and importer lives in england,its not must that seller will come to england just to show documents and take money.he must find a bank in nigeria for his own convenience.i think this is where need for negotiating/nominated banks arises.am i right?
Advising banks
1. Yes
2. They will charge an advising fee, and depending on the LC terms, will usually charge this to the beneficiary. An advising bank may also be a nominated bank, and in this case, may also derive further fees in negotiating the documents.
3. Yes, he may wish to use the services of a bank in Nigeria to authenticate the incoming LC, to examine the documents and receive payment. So, an advising bank will serve an useful purpose . However, if the advising bank is not a confirming bank, the benefciary could also choose to present the documents directly to the issuing bank.
second advising bank
this website in some thread mentioned second advising bank but rather in concised manner.what is it?what does it do?